CONSTITUTIONAL LAW II CASES

Cabrera v. Lapid, G.R. No. 129098, [December 6, 2006], 539 PHIL 114-125 2

Carlos Superdrug Corp. v. Department of Social Welfare and Development, G.R. No. 166494, [June 29,
2007], 553 PHIL 120-135 5
City of Manila v. Laguio, Jr., G.R. No. 118127, [April 12, 2005], 495 PHIL 289-338 10

Pollution Adjudication Board v. Court of Appeals, G.R. No. 93891 (Resolution), [March 11, 1991], 272-A
PHIL 66-80 27

Metropolitan Manila Development Authority v. Garin, G.R. No. 130230, [April 15, 2005], 496 PHIL 82-9734

Ortigas & Co. Ltd. v. Court of Appeals, G.R. No. 126102, [December 4, 2000], 400 PHIL 615-626 39

Professional Regulation Commission v. De Guzman, G.R. No. 144681, [June 21, 2004], 476 PHIL 596-
623 44
Philippine Press Institute, Inc. v. Commission on Elections, G.R. No. 119694 (Resolution), [May 22,
1995], 314 PHIL 131-149 51

JMM Promotion and Management, Inc. v. Court of Appeals, G.R. No. 120095, [August 5, 1996], 329 PHIL
87-102 58
Knights of Rizal v. DMCI Homes, Inc., G.R. No. 213948, [April 25, 2017] 64

Philippine Long Distance Telephone Co. v. National Telecommunications Commission, G.R. No. 88404,
[October 18, 1990], 268 PHIL 784-815 78
National Power Corp. v. Court of Appeals, G.R. No. 106804, [August 12, 2004], 479 PHIL 850-870 89
Lagcao v. Labra, G.R. No. 155746, [October 13, 2004], 483 PHIL 303-315 96

Republic v. Vda. de Castellvi, G.R. No. L-20620, [August 15, 1974], 157 PHIL 329-364 100
De los Santos v. Intermediate Appellate Court, G.R. Nos. 71998-99, [June 2, 1993] 114
Moday v. Court of Appeals, G.R. No. 107916, [February 20, 1997], 335 PHIL 1057-1066 117

National Power Corp. v. Spouses dela Cruz, G.R. No. 156093, [February 2, 2007], 543 PHIL 53-72 121
Eslaban, Jr. v. Vda. de Onorio, G.R. No. 146062, [June 28, 2001], 412 PHIL 667-680 128
National Power Corp. v. Henson, G.R. No. 129998, [December 29, 1998], 360 PHIL 922-931 135

City of Cebu v. Spouses Dedamo, G.R. No. 142971, [May 7, 2002], 431 PHIL 524-535 139
Republic v. Lim, G.R. No. 161656, [June 29, 2005], 500 PHIL 652-672 144

Mactan-Cebu International Airport Authority v. Court of Appeals, G.R. No. 139495, [November 27, 2000],
399 PHIL 695-712 151
City of Mandaluyong v. Aguilar, G.R. No. 137152, [January 29, 2001], 403 PHIL 404-428 159

Mactan-Cebu International Airport Authority v. Lozada, Sr., G.R. No. 176625, [February 25, 2010], 627
PHIL 434-452 168
Reyes v. National Housing Authority, G.R. No. 147511, [January 20, 2003], 443 PHIL 603-617 176
Republic v. Salem Investment Corp., G.R. No. 137569, [June 23, 2000], 389 PHIL 658-676 182
National Power Corp. v. Spouses Campos, Jr., G.R. No. 143643, [June 27, 2003], 453 PHIL 79-97 192
Lung Center of the Philippines v. Quezon City, G.R. No. 144104, [June 29, 2004], 477 PHIL 141-160 202

Manila International Airport Authority v. Court of Appeals, G.R. No. 155650, [July 20, 2006], 528 PHIL
181-309 209

1
Planters Products, Inc. v. Fertiphil Corp., G.R. No. 166006, [March 14, 2008], 572 PHIL 270-302 254
Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, [September 11, 1996], 330
PHIL 392-420 266
Casanovas v. Hord, G.R. No. L-3473, [March 22, 1907], 8 PHIL 125-134 277
Gerochi v. Department of Energy, G.R. No. 159796, [July 17, 2007], 554 PHIL 563-590 282
Punsalan v. Municipal Board of the City of Manila, G.R. No. L-4817, [May 26, 1954], 95 PHIL 46-51 290

American Bible Society v. City of Manila, G.R. No. L-9637, [April 30, 1957], 101 PHIL 386-402 292
Abra Valley College, Inc. v. Aquino, G.R. No. L-39086, [June 15, 1988], 245 PHIL 83-93 301

POLICE POWER

Cabrera v. Lapid, G.R. No. 129098, [December 6, 2006], 539 PHIL 114-125

THIRD DIVISION

[G.R. No. 129098. December 6, 2006.]

AMELIA CABRERA, petitioner, vs. MANUEL LAPID, FERNANDO BALTAZAR, REYNALDO

F. CABRERA and DIONY VENTURA, respondents.

DECISION

TINGA, J p:

The instant petition for review on certiorari seeks the reversal of the Resolution 1 dated 13 May 1996 and the
Order 2 dated 21 March 1997, both issued by the Office of the Ombudsman. The Resolution dismissed the
complaint-affidavit filed by petitioner against respondents and the Order denied her motion for reconsideration.

The instant petition originated from a Complaint-Affidavit 3 filed in November 1995 by petitioner Amelia M.
Cabrera with the Office of the Ombudsman ("Ombudsman"). Named respondents were Manuel Lapid,
Fernando Baltazar, Reynaldo F. Cabrera and Superintendent Diony Ventura, respectively, in their capacities
as Governor of Pampanga, Mayor of Sasmuan, Pampanga, Vice-Mayor of Sasmuan, Pampanga and
Superintendent of the Philippine National Police (PNP)-Region 3, Pampanga. In her three(3)-page affidavit,
petitioner accused respondents of violating Section 3(e) of the Anti-Graft and Corrupt Practices Act and Article
324 of the Revised Penal Code.

In her Complaint-Affidavit, petitioner stated that she entered into a lease agreement with the Municipality of
Sasmuan over a tract of land for the purpose of devoting it to fishpond operations. According to petitioner, she
had spent approximately P5,000,000.00 for its construction before the fishpond operations commenced in
August 1995. A month later, petitioner learned from newspaper reports of the impending demolition of her
fishpond as it was purportedly illegal and blocked the flow of the Pasak River. Thus, petitioner sent the
fishpond administrator to dissuade respondents from destroying her property. 4

Despite pleas from petitioner, respondents ordered the destruction of petitioner's fishpond. The property was
demolished on 10 October 1995 by dynamite blasting. Petitioner alleged that the demolition was purposely
carried out in the presence of media representatives and other government officials to gain media mileage.
Petitioner imputed evident bad faith on respondents Mayor Baltazar and Vice-Mayor Cabrera in allowing the
destruction of the fishpond despite their prior knowledge of the existence of the lease agreement. She also
charged respondents Governor Lapid and Senior Superintendent Ventura with gross inexcusable negligence
for ordering the destruction of the fishpond without first verifying its legality. 5

2
At the preliminary investigation, respondents, except Senior Superintendent Ventura, submitted counter-
affidavits, denying the accusations against them. In the counter-affidavit jointly filed by Mayor Baltazar and
Vice-Mayor Cabrera, they insisted that contrary to petitioner's claim, the fishpond was an illegal structure
because it was erected on the seashore, at the mouth of the Pasak River, and sat on an inalienable land. They
claimed that the demolition was done by the Task Force Bilis Daloyupon the directive of then President Fidel V.
Ramos. 6

In his Counter-Affidavit, 7 Governor Lapid averred that the contract of lease between petitioner and the
Municipality of Sasmuan, represented by then Mayor Abelardo Panlaqui, was executed two weeks before
respondent Mayor Baltazar took his oath of office in 1995. Governor Lapid also argued that under the law, the
Department of Agriculture (DA) is the government agency authorized to enter into licensing agreements for
fishpond operations, and as per certification by the DA Regional Director, petitioner's fishpond operation was
not covered by a fishpond lease agreement or application. Governor Lapid also referred to the certification by
the Municipal Health Officer of Sasmuan issued before the actual demolition of the fishpond, describing it as a
nuisance per se and recommending its abatement. 8

On 13 May 1996, the Ombudsman issued the assailed Resolution, dismissing petitioner's complaint. The
dismissal was based on the declaration that the fishpond was a nuisance per se and, thus, may be abated by
respondents in the exercise of the police power of the State. 9

Petitioner sought reconsideration of the Resolution, arguing that under Sec. 149 of Republic Act (R.A.) No.
7160, otherwise known as the Local Government Code of 1991, the
exclusive authority to grant fishery privileges is vested in the municipalities. Petitioner also questioned the
certification by the Municipal Health Officer, alleging that the same was issued before the ocular inspection of
the property which took place only on the day of the demolition. Petitioner also contended that a judicial
proceeding was necessary to determine whether the property indeed had caused the flooding. 10
Respondents filed separate oppositions to petitioner's motion for reconsideration. 11 Petitioner filed a reply to
the opposition 12 and respondent Governor Lapid filed a rejoinder to the reply. 13

In the Order dated 21 March 1997, the Ombudsman affirmed its 13 May 1996 Resolution. It ruled that the
repealing clause of R.A. No. 7160 expressly repealed only Sec. 2, 6 and 29 of Presidential Decree (P.D.) No.
704 so that in harmonizing the remaining provisions of P.D. No. 704 and the provisions of R.A. No. 7160
applicable to the grant of fishery privileges, the Bureau of Fisheries and Aquatic Resources (BFAR) is the
government agency authorized to grant fishpond license or permit in areas not identified as municipal waters or
not declared as alienable or disposable by the Department of Environment and Natural Resources (DENR).
Since it appears from DENR records that the subject property has not been declared disposable or included in
areas devoted for fishpond development, the Ombudsman concluded that the lease agreement entered into by
petitioner was void ab initio. In view of the illegality of the lease agreement, the Ombudsman ruled that its
demolition was justified. The Ombudsman described the demolition as a valid exercise of police power and in
accordance with the provision of Sec. 28 of P.D. No. 704 directing the removal of any fishpen or fishpond that
obstructed the free navigation of a stream or lake. It also upheld the authority of the district health officer to
determine the abatement of a nuisance without need of judicial proceedings. 14

Petitioner elevated the matter to this Court via a petition for review on certiorari under Rule 45 of the Rules of
Court to assail the 13 May 1996 Resolution and 21 March 1997 Order of the Ombudsman. Petitioner
subsequently filed an amended petition for review on certiorari to implead the Ombudsman as respondent,
although in a petition for review on certiorari, the tribunal whose issuance is assailed need not be impleaded as
respondent. acEHSI

The petition imputes the following errors on the Ombudsman:

I.

THE OFFICE OF THE OMBUDSMAN ERRED AND EXCEEDED ITS AUTHORITY IN

RULING THAT THE LEASE CONTRACT BETWEEN THE MUNICIPALITY OF SASMUAN
AND PETITIONER IS NULL AND VOID.

II.

THE OFFICE OF THE OMBUDSMAN ERRED IN RULING THAT THE DEMOLITION OF THE
FISHPOND WAS VALIDLY MADE BY VIRTUE OF THE DECLARATION BY THE HEALTH
OFFICER THAT IT WAS A NUISANCE PER SE.
3
 III.

THE OFFICE OF THE OMBUDSMAN ERRED IN RULING THAT THE DEMOLITION IS PART
OF THE PROPER EXERCISE OF THE POLICE POWER OF THE STATE.

IV.

THE OFFICE OF THE OMBUDSMAN ERRED IN RULING THAT PETITIONER WAS GIVEN
DUE NOTICE AND HEARING BEFORE THE FISHPOND WAS BLASTED.

V.

THE OFFICE OF THE OMBUDSMAN ERRED IN RULING THAT PROBABLE CAUSE DOES
NOT EXIST TO INDICT RESPONDENTS FOR VIOLATION OF THE SUBJECT OFFENSES.

15

Clearly, this is an appeal from the questioned issuances of the Ombudsman. However, such direct resort to
this Court from a resolution or order of the Ombudsman is not sanctioned by any rule of procedure.

Neither can petitioner avail of Sec. 27 16 of R.A. No. 6770, otherwise known as The Ombudsman Act of 1989.
The provision allowed direct appeals in administrative disciplinary cases from the Office of the Ombudsman to
the Supreme Court. The right to appeal is granted only in respect to orders or decisions of the Ombudsman in
administrative cases. 17 The provision does not cover resolutions of the Ombudsman in criminal cases. More
importantly, Sec. 27 of R.A. No. 6770 insofar as it allowed a direct appeal to this Court was declared
unconstitutional in Fabian v. Hon. Desierto. 18

However, an aggrieved party in criminal actions is not without any recourse. Where grave abuse of discretion
amounting to lack or excess of jurisdiction taints the findings of the Ombudsman on the existence of probable
cause, the aggrieved party may file a petition for certiorari under Rule 65. 19 The remedy from resolutions of
the Ombudsman in preliminary investigations of criminal cases is a petition for certiorari under Rule 65, not a
petition for review on certiorari under Rule 45. 20

But in this case, petitioner has taken the position that the Ombudsman has decided questions of substance
contrary to law and the applicable decisions of the Supreme Court. That is a ground under a Rule 45 petition.
Indeed, from a reading of the assignment of errors, it is clear that petitioner does not impute grave abuse of
discretion to the Ombudsman in issuing the assailed Resolution and Order. Rather, she merely questions his
findings and conclusions. As stated earlier, direct appeal to the Supreme Court via a petition for review on
certiorari is not sanctioned by any rule of procedure. By availing of a wrong remedy, the petition should be
dismissed outright. TAIDHa

Even if the Court treats the instant appeal as a petition for certiorari under Rule 65, its dismissal is
nevertheless warranted because petitioner failed to present, much more substantiate, any grave abuse of
discretion on the part of the Ombudsman.

A careful reading of the questioned Resolution reveals that the Ombudsman dismissed petitioner's criminal
complaint because respondents had validly resorted to the police power of the State when they effected the
demolition of the illegal fishpond in question following the declaration thereof as a nuisance per se. Thus, the
Ombudsman was of the opinion that no violation of Section 3(e) 21 of the Anti-Graft and Corrupt Practices Act
or of Article 324 22 of the Revised Penal Code was committed by respondents. In the words of the
Ombudsman, "those who participated in the blasting of the subject fishpond were only impelled by their desire
to serve the best interest of the general public; for the good and the highest good." 23

By grave abuse of discretion is meant capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction. Mere abuse of discretion is not enough. It must be grave abuse of discretion as when the power is
exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and must be so patent
and so gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or
to act at all in contemplation of law. 24

Grave abuse of discretion should be differentiated from an error in judgment. An error of judgment is one which
the court may commit in the exercise of its jurisdiction, and which error is reversible only by an appeal. As long
as the court acts within its jurisdiction, any alleged errors committed in the exercise of its discretion will amount
to nothing more than mere errors of judgment, correctible by an appeal or a petition for review under Rule 45 of
4
the Rules of Court. An error of jurisdiction is one where the act complained of was issued by the court without
or in excess of jurisdiction and which error is correctible only by the extraordinary writ of certiorari. 25

The other errors raised by petitioner pertain to the Ombudsman's opinion on the lack of probable cause to
indict respondents. These are purported errors in judgment which can be corrected by an appeal, although not
via a direct appeal to this Court. Direct resort to this Court may be had only through the extraordinary writ
ofcertiorari and upon showing that the Ombudsman committed grave abuse of discretion, which petitioner
failed to demonstrate.

Absent any grave abuse of discretion tainting it, the courts will not interfere with the Ombudsman's supervision
and control over the preliminary investigation conducted by him. 26 It is beyond the ambit of this Court to
review the exercise of discretion of the Ombudsman in prosecuting or dismissing a complaint filed before it.27
The rule is based not only upon respect for the investigatory and prosecutory powers granted by the
Constitution to the Office of the Ombudsman but upon practicality as well. Otherwise, the functions of the
courts will be grievously hampered by innumerable petitions assailing the dismissal of investigatory
proceedings conducted by the Office of the Ombudsman with regard to complaints filed before it, in much the
same way that the courts would be extremely swamped if they would be compelled to review the exercise of
discretion on the part of the fiscals or prosecuting attorneys each time they decide to file an information in court
or dismiss a complaint by a private complainant. 28

WHEREFORE, the instant petition for review on certiorari is DENIED. No costs. ICTaEH

SO ORDERED.

Quisumbing, Carpio, Carpio Morales and Velasco, Jr., JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Cabrera v. Lapid, G.R. No. 129098, [December 6, 2006],
539 PHIL 114-125)

Carlos Superdrug Corp. v. Department of Social Welfare and Development, G.R. No. 166494, [June 29, 2007],
553 PHIL 120-135

EN BANC

[G.R. No. 166494. June 29, 2007.]

CARLOS SUPERDRUG CORP., doing business under the name and style "Carlos
Superdrug", ELSIE M. CANO, doing business under the name and style "Advance
Drug", Dr. SIMPLICIO L. YAP, JR., doing business under the name and style "City
Pharmacy", MELVIN S. DELA SERNA, doing business under the name and style "Botica
dela Serna", and LEYTE SERV-WELL CORP., doing business under the name and style
"Leyte Serv-Well Drugstore", petitioners, vs. DEPARTMENT OF SOCIAL WELFARE and

DEVELOPMENT (DSWD), DEPARTMENT OF HEALTH (DOH), DEPARTMENT OF

FINANCE (DOF), DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT OF THE
INTERIOR and LOCAL GOVERNMENT (DILG), respondents.

DECISION

AZCUNA, J p:

This is a petition 1 for Prohibition with Prayer for Preliminary Injunction assailing the constitutionality of Section
4 (a) of Republic Act (R.A.) No. 9257, 2 otherwise known as the "Expanded Senior Citizens Act of 2003".

Petitioners are domestic corporations and proprietors operating drugstores in the Philippines. TCcSDE
Public respondents, on the other hand, include the Department of Social Welfare and Development (DSWD),
the Department of Health (DOH), the Department of Finance (DOF), the Department of Justice (DOJ), and the
Department of the Interior and Local Government (DILG) which have been specifically tasked to monitor the

5
drugstores' compliance with the law; promulgate the implementing rules and regulations for the effective
implementation of the law; and prosecute and revoke the licenses of erring drugstore establishments.

The antecedents are as follows:

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

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

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

xxx xxx xxx

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

On May 28, 2004, the DSWD approved and adopted the Implementing Rules and Regulations of R.A. No.

9257, Rule VI, Article 8 of which states:

Article 8. Tax Deduction of Establishments. — The establishment may claim the discounts
granted under Rule V, Section 4 — Discounts for Establishments; 5 Section 9, Medical and
Dental Services in Private Facilities[,] 6 and Sections 10 7 and 11 8 — Air, Sea and Land
Transportation as tax deduction based on the net cost of the goods sold or services rendered.
Provided, That the cost of the discount shall be allowed as deduction from gross income for
the same taxable year that the discount is granted; Provided, further, That the total amount of
the claimed tax deduction net of value added tax if applicable, shall be included in their gross
sales receipts for tax purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code, as amended; Provided, finally, that the
implementation of the tax deduction shall be subject to the Revenue Regulations to be issued
by the Bureau of Internal Revenue (BIR) and approved by the Department of Finance (DOF).

||| DSITEH

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

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

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

Effectively, a tax credit is a peso-for-peso deduction from a taxpayer's tax liability due
to the government of the amount of discounts such establishment has granted to a
senior citizen. The establishment recovers the full amount of discount given to a senior
citizen and hence, the government shoulders 100% of the discounts granted.
It must be noted, however, that conceptually, a tax credit scheme under the Philippine
tax system, necessitates that prior payments of taxes have been made and the
taxpayer is attempting to recover this tax payment from his/her income tax due. The

6
 tax credit scheme under R.A. No. 7432 is, therefore, inapplicable since no tax
payments have previously occurred.

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

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

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

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

Tax Deduction Tax Credit

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

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

————— —————

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

Less: Operating Expenses:

Tax Deduction on Discounts x x x x --

Other deductions: x x x x x x x x

———— ————

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

Tax Due x x x x x x

Less: Tax Credit -- x x

————

Net Tax Due -- x x

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

Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and Guidelines to
Implement the Relevant Provisions of Republic Act 9257, otherwise known as the "Expanded Senior Citizens
Act of 2003" 11 was issued by the DOH, providing the grant of twenty percent (20%) discount in the purchase
of unbranded generic medicines from all establishments dispensing medicines for the exclusive use of the
senior citizens.
7
On November 12, 2004, the DOH issued Administrative Order No. 177 12 amending A.O. No. 171. Under A.O.
No. 177, the twenty percent discount shall not be limited to the purchase of unbranded generic medicines only,
but shall extend to both prescription and non-prescription medicines whether branded or generic. Thus, it
stated that "[t]he grant of twenty percent (20%) discount shall be provided in the purchase of medicines from all
establishments dispensing medicines for the exclusive use of the senior citizens".

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

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

(2)It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution
which states that "no person shall be deprived of life, liberty or property without
due process of law, nor shall any person be denied of the equal protection of
the laws;" and

(3) The 20% discount on medicines violates the constitutional guarantee in Article
XIII, Section 11 that makes "essential goods, health and other social services
available to all people at affordable cost." 14

Petitioners assert that Section 4 (a) of the law is unconstitutional because it constitutes deprivation of private
property. Compelling drugstore owners and establishments to grant the discount will result in a loss of profit
and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines; and 2) the law
failed to provide a scheme whereby drugstores will be justly compensated for the discount.

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

Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for the
discount privilege accorded to senior citizens. This is because the discount is treated as a deduction, a tax-
deductible expense that is subtracted from the gross income and results in a lower taxable income. Stated
otherwise, it is an amount that is allowed by law 15 to reduce the income prior to the application of the tax rate
to compute the amount of tax which is due. 16 Being a tax deduction, the discount does not reduce taxes owed
on a peso for peso basis but merely offers a fractional reduction in taxes owed.

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

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

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

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

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

The Court believes so.

The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building,
and to grant benefits and privileges to them for their improvement and well-being as the State considers them
an integral part of our society. 20
8
The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself. Thus, the Act
provides:

SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:

SECTION 1. Declaration of Policies and Objectives. — Pursuant to Article XV, Section 4 of

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

xxx xxx

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

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

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

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

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

Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly
oppressive to their business, because petitioners have not taken time to calculate correctly and come up with a
financial report, so that they have not been able to show properly whether or not the tax deduction scheme
really works greatly to their disadvantage. 27

In treating the discount as a tax deduction, petitioners insist that they will incur losses because, referring to the
DOF Opinion, for every P1.00 senior citizen discount that petitioners would give, P0.68 will be shouldered by
them as only P0.32 will be refunded by the government by way of a tax deduction. cIDHSC

To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive maintenance drug Norvasc as
an example. According to the latter, it acquires Norvascfrom the distributors at P37.57 per tablet, and retails it
at P39.60 (or at a margin of 5%). If it grants a 20% discount to senior citizens or an amount equivalent to
P7.92, then it would have to sell Norvasc at P31.68 which translates to a loss from capital of P5.89 per tablet.
Even if the government will allow a tax deduction, only P2.53 per tablet will be refunded and not the full amount
of the discount which is P7.92. In short, only 32% of the 20% discount will be reimbursed to the drugstores. 28
9
Petitioners' computation is flawed. For purposes of reimbursement, the law states that the cost of the discount
shall be deducted from gross income, 29 the amount of income derived from all sources before deducting
allowable expenses, which will result in net income. Here, petitioners tried to show a loss on a per transaction
basis, which should not be the case. An income statement, showing an accounting of petitioners' sales,
expenses, and net profit (or loss) for a given period could have accurately reflected the effect of the discount
on their income. Absent any financial statement, petitioners cannot substantiate their claim that they will be
operating at a loss should they give the discount. In addition, the computation was erroneously based on the
assumption that their customers consisted wholly of senior citizens. Lastly, the 32% tax rate is to be imposed
on income, not on the amount of the discount.

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

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

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

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

WHEREFORE, the petition is DISMISSED for lack of merit. IDEScC

No costs.

SO ORDERED.

Puno, C.J., Ynares-Santiago, Carpio, Austria-Martinez, Corona, Carpio-Morales, Tinga, Chico-Nazario, Garcia,
Velasco, Jr. and Nachura, JJ., concur.

Quisumbing, J., is on official leave.

Sandoval-Gutierrez, J., is on leave.

1. (Carlos Superdrug Corp. v. Department of Social Welfare and Development, G.R. No. 166494, [June 29,
2007], 553 PHIL 120-135)

City of Manila v. Laguio, Jr., G.R. No. 118127, [April 12, 2005], 495 PHIL 289-338

EN BANC

[G.R. No. 118127. April 12, 2005.]

CITY OF MANILA, HON. ALFREDO S. LIM as the Mayor of the City of Manila HON.
JOSELITO L. ATIENZA, in his capacity as Vice-Mayor of the City of Manila and
Presiding Officer of the City Council of Manila, HON. ERNESTO A. NIEVA, HON.

10
 GONZALO P. GONZALES, HON. AVELINO S. CAILIAN, HON. ROBERTO C. OCAMPO,
HON. ALBERTO DOMINGO, HON. HONORIO U. LOPEZ, HON. FRANCISCO G. VARONA,
JR., HON. ROMUALDO S. MARANAN, HON. NESTOR C. PONCE, JR., HON. HUMBERTO
B. BASCO, HON. FLAVIANO F. CONCEPCION, JR., HON. ROMEO G. RIVERA, HON.
MANUEL M. ZARCAL, HON. PEDRO S. DE JESUS, HON. BERNARDITO C. ANG, HON.
MANUEL L. QUIN, HON. JHOSEP Y. LOPEZ, HON. CHIKA G. GO, HON. VICTORIANO A.
MELENDEZ, HON. ERNESTO V.P. MACEDA, JR., HON. ROLANDO P. NIETO, HON.
DANILO V. ROLEDA, HON. GERINO A. TOLENTINO, JR., HON. MA. PAZ E. HERRERA,
HON. JOEY D. HIZON, HON. FELIXBERTO D. ESPIRITU, HON. KARLO Q. BUTIONG,
HON. ROGELIO P. DELA PAZ, HON. BERNARDO D. RAGAZA, HON. MA. CORAZON R.
CABALLES, HON. CASIMIRO C. SISON, HON. BIENVENIDO M. ABANTE, JR., HON. MA.
LOURDES M. ISIP, HON. ALEXANDER S. RICAFORT, HON. ERNESTO F. RIVERA, HON.
LEONARDO L. ANGAT, and HON. JOCELYN B. DAWIS, in their capacity as councilors
of the City of Manila, petitioners, vs. HON. PERFECTO A.S. LAGUIO, JR., as Presiding
Judge, RTC, Manila and MALATE TOURIST DEVELOPMENT CORPORATION,
respondents.

DECISION

TINGA, J p:

I know only that what is moral is what you feel good after and what is immoral is what you feel
bad after.

Ernest Hemingway

Death in the Afternoon, Ch. 1

It is a moral and political axiom that any dishonorable act, if performed by oneself, is less
immoral than if performed by someone else, who would be well-intentioned in his dishonesty.

J. Christopher Gerald

Bonaparte in Egypt, Ch. I

The Court's commitment to the protection of morals is secondary to its fealty to the fundamental law of the
land. It is foremost a guardian of the Constitution but not the conscience of individuals. And if it need be, the
Court will not hesitate to "make the hammer fall, and heavily" in the words of Justice Laurel, and uphold the
constitutional guarantees when faced with laws that, though not lacking in zeal to promote morality,
nevertheless fail to pass the test of constitutionality.

The pivotal issue in this Petition 1 under Rule 45 (then Rule 42) of the Revised Rules on Civil Procedure
seeking the reversal of the Decision 2 in Civil Case No. 93-66511 of the Regional Trial Court (RTC) of Manila,
Branch 18 (lower court), 3 is the validity of Ordinance No. 7783 (the Ordinance) of the City of Manila. 4

The antecedents are as follows:

Private respondent Malate Tourist Development Corporation (MTDC) is a corporation engaged in the business
of operating hotels, motels, hostels and lodging houses. 5It built and opened Victoria Court in Malate which
was licensed as a motel although duly accredited with the Department of Tourism as a hotel. 6 On 28 June
1993, MTDC filed a Petition for Declaratory Relief with Prayer for a Writ of Preliminary Injunction and/or
Temporary Restraining Order 7 (RTC Petition) with the lower court impleading as defendants, herein
petitioners City of Manila, Hon. Alfredo S. Lim (Lim), Hon. Joselito L. Atienza, and the members of the City
Council of Manila (City Council). MTDC prayed that the Ordinance, insofar as it includes motels and inns as
among its prohibited establishments, be declared invalid and unconstitutional. 8

Enacted by the City Council 9 on 9 March 1993 and approved by petitioner City Mayor on 30 March 1993, the
said Ordinance is entitled —

AN ORDINANCE PROHIBITING THE ESTABLISHMENT OR OPERATION OF BUSINESSES

PROVIDING CERTAIN FORMS OF AMUSEMENT, ENTERTAINMENT, SERVICES AND
11
 FACILITIES IN THE ERMITA-MALATE AREA, PRESCRIBING PENALTIES FOR VIOLATION
THEREOF, AND FOR OTHER PURPOSES. 10

The Ordinance is reproduced in full, hereunder:

SECTION 1.Any provision of existing laws and ordinances to the contrary notwithstanding, no
person, partnership, corporation or entity shall, in the Ermita-Malate area bounded by Teodoro
M. Kalaw Sr. Street in the North, Taft Avenue in the East, Vito Cruz Street in the South and
Roxas Boulevard in the West, pursuant to P.D. 499be allowed or authorized to contract and
engage in, any business providing certain forms of amusement, entertainment, services and
facilities where women are used as tools in entertainment and which tend to disturb the
community, annoy the inhabitants, and adversely affect the social and moral welfare of the
community, such as but not limited to:

1.Sauna Parlors EDSAac

2.Massage Parlors

3.Karaoke Bars

4.Beerhouses

5.Night Clubs

6.Day Clubs

7.Super Clubs

8.Discotheques

9.Cabarets

10.Dance Halls

11.Motels

12.Inns

SEC. 2.The City Mayor, the City Treasurer or any person acting in behalf of the said officials
are prohibited from issuing permits, temporary or otherwise, or from granting licenses and
accepting payments for the operation of business enumerated in the preceding section.

SEC. 3.Owners and/or operator of establishments engaged in, or devoted to, the businesses
enumerated in Section 1 hereof are hereby given three (3) months from the date of approval
of this ordinance within which to wind up business operations or to transfer to any place
outside of the Ermita-Malate area or convert said businesses to other kinds of business
allowable within the area, such as but not limited to:

1.Curio or antique shop

2.Souvenir Shops

3.Handicrafts display centers

4.Art galleries

5.Records and music shops

6.Restaurants

7.Coffee shops

8.Flower shops

9.Music lounge and sing-along restaurants, with well-defined activities for wholesome family
entertainment that cater to both local and foreign clientele.

10.Theaters engaged in the exhibition, not only of motion pictures but also of cultural shows,
stage and theatrical plays, art exhibitions, concerts and the like.
12
 11.Businesses allowable within the law and medium intensity districts as provided for in the
zoning ordinances for Metropolitan Manila, except new warehouse or open-storage depot,
dock or yard, motor repair shop, gasoline service station, light industry with any machinery, or
funeral establishments.

SEC. 4.Any person violating any provisions of this ordinance, shall upon conviction, be
punished by imprisonment of one (1) year or fine of FIVE THOUSAND (P5,000.00) PESOS, or
both, at the discretion of the Court, PROVIDED, that in case of juridical person, the President,
the General Manager, or person-in-charge of operation shall be liable thereof; PROVIDED
FURTHER, that in case of subsequent violation and conviction, the premises of the erring
establishment shall be closed and padlocked permanently.

SEC. 5.This ordinance shall take effect upon approval.

Enacted by the City Council of Manila at its regular session today, March 9, 1993.

Approved by His Honor, the Mayor on March 30, 1993. (Emphasis supplied)

In the RTC Petition, MTDC argued that the Ordinance erroneously and improperly included in its enumeration
of prohibited establishments, motels and inns such as MTDC's Victoria Court considering that these were not
establishments for "amusement" or "entertainment" and they were not "services or facilities for entertainment,"
nor did they use women as "tools for entertainment," and neither did they "disturb the community," "annoy the
inhabitants" or "adversely affect the social and moral welfare of the community." 11

MTDC further advanced that the Ordinance was invalid and unconstitutional for the following reasons: (1) The
City Council has no power to prohibit the operation of motels as Section 458 (a) 4 (iv) 12 of the Local
Government Code of 1991 (the Code) grants to the City Council only the power to regulate the establishment,
operation and maintenance of hotels, motels, inns, pension houses, lodging houses and other similar
establishments; (2) The Ordinance is void as it is violative of Presidential Decree (P.D.) No. 499 13 which
specifically declared portions of the Ermita-Malate area as a commercial zone with certain restrictions; (3) The
Ordinance does not constitute a proper exercise of police power as the compulsory closure of the motel
business has no reasonable relation to the legitimate municipal interests sought to be protected; (4) The
Ordinance constitutes an ex post facto law by punishing the operation of Victoria Court which was a legitimate
business prior to its enactment; (5) The Ordinance violates MTDC's constitutional rights in that: (a) it is
confiscatory and constitutes an invasion of plaintiff's property rights; (b) the City Council has no power to find
as a fact that a particular thing is a nuisance per se nor does it have the power to extrajudicially destroy it; and

1. The Ordinance constitutes a denial of equal protection under the law as no reasonable basis exists for
prohibiting the operation of motels and inns, but not pension houses, hotels, lodging houses or other similar
establishments, and for prohibiting said business in the Ermita-Malate area but not outside of this area. 14

In their Answer 15 dated 23 July 1993, petitioners City of Manila and Lim maintained that the City Council had
the power to "prohibit certain forms of entertainment in order to protect the social and moral welfare of the
community" as provided for in Section 458 (a) 4 (vii) of the Local Government Code, 16 which reads, thus:

Section 458.Powers, Duties, Functions and Compensation. — (a) The sangguniang

panlungsod, as the legislative body of the city, shall enact ordinances, approve resolutions
and appropriate funds for the general welfare of the city and its inhabitants pursuant to
Section 16 of this Code and in the proper exercise of the corporate powers of the city as
provided for under Section 22 of this Code, and shall:

xxx xxx xxx

(4)Regulate activities relative to the use of land, buildings and structures within the city in
order to promote the general welfare and for said purpose shall:

xxx xxx xxx

(vii)Regulate the establishment, operation, and maintenance of any entertainment or

amusement facilities, including theatrical performances, circuses, billiard pools, public
dancing schools, public dance halls, sauna baths, massage parlors, and other places
for entertainment or amusement; regulate such other events or activities for
amusement or entertainment, particularly those which tend to disturb the community or
13
 annoy the inhabitants, or require the suspension or suppression of the same; or,
prohibit certain forms of amusement or entertainment in order to protect the social and
moral welfare of the community. cDIaAS

Citing Kwong Sing v. City of Manila, 17 petitioners insisted that the power of regulation spoken of in the above-
quoted provision included the power to control, to govern and to restrain places of exhibition and amusement.

18

Petitioners likewise asserted that the Ordinance was enacted by the City Council of Manila to protect the social
and moral welfare of the community in conjunction with its police power as found in Article III, Section 18(kk) of
Republic Act No. 409, 19 otherwise known as the Revised Charter of the City of Manila (Revised Charter of
Manila)20 which reads, thus:

ARTICLE III

THE MUNICIPAL BOARD

xxx xxx xxx

Section 18.Legislative powers. — The Municipal Board shall have the following legislative
powers:

xxx xxx xxx

(kk)To enact all ordinances it may deem necessary and proper for the sanitation and safety,
the furtherance of the prosperity, and the promotion of the morality, peace, good order,
comfort, convenience, and general welfare of the city and its inhabitants, and such others as
may be necessary to carry into effect and discharge the powers and duties conferred by this
chapter; and to fix penalties for the violation of ordinances which shall not exceed two hundred
pesos fine or six months' imprisonment, or both such fine and imprisonment, for a single
offense.

Further, the petitioners noted, the Ordinance had the presumption of validity; hence, private respondent had
the burden to prove its illegality or unconstitutionality. 21

Petitioners also maintained that there was no inconsistency between P.D. 499 and the Ordinance as the latter
simply disauthorized certain forms of businesses and allowed the Ermita-Malate area to remain a commercial
zone. 22 The Ordinance, the petitioners likewise claimed, cannot be assailed as ex post facto as it was
prospective in operation. 23 The Ordinance also did not infringe the equal protection clause and cannot be
denounced as class legislation as there existed substantial and real differences between the Ermita-Malate
area and other places in the City of Manila. 24

On 28 June 1993, respondent Judge Perfecto A.S. Laguio, Jr. (Judge Laguio) issued an ex-parte temporary
restraining order against the enforcement of the Ordinance. 25And on 16 July 1993, again in an intrepid
gesture, he granted the writ of preliminary injunction prayed for by MTDC. 26

After trial, on 25 November 1994, Judge Laguio rendered the assailed Decision, enjoining the petitioners from
implementing the Ordinance. The dispositive portion of said Decision reads: 27

WHEREFORE, judgment is hereby rendered declaring Ordinance No. 778[3], Series of 1993,
of the City of Manila null and void, and making permanent the writ of preliminary injunction
that had been issued by this Court against the defendant. No costs.

SO ORDERED. 28

Petitioners filed with the lower court a Notice of Appeal 29 on 12 December 1994, manifesting that they are
elevating the case to this Court under then Rule 42 on pure questions of law. 30

On 11 January 1995, petitioners filed the present Petition, alleging that the following errors were committed by
the lower court in its ruling: (1) It erred in concluding that the subject ordinance is ultra vires, or otherwise,
unfair, unreasonable and oppressive exercise of police power; (2) It erred in holding that the questioned
Ordinancecontravenes P.D. 499 31 which allows operators of all kinds of commercial establishments, except
those specified therein; and (3) It erred in declaring the Ordinance void and unconstitutional. 32
 In the Petition and in its Memorandum, 33 petitioners in essence repeat the assertions they made before the
lower court. They contend that the assailed Ordinance was enacted in the exercise of the inherent and plenary
14
power of the State and the general welfare clause exercised by local government units provided for in Art. 3,
Sec. 18 (kk) of the Revised Charter of Manila and conjunctively, Section 458 (a) 4 (vii) of the Code. 34 They
allege that the Ordinance is a valid exercise of police power; it does not contravene P.D. 499; and that it enjoys
the presumption of validity. 35

In its Memorandum 36 dated 27 May 1996, private respondent maintains that the Ordinance is ultra vires and
that it is void for being repugnant to the general law. It reiterates that the questioned Ordinance is not a valid
exercise of police power; that it is violative of due process, confiscatory and amounts to an arbitrary
interference with its lawful business; that it is violative of the equal protection clause; and that it confers on
petitioner City Mayor or any officer unregulated discretion in the execution of the Ordinance absent rules to
guide and control his actions.

This is an opportune time to express the Court's deep sentiment and tenderness for the Ermita-Malate area
being its home for several decades. A long-time resident, the Court witnessed the area's many turn of events.
It relished its glory days and endured its days of infamy. Much as the Court harks back to the resplendant era
of the Old Manila and yearns to restore its lost grandeur, it believes that the Ordinance is not the fitting means
to that end. The Court is of the opinion, and so holds, that the lower court did not err in declaring the
Ordinance, as it did, ultra vires and therefore null and void.

The Ordinance is so replete with constitutional infirmities that almost every sentence thereof violates a
constitutional provision. The prohibitions and sanctions therein transgress the cardinal rights of persons
enshrined by the Constitution. The Court is called upon to shelter these rights from attempts at rendering them
worthless.

The tests of a valid ordinance are well established. A long line of decisions has held that for an ordinance to be
valid, it must not only be within the corporate powers of the local government unit to enact and must be passed
according to the procedure prescribed by law, it must also conform to the following substantive requirements:

(a) must not contravene the Constitution or any statute; (2) must not be unfair or oppressive; (3) must not be
partial or discriminatory; (4) must not prohibit but may regulate trade; (5) must be general and consistent with
public policy; and (6) must not be unreasonable. 37

Anent the first criterion, ordinances shall only be valid when they are not contrary to the Constitution and to the
laws. 38 The Ordinance must satisfy two requirements: it must pass muster under the test of constitutionality
and the test of consistency with the prevailing laws. That ordinances should be constitutional uphold the
principle of the supremacy of the Constitution. The requirement that the enactment must not violate existing
law gives stress to the precept that local government units are able to legislate only by virtue of their derivative
legislative power, a delegation of legislative power from the national legislature. The delegate cannot be
superior to the principal or exercise powers higher than those of the latter. 39

This relationship between the national legislature and the local government units has not been enfeebled by
the new provisions in the Constitution strengthening the policy of local autonomy. The national legislature is
still the principal of the local government units, which cannot defy its will or modify or violate it. 40

The Ordinance was passed by the City Council in the exercise of its police power, an enactment of the City
Council acting as agent of Congress. Local government units, as agencies of the State, are endowed with
police power in order to effectively accomplish and carry out the declared objects of their creation. 41 This
delegated police power is found in Section 16 of the Code, known as the general welfare clause, viz:

SECTION 16.General Welfare. — Every local government unit shall exercise the powers
expressly granted, those necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance, and those which are
essential to the promotion of the general welfare. Within their respective territorial jurisdictions,
local government units shall ensure and support, among other things, the preservation and
enrichment of culture, promote health and safety, enhance the right of the people to a
balanced ecology, encourage and support the development of appropriate and self-reliant
scientific and technological capabilities, improve public morals, enhance economic prosperity
and social justice, promote full employment among their residents, maintain peace and order,
and preserve the comfort and convenience of their inhabitants. STCDaI

Local government units exercise police power through their respective legislative bodies; in this case, the
sangguniang panlungsod or the city council. The Code empowers the legislative bodies to "enact ordinances,
approve resolutions and appropriate funds for the general welfare of the province/city/municipality and its
15
inhabitants pursuant to Section 16 of the Code and in the proper exercise of the corporate powers of the
province/city/municipality provided under the Code." 42 The inquiry in this Petition is concerned with the
validity of the exercise of such delegated power.

The Ordinance contravenes

the Constitution

The police power of the City Council, however broad and far-reaching, is subordinate to the constitutional
limitations thereon; and is subject to the limitation that its exercise must be reasonable and for the public good.
43 In the case at bar, the enactment of the Ordinance was an invalid exercise of delegated power as it is
unconstitutional and repugnant to general laws.

The relevant constitutional provisions are the following:

SEC. 5.The maintenance of peace and order, the protection of life, liberty, and property, and
the promotion of the general welfare are essential for the enjoyment by all the people of the
blessings of democracy. 44

SEC. 14.The State recognizes the role of women in nation-building, and shall ensure the
fundamental equality before the law of women and men. 45

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 laws. 46

SEC. 9.Private property shall not be taken for public use without just compensation. 47

A.The Ordinance infringes

the Due Process Clause

The constitutional safeguard of due process is embodied in the fiat "(N)o person shall be deprived of life, liberty
or property without due process of law. . . ." 48

There is no controlling and precise definition of due process. It furnishes though a standard to which
governmental action should conform in order that deprivation of life, liberty or property, in each appropriate
case, be valid. This standard is aptly described as a responsiveness to the supremacy of reason, obedience to
the dictates of justice, 49 and as such it is a limitation upon the exercise of the police power. 50

The purpose of the guaranty is to prevent governmental encroachment against the life, liberty and property of
individuals; to secure the individual from the arbitrary exercise of the powers of the government, unrestrained
by the established principles of private rights and distributive justice; to protect property from confiscation by
legislative enactments, from seizure, forfeiture, and destruction without a trial and conviction by the ordinary
mode of judicial procedure; and to secure to all persons equal and impartial justice and the benefit of the
general law. 51

The guaranty serves as a protection against arbitrary regulation, and private corporations and partnerships are
"persons" within the scope of the guaranty insofar as their property is concerned. 52

This clause has been interpreted as imposing two separate limits on government, usually called "procedural
due process" and "substantive due process."

Procedural due process, as the phrase implies, refers to the procedures that the government must follow
before it deprives a person of life, liberty, or property. Classic procedural due process issues are concerned
with what kind of notice and what form of hearing the government must provide when it takes a particular
action. 53

Substantive due process, as that phrase connotes, asks whether the government has an adequate reason for
taking away a person's life, liberty, or property. In other words, substantive due process looks to whether there
is a sufficient justification for the government's action. 54 Case law in the United States (U.S.) tells us that
whether there is such a justification depends very much on the level of scrutiny used. 55 For example, if a law
is in an area where only rational basis review is applied, substantive due process is met so long as the law is
rationally related to a legitimate government purpose. But if it is an area where strict scrutiny is used, such as
for protecting fundamental rights, then the government will meet substantive due process only if it can prove
that the law is necessary to achieve a compelling government purpose.56
16
The police power granted to local government units must always be exercised with utmost observance of the
rights of the people to due process and equal protection of the law. Such power cannot be exercised
whimsically, arbitrarily or despotically 57 as its exercise is subject to a qualification, limitation or restriction
demanded by the respect and regard due to the prescription of the fundamental law, particularly those forming
part of the Bill of Rights. Individual rights, it bears emphasis, may be adversely affected only to the extent that
may fairly be required by the legitimate demands of public interest or public welfare. 58 Due process requires
the intrinsic validity of the law in interfering with the rights of the person to his life, liberty and property. 59

Requisites for the valid exercise

of Police Power are not met

To successfully invoke the exercise of police power as the rationale for the enactment of the Ordinance, and to
free it from the imputation of constitutional infirmity, not only must it appear that the interests of the public
generally, as distinguished from those of a particular class, require an interference with private rights, but the
means adopted must be reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals. 60 It must be evident that no other alternative for the accomplishment of the
purpose less intrusive of private rights can work. A reasonable relation must exist between the purposes of the
police measure and the means employed for its accomplishment, for even under the guise of protecting the
public interest, personal rights and those pertaining to private property will not be permitted to be arbitrarily
invaded. 61

Lacking a concurrence of these two requisites, the police measure shall be struck down as an arbitrary
intrusion into private rights 62 — a violation of the due process clause. aSDHCT

The Ordinance was enacted to address and arrest the social ills purportedly spawned by the establishments in
the Ermita-Malate area which are allegedly operated under the deceptive veneer of legitimate, licensed and
tax-paying nightclubs, bars, karaoke bars, girlie houses, cocktail lounges, hotels and motels. Petitioners insist
that even the Court in the case of Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor of
Manila 63 had already taken judicial notice of the "alarming increase in the rate of prostitution, adultery and
fornication in Manila traceable in great part to existence of motels, which provide a necessary atmosphere for
clandestine entry, presence and exit and thus become the ideal haven for prostitutes and thrill-seekers." 64

The object of the Ordinance was, accordingly, the promotion and protection of the social and moral values of
the community. Granting for the sake of argument that the objectives of the Ordinance are within the scope of
the City Council's police powers, the means employed for the accomplishment thereof were unreasonable and
unduly oppressive.

It is undoubtedly one of the fundamental duties of the City of Manila to make all reasonable regulations looking
to the promotion of the moral and social values of the community. However, the worthy aim of fostering public
morals and the eradication of the community's social ills can be achieved through means less restrictive of
private rights; it can be attained by reasonable restrictions rather than by an absolute prohibition. The closing
down and transfer of businesses or their conversion into businesses "allowed" under the Ordinance have no
reasonable relation to the accomplishment of its purposes. Otherwise stated, the prohibition of the enumerated
establishments will not per se protect and promote the social and moral welfare of the community; it will not in
itself eradicate the alluded social ills of prostitution, adultery, fornication nor will it arrest the spread of sexual
disease in Manila.

Conceding for the nonce that the Ermita-Malate area teems with houses of ill-repute and establishments of the
like which the City Council may lawfully prohibit, 65 it is baseless and insupportable to bring within that
classification sauna parlors, massage parlors, karaoke bars, night clubs, day clubs, super clubs, discotheques,
cabarets, dance halls, motels and inns. This is not warranted under the accepted definitions of these terms.
The enumerated establishments are lawful pursuits which are not per se offensive to the moral welfare of the
community.

That these are used as arenas to consummate illicit sexual affairs and as venues to further the
illegal prostitution is of no moment. We lay stress on the acrid truth that sexual immorality, being a human
frailty, may take place in the most innocent of places that it may even take place in the substitute
establishments enumerated under Section 3 of the Ordinance. If the flawed logic of the Ordinance were to
be followed, in the remote instance that an immoral sexual act transpires in a church cloister or a court
chamber, we would behold the spectacle of the City of Manila ordering the closure of the church or court
concerned. Every house, building, park, curb, street or even vehicles for that matter will not be exempt from
17
 the prohibition. Simply because there are no "pure" places where there are impure men. Indeed, even the
Scripture and the Tradition of Christians churches continually recall the presence and universality of sin in
man's history. (Catechism of the Catholic Church, Definitive Edition, p. 101; ECCE and Word & Life
Publications, Don Bosco Compound, Makati)

The problem, it needs to be pointed out, is not the establishment, which by its nature cannot be said to be
injurious to the health or comfort of the community and which in itself is amoral, but the deplorable human
activity that may occur within its premises. While a motel may be used as a venue for immoral sexual activity, it
cannot for that reason alone be punished. It cannot be classified as a house of ill-repute or as a nuisance per
se on a mere likelihood or a naked assumption. If that were so and if that were allowed, then the Ermita-Malate
area would not only be purged of its supposed social ills, it would be extinguished of its soul as well as every
human activity, reprehensible or not, in its every nook and cranny would be laid bare to the estimation of the
authorities.

The Ordinance seeks to legislate morality but fails to address the core issues of morality. Try as the Ordinance
may to shape morality, it should not foster the illusion that it can make a moral man out of it because
immorality is not a thing, a building or establishment; it is in the hearts of men. The City Council instead should
regulate human conduct that occurs inside the establishments, but not to the detriment of liberty and privacy
which are covenants, premiums and blessings of democracy.

While petitioners' earnestness at curbing clearly objectionable social ills is commendable, they unwittingly
punish even the proprietors and operators of "wholesome," "innocent" establishments. In the instant case,
there is a clear invasion of personal or property rights, personal in the case of those individuals desirous of
owning, operating and patronizing those motels and property in terms of the investments made and the
salaries to be paid to those therein employed. If the City of Manila so desires to put an end to prostitution,
fornication and other social ills, it can instead impose reasonable regulations such as daily inspections of the
establishments for any violation of the conditions of their licenses or permits; it may exercise its authority to
suspend or revoke their licenses for these violations; 66 and it may even impose increased license fees. In
other words, there are other means to reasonably accomplish the desired end.

Means employed are

constitutionally infirm

The Ordinance disallows the operation of sauna parlors, massage parlors, karaoke bars, beerhouses, night
clubs, day clubs, super clubs, discotheques, cabarets, dance halls, motels and inns in the Ermita-Malate area.
In Section 3 thereof, owners and/or operators of the enumerated establishments are given three (3) months
from the date of approval of the Ordinance within which "to wind up business operations or to transfer to any
place outside the Ermita-Malate area or convert said businesses to other kinds of business allowable within the
area." Further, it states in Section 4 that in cases of subsequent violations of the provisions of the Ordinance,
the "premises of the erring establishment shall be closed and padlocked permanently."

It is readily apparent that the means employed by the Ordinance for the achievement of its purposes, the
governmental interference itself, infringes on the constitutional guarantees of a person's fundamental right to
liberty and property. HCEcAa

Liberty as guaranteed by the Constitution was defined by Justice Malcolm to include "the right to exist and the
right to be free from arbitrary restraint or servitude. The term cannot be dwarfed into mere freedom from
physical restraint of the person of the citizen, but is deemed to embrace the right of man to enjoy the faculties
with which he has been endowed by his Creator, subject only to such restraint as are necessary for the
common welfare." 67 In accordance with this case, the rights of the citizen to be free to use his faculties in all
lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; and to pursue any
avocation are all deemed embraced in the concept of liberty. 68

The U.S. Supreme Court in the case of Roth v. Board of Regents, 69 sought to clarify the meaning of "liberty."

It said:

While the Court has not attempted to define with exactness the liberty . . . guaranteed [by the
Fifth and Fourteenth Amendments], the term denotes not merely freedom from bodily restraint
but also the right of the individual to contract, to engage in any of the common occupations of
life, to acquire useful knowledge, to marry, establish a home and bring up children, to worship
God according to the dictates of his own conscience, and generally to enjoy those privileges

18
 long recognized . . . as essential to the orderly pursuit of happiness by free men. In a
Constitution for a free people, there can be no doubt that the meaning of "liberty" must be
broad indeed.

In another case, it also confirmed that liberty protected by the due process clause includes personal decisions
relating to marriage, procreation, contraception, family relationships, child rearing, and education. In explaining
the respect the Constitution demands for the autonomy of the person in making these choices, the U.S.
Supreme Court explained:

These matters, involving the most intimate and personal choices a person may make in a
lifetime, choices central to personal dignity and autonomy, are central to the liberty protected
by the Fourteenth Amendment. At the heart of liberty is the right to define one's own concept
of existence, of meaning, of universe, and of the mystery of human life. Beliefs about these
matters could not define the attributes of personhood where they formed under compulsion of
the State. 70

Persons desirous to own, operate and patronize the enumerated establishments under Section 1 of the
Ordinance may seek autonomy for these purposes.

Motel patrons who are single and unmarried may invoke this right to autonomy to consummate their bonds in
intimate sexual conduct within the motel's premises — be it stressed that their consensual sexual behavior
does not contravene any fundamental state policy as contained in the Constitution. 71 Adults have a right to
choose to forge such relationships with others in the confines of their own private lives and still retain their
dignity as free persons. The liberty protected by the Constitution allows persons the right to make this choice.
72 Their right to liberty under the due process clause gives them the full right to engage in their conduct
without intervention of the government, as long as they do not run afoul of the law. Liberty should be the rule
and restraint the exception.

Liberty in the constitutional sense not only means freedom from unlawful government restraint; it must include
privacy as well, if it is to be a repository of freedom. The right to be let alone is the beginning of all freedom —
it is the most comprehensive of rights and the right most valued by civilized men. 73

The concept of liberty compels respect for the individual whose claim to privacy and interference demands
respect. As the case of Morfe v. Mutuc, 74 borrowing the words of Laski, so very aptly stated:

Man is one among many, obstinately refusing reduction to unity. His separateness, his
isolation, are indefeasible; indeed, they are so fundamental that they are the basis on which
his civic obligations are built. He cannot abandon the consequences of his isolation, which
are, broadly speaking, that his experience is private, and the will built out of that experience
personal to himself. If he surrenders his will to others, he surrenders himself. If his will is set
by the will of others, he ceases to be a master of himself. I cannot believe that a man no
longer a master of himself is in any real sense free.

Indeed, the right to privacy as a constitutional right was recognized in Morfe, the invasion of which should be
justified by a compelling state interest. Morfe accorded recognition to the right to privacy independently of its
identification with liberty; in itself it is fully deserving of constitutional protection. Governmental powers should
stop short of certain intrusions into the personal life of the citizen. 75

There is a great temptation to have an extended discussion on these civil liberties but the Court chooses to
exercise restraint and restrict itself to the issues presented when it should. The previous pronouncements of
the Court are not to be interpreted as a license for adults to engage in criminal conduct. The reprehensibility of
such conduct is not diminished. The Court only reaffirms and guarantees their right to make this choice. Should
they be prosecuted for their illegal conduct, they should suffer the consequences of the choice they have
made. That, ultimately, is their choice.

Modality employed is

unlawful taking

In addition, the Ordinance is unreasonable and oppressive as it substantially divests the respondent of the
beneficial use of its property. 76 The Ordinance in Section 1 thereof forbids the running of the enumerated
businesses in the Ermita-Malate area and in Section 3 instructs its owners/operators to wind up business
operations or to transfer outside the area or convert said businesses into allowed businesses. An ordinance
which permanently restricts the use of property that it can not be used for any reasonable purpose goes
19
beyond regulation and must be recognized as a taking of the property without just compensation. 77 It is
intrusive and violative of the private property rights of individuals. EHTCAa

The Constitution expressly provides in Article III, Section 9, that "private property shall not be taken for public
use without just compensation." The provision is the most important protection of property rights in the
Constitution. This is a restriction on the general power of the government to take property. The constitutional
provision is about ensuring that the government does not confiscate the property of some to give it to others. In
part too, it is about loss spreading. If the government takes away a person's property to benefit society, then
society should pay. The principal purpose of the guarantee is "to bar the Government from forcing some
people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a
whole. 78

There are two different types of taking that can be identified. A "possessory" taking occurs when the
government confiscates or physically occupies property. A "regulatory" taking occurs when the government's
regulation leaves no reasonable economically viable use of the property. 79

In the landmark case of Pennsylvania Coal v. Mahon, 80 it was held that a taking also could be found if
government regulation of the use of property went "too far." When regulation reaches a certain magnitude, in
most if not in all cases there must be an exercise of eminent domain and compensation to support the act.
While property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.

81

No formula or rule can be devised to answer the questions of what is too far and when regulation becomes a
taking. In Mahon, Justice Holmes recognized that it was "a question of degree and therefore cannot be
disposed of by general propositions." On many other occasions as well, the U.S. Supreme Court has said that
the issue of when regulation constitutes a taking is a matter of considering the facts in each case. The Court
asks whether justice and fairness require that the economic loss caused by public action must be
compensated by the government and thus borne by the public as a whole, or whether the loss should remain
concentrated on those few persons subject to the public action. 82

What is crucial in judicial consideration of regulatory takings is that government regulation is a taking if it leaves
no reasonable economically viable use of property in a manner that interferes with reasonable expectations for
use. 83 A regulation that permanently denies all economically beneficial or productive use of land is, from the
owner's point of view, equivalent to a "taking" unless principles of nuisance or property law that existed when
the owner acquired the land make the use prohibitable. 84When the owner of real property has been called
upon to sacrifice all economically beneficial uses in the name of the common good, that is, to leave his
property economically idle, he has suffered a taking. 85

A regulation which denies all economically beneficial or productive use of land will require compensation under
the takings clause. Where a regulation places limitations on land that fall short of eliminating all economically
beneficial use, a taking nonetheless may have occurred, depending on a complex of factors including the
regulation's economic effect on the landowner, the extent to which the regulation interferes with reasonable
investment-backed expectations and the character of government action. These inquiries are informed by the
purpose of the takings clause which is to prevent the government from forcing some people alone to bear
public burdens which, in all fairness and justice, should be borne by the public as a whole. 86

A restriction on use of property may also constitute a "taking" if not reasonably necessary to the effectuation of
a substantial public purpose or if it has an unduly harsh impact on the distinct investment-backed expectations
of the owner. 87

The Ordinance gives the owners and operators of the "prohibited" establishments three (3) months from its
approval within which to "wind up business operations or to transfer to any place outside of the Ermita-Malate
area or convert said businesses to other kinds of business allowable within the area." The directive to "wind up
business operations" amounts to a closure of the establishment, a permanent deprivation of property, and is
practically confiscatory. Unless the owner converts his establishment to accommodate an "allowed" business,
the structure which housed the previous business will be left empty and gathering dust. Suppose he transfers it
to another area, he will likewise leave the entire establishment idle. Consideration must be given to the
substantial amount of money invested to build the edifices which the owner reasonably expects to be returned
within a period of time. It is apparent that the Ordinance leaves no reasonable economically viable use of
property in a manner that interferes with reasonable expectations for use.
20
The second and third options — to transfer to any place outside of the Ermita-Malate area or to convert into
allowed businesses — are confiscatory as well. The penalty of permanent closure in cases of subsequent
violations found in Section 4 of the Ordinance is also equivalent to a "taking" of private property.

The second option instructs the owners to abandon their property and build another one outside the Ermita-
Malate area. In every sense, it qualifies as a taking without just compensation with an additional burden
imposed on the owner to build another establishment solely from his coffers. The proffered solution does not
put an end to the "problem," it merely relocates it. Not only is this impractical, it is unreasonable, onerous and
oppressive. The conversion into allowed enterprises is just as ridiculous. How may the respondent convert a
motel into a restaurant or a coffee shop, art gallery or music lounge without essentially destroying its property?
This is a taking of private property without due process of law, nay, even without compensation.

The penalty of closure likewise constitutes unlawful taking that should be compensated by the government.
The burden on the owner to convert or transfer his business, otherwise it will be closed permanently after a
subsequent violation should be borne by the public as this end benefits them as a whole.

Petitioners cannot take refuge in classifying the measure as a zoning ordinance. A zoning ordinance, although
a valid exercise of police power, which limits a "wholesome" property to a use which can not reasonably be
made of it constitutes the taking of such property without just compensation. Private property which is not
noxious nor intended for noxious purposes may not, by zoning, be destroyed without compensation. Such
principle finds no support in the principles of justice as we know them. The police powers of local government
units which have always received broad and liberal interpretation cannot be stretched to cover this particular
taking.

Distinction should be made between destruction from necessity and eminent domain. It needs restating that
the property taken in the exercise of police power is destroyed because it is noxious or intended for a noxious
purpose while the property taken under the power of eminent domain is intended for a public use or purpose
and is therefore "wholesome." 88 If it be of public benefit that a "wholesome" property remain unused or
relegated to a particular purpose, then certainly the public should bear the cost of reasonable compensation for
the condemnation of private property for public use. 89

Further, the Ordinance fails to set up any standard to guide or limit the petitioners' actions. It in no way controls
or guides the discretion vested in them. It provides no definition of the establishments covered by it and it fails
to set forth the conditions when the establishments come within its ambit of prohibition. The Ordinanceconfers
upon the mayor arbitrary and unrestricted power to close down establishments. Ordinances such as this, which
make possible abuses in its execution, depending upon no conditions or qualifications whatsoever other than
the unregulated arbitrary will of the city authorities as the touchstone by which its validity is to be tested, are
unreasonable and invalid. The Ordinance should have established a rule by which its impartial enforcement
could be secured. 90

Ordinances placing restrictions upon the lawful use of property must, in order to be valid and constitutional,
specify the rules and conditions to be observed and conduct to avoid; and must not admit of the exercise, or of
an opportunity for the exercise, of unbridled discretion by the law enforcers in carrying out its provisions. 91

Thus, in Coates v. City of Cincinnati, 92 as cited in People v. Nazario, 93 the U.S. Supreme Court struck down
an ordinance that had made it illegal for "three or more persons to assemble on any sidewalk and there
conduct themselves in a manner annoying to persons passing by." The ordinance was nullified as it imposed
no standard at all "because one may never know in advance what 'annoys some people but does not annoy
others.'"

Similarly, the Ordinance does not specify the standards to ascertain which establishments "tend to disturb the
community," "annoy the inhabitants," and "adversely affect the social and moral welfare of the community." The
cited case supports the nullification of the Ordinance for lack of comprehensible standards to guide the law
enforcers in carrying out its provisions. EATCcI

Petitioners cannot therefore order the closure of the enumerated establishments without infringing the due
process clause. These lawful establishments may be regulated, but not prevented from carrying on their
business. This is a sweeping exercise of police power that is a result of a lack of imagination on the part of the
City Council and which amounts to an interference into personal and private rights which the Court will not
countenance. In this regard, we take a resolute stand to uphold the constitutional guarantee of the right to
liberty and property.

21
Worthy of note is an example derived from the U.S. of a reasonable regulation which is a far cry from the ill-
considered Ordinance enacted by the City Council.

In FW/PBS, INC. v. Dallas, 94 the city of Dallas adopted a comprehensive ordinance regulating "sexually
oriented businesses," which are defined to include adult arcades, bookstores, video stores, cabarets, motels,
and theaters as well as escort agencies, nude model studio and sexual encounter centers. Among other
things, the ordinance required that such businesses be licensed. A group of motel owners were among the
three groups of businesses that filed separate suits challenging the ordinance. The motel owners asserted that
the city violated the due process clause by failing to produce adequate support for its supposition that renting
room for fewer than ten (10) hours resulted in increased crime and other secondary effects. They likewise
argued than the ten (10)-hour limitation on the rental of motel rooms placed an unconstitutional burden on the
right to freedom of association. Anent the first contention, the U.S. Supreme Court held that the
reasonableness of the legislative judgment combined with a study which the city considered, was adequate to
support the city's determination that motels permitting room rentals for fewer than ten (10) hours should be
included within the licensing scheme. As regards the second point, the Court held that limiting motel room
rentals to ten (10) hours will have no discernible effect on personal bonds as those bonds that are formed from
the use of a motel room for fewer than ten (10) hours are not those that have played a critical role in the culture
and traditions of the nation by cultivating and transmitting shared ideals and beliefs.

The ordinance challenged in the above-cited case merely regulated the targeted businesses. It imposed
reasonable restrictions; hence, its validity was upheld.

The case of Ermita Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila, 95 it needs
pointing out, is also different from this case in that what was involved therein was a measure which regulated
the mode in which motels may conduct business in order to put an end to practices which could encourage
vice and immorality. Necessarily, there was no valid objection on due process or equal protection grounds as
the ordinance did not prohibit motels. The Ordinance in this case however is not a regulatory measure but is an
exercise of an assumed power to prohibit. 96

The foregoing premises show that the Ordinance is an unwarranted and unlawful curtailment of property and
personal rights of citizens. For being unreasonable and an undue restraint of trade, it cannot, even under the
guise of exercising police power, be upheld as valid.

B.The Ordinance violates Equal

Protection Clause

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. 97 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. 98 The "equal protection of the laws is a pledge of the protection of equal laws."
99 It limits governmental discrimination. The equal protection clause extends to artificial persons but only
insofar as their property is concerned. 100

The Court has explained the scope of the equal protection clause in this wise:

. . . What does it signify? To quote from J.M. Tuason & Co. v. Land Tenure Administration:
"The ideal situation is for the law's benefits to be available to all, that none be placed outside
the sphere of its coverage. Only thus could chance and favor be excluded and the affairs of
men governed by that serene and impartial uniformity, which is of the very essence of the idea
of law." There is recognition, however, in the opinion that what in fact exists "cannot
approximate the ideal. Nor is the law susceptible to the reproach that it does not take into
account the realities of the situation. The constitutional guarantee then is not to be given a
meaning that disregards what is, what does in fact exist. To assure that the general welfare be
promoted, which is the end of law, a regulatory measure may cut into the rights to liberty and
property. Those adversely affected may under such circumstances invoke the equal protection
clause only if they can show that the governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason." Classification is thus not ruled out, it being
sufficient to quote from the Tuason decision anew "that the laws operate equally and uniformly
22
 on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal
protection and security shall be given to every person under circumstances which, if not
identical, are analogous. If law be looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever restrictions cast on some in the
group equally binding on the rest. 101

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. 102 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. IEAacS

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. 103

In the Court's view, there are no substantial distinctions between motels, inns, pension houses, hotels, lodging
houses or other similar establishments. By definition, all are commercial establishments providing lodging and
usually meals and other services for the public. No reason exists for prohibiting motels and inns but not
pension houses, hotels, lodging houses or other similar establishments. The classification in the instant case is
invalid as similar subjects are not similarly treated, both as to rights conferred and obligations imposed. It is
arbitrary as it does not rest on substantial distinctions bearing a just and fair relation to the purpose of the
Ordinance.

The Court likewise cannot see the logic for prohibiting the business and operation of motels in the Ermita-
Malate area but not outside of this area. A noxious establishment does not become any less noxious if located
outside the area.

The standard "where women are used as tools for entertainment" is also discriminatory as prostitution — one
of the hinted ills the Ordinance aims to banish — is not a profession exclusive to women. Both men and
women have an equal propensity to engage in prostitution. It is not any less grave a sin when men engage in
it. And why would the assumption that there is an ongoing immoral activity apply only when women are
employed and be inapposite when men are in harness? This discrimination based on gender violates equal
protection as it is not substantially related to important government objectives. 104 Thus, the discrimination is
invalid.

Failing the test of constitutionality, the Ordinance likewise failed to pass the test of consistency with prevailing
laws.

C.The Ordinance is repugnant

to general laws; it is ultra vires

The Ordinance is in contravention of the Code as the latter merely empowers local government units to
regulate, and not prohibit, the establishments enumerated in Section 1 thereof.

The power of the City Council to regulate by ordinances the establishment, operation, and maintenance of
motels, hotels and other similar establishments is found in Section 458 (a) 4 (iv), which provides that:

Section 458.Powers, Duties, Functions and Compensation. — (a) The sangguniang

panlungsod, as the legislative body of the city, shall enact ordinances, approve resolutions
and appropriate funds for the general welfare of the city and its inhabitants pursuant to
Section 16 of this Code and in the proper exercise of the corporate powers of the city as
provided for under Section 22 of this Code, and shall:

xxx xxx xxx

(4)Regulate activities relative to the use of land, buildings and structures within the city in
order to promote the general welfare and for said purpose shall:

xxx xxx xxx

23
 (iv)Regulate the establishment, operation and maintenance of cafes, restaurants,
beerhouses, hotels, motels, inns, pension houses, lodging houses, and other similar
establishments, including tourist guides and transports. . . .

While its power to regulate the establishment, operation and maintenance of any entertainment or amusement
facilities, and to prohibit certain forms of amusement or entertainment is provided under Section 458 (a) 4 (vii)
of the Code, which reads as follows:

Section 458.Powers, Duties, Functions and Compensation. — (a) The sangguniang

panlungsod, as the legislative body of the city, shall enact ordinances, approve resolutions
and appropriate funds for the general welfare of the city and its inhabitants pursuant to
Section 16 of this Code and in the proper exercise of the corporate powers of the city as
provided for under Section 22 of this Code, and shall:

xxx xxx xxx

(4)Regulate activities relative to the use of land, buildings and structures within the city in
order to promote the general welfare and for said purpose shall:

xxx xxx xxx

(vii)Regulate the establishment, operation, and maintenance of any entertainment or

amusement facilities, including theatrical performances, circuses, billiard pools, public
dancing schools, public dance halls, sauna baths, massage parlors, and other places
for entertainment or amusement; regulate such other events or activities for
amusement or entertainment, particularly those which tend to disturb the community or
annoy the inhabitants, or require the suspension or suppression of the same; or,
prohibit certain forms of amusement or entertainment in order to protect the social and
moral welfare of the community.

Clearly, with respect to cafes, restaurants, beerhouses, hotels, motels, inns, pension houses, lodging houses,
and other similar establishments, the only power of the City Council to legislate relative thereto is to regulate
them to promote the general welfare. The Code still withholds from cities the power to suppress and prohibit
altogether the establishment, operation and maintenance of such establishments. It is well to recall the rulings
of the Court in Kwong Sing v. City of Manila 105 that:

The word "regulate," as used in subsection (l), section 2444 of the Administrative Code,
means and includes the power to control, to govern, and to restrain; but "regulate" should not
be construed as synonymous with "suppress" or "prohibit." Consequently, under the power to
regulate laundries, the municipal authorities could make proper police regulations as to the
mode in which the employment or business shall be exercised. 106

And in People v. Esguerra, 107 wherein the Court nullified an ordinance of the Municipality of Tacloban which
prohibited the selling, giving and dispensing of liquor ratiocinating that the municipality is empowered only to
regulate the same and not prohibit. The Court therein declared that:

(A)s a general rule when a municipal corporation is specifically given authority or power to
regulate or to license and regulate the liquor traffic, power to prohibit is impliedly withheld. 108

These doctrines still hold contrary to petitioners' assertion 109 that they were modified by the Code vesting
upon City Councils prohibitory powers.

Similarly, the City Council exercises regulatory powers over public dancing schools, public dance halls, sauna
baths, massage parlors, and other places for entertainment or amusement as found in the first clause of
Section 458 (a) 4 (vii). Its powers to regulate, suppress and suspend "such other events or activities for
amusement or entertainment, particularly those which tend to disturb the community or annoy the inhabitants"
and to "prohibit certain forms of amusement or entertainment in order to protect the social and moral welfare of
the community" are stated in the second and third clauses, respectively of the same Section. The several
powers of the City Council as provided in Section 458 (a) 4 (vii) of the Code, it is pertinent to emphasize, are
separated by semi-colons (;), the use of which indicates that the clauses in which these powers are set forth
are independent of each other albeit closely related to justify being put together in a single enumeration or
24
paragraph. 110 These powers, therefore, should not be confused, commingled or consolidated as to create a
conglomerated and unified power of regulation, suppression and prohibition. 111

The Congress unequivocably specified the establishments and forms of amusement or entertainment subject
to regulation among which are beerhouses, hotels, motels, inns, pension houses, lodging houses, and other
similar establishments (Section 458 (a) 4 (iv)), public dancing schools, public dance halls, sauna baths,
massage parlors, and other places for entertainment or amusement (Section 458 (a) 4 (vii)). This enumeration
therefore cannot be included as among "other events or activities for amusement or entertainment, particularly
those which tend to disturb the community or annoy the inhabitants" or "certain forms of amusement or
entertainment" which the City Council may suspend, suppress or prohibit. AEDcIH

The rule is that the City Council has only such powers as are expressly granted to it and those which are
necessarily implied or incidental to the exercise thereof. By reason of its limited powers and the nature thereof,
said powers are to be construed strictissimi juris and any doubt or ambiguity arising out of the terms used in
granting said powers must be construed against the City Council. 112 Moreover, it is a general rule in statutory
construction that the express mention of one person, thing, or consequence is tantamount to an express
exclusion of all others. Expressio unius est exclusio alterium. This maxim is based upon the rules of logic and
the natural workings of human mind. It is particularly applicable in the construction of such statutes as create
new rights or remedies, impose penalties or punishments, or otherwise come under the rule of strict
construction. 113

The argument that the City Council is empowered to enact the Ordinance by virtue of the general welfare
clause of the Code and of Art. 3, Sec. 18 (kk) of the Revised Charter of Manila is likewise without merit. On the
first point, the ruling of the Court in People v. Esguerra, 114 is instructive. It held that:

The powers conferred upon a municipal council in the general welfare clause, or section 2238
of the Revised Administrative Code, refers to matters not covered by the other provisions of
the same Code, and therefore it can not be applied to intoxicating liquors, for the power to
regulate the selling, giving away and dispensing thereof is granted specifically by section 2242

(a) to municipal councils. To hold that, under the general power granted by section 2238, a
municipal council may enact the ordinance in question, notwithstanding the provision of
section 2242 (g), would be to make the latter superfluous and nugatory, because the power to
prohibit, includes the power to regulate, the selling, giving away and dispensing of intoxicating
liquors.

On the second point, it suffices to say that the Code being a later expression of the legislative will must
necessarily prevail and override the earlier law, the Revised Charter of Manila. Legis posteriores priores
contrarias abrogant, or later statute repeals prior ones which are repugnant thereto. As between two laws on
the same subject matter, which are irreconcilably inconsistent, that which is passed later prevails, since it is the
latest expression of legislative will. 115 If there is an inconsistency or repugnance between two statutes, both
relating to the same subject matter, which cannot be removed by any fair and reasonable method of
interpretation, it is the latest expression of the legislative will which must prevail and override the earlier. 116

Implied repeals are those which take place when a subsequently enacted law contains provisions contrary to
those of an existing law but no provisions expressly repealing them. Such repeals have been divided into two
general classes: those which occur where an act is so inconsistent or irreconcilable with an existing prior act
that only one of the two can remain in force and those which occur when an act covers the whole subject of an
earlier act and is intended to be a substitute therefor. The validity of such a repeal is sustained on the ground
that the latest expression of the legislative will should prevail. 117

In addition, Section 534(f) of the Code 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." Thus, submitting to
petitioners' interpretation that the Revised Charter of Manila empowers the City Council to prohibit motels, that
portion of the Charter stating such must be considered repealed by the Code as it is at variance with the
latter's provisions granting the City Council mere regulatory powers. ESCacI

It is well to point out that petitioners also cannot seek cover under the general welfare clause authorizing the
abatement of nuisances without judicial proceedings. That tenet applies to a nuisance per se, or one which
affects the immediate safety of persons and property and may be summarily abated under the undefined law of
necessity. It can not be said that motels are injurious to the rights of property, health or comfort of the
community. It is a legitimate business. If it be a nuisance per accidens it may be so proven in a hearing 25
conducted for that purpose. A motel is not per se a nuisance warranting its summary abatement without judicial
intervention.118

Notably, the City Council was conferred powers to prevent and prohibit certain activities and establishments in
another section of the Code which is reproduced as follows:

Section 458.Powers, Duties, Functions and Compensation. — (a) The sangguniang

panlungsod, as the legislative body of the city, shall enact ordinances, approve resolutions
and appropriate funds for the general welfare of the city and its inhabitants pursuant to
Section 16 of this Code and in the proper exercise of the corporate powers of the city as
provided for under Section 22 of this Code, and shall:

(1)Approve ordinances and pass resolutions necessary for an efficient and effective city
government, and in this connection, shall:

xxx xxx xxx

(v)Enact ordinances intended to prevent, suppress and impose appropriate penalties for
habitual drunkenness in public places, vagrancy, mendicancy, prostitution, establishment and
maintenance of houses of ill repute, gambling and other prohibited games of chance,
fraudulent devices and ways to obtain money or property, drug addiction, maintenance of drug
dens, drug pushing, juvenile delinquency, the printing, distribution or exhibition of obscene or
pornographic materials or publications, and such other activities inimical to the welfare and
morals of the inhabitants of the city;

xxx xxx xxx

If it were the intention of Congress to confer upon the City Council the power to prohibit the establishments
enumerated in Section 1 of the Ordinance, it would have so declared in uncertain terms by adding them to the
list of the matters it may prohibit under the above-quoted Section. The Ordinance now vainly attempts to lump
these establishments with houses of ill-repute and expand the City Council's powers in the second and third
clauses of Section 458 (a) 4 (vii) of the Code in an effort to overreach its prohibitory powers. It is evident that
these establishments may only be regulated in their establishment, operation and maintenance.

It is important to distinguish the punishable activities from the establishments themselves. That these
establishments are recognized legitimate enterprises can be gleaned from another Section of the Code.
Section 131 under the Title on Local Government Taxation expressly mentioned proprietors or operators of
massage clinics, sauna, Turkish and Swedish baths, hotels, motels and lodging houses as among the
"contractors" defined in paragraph (h) thereof. The same Section also defined "amusement" as a "pleasurable
diversion and entertainment," "synonymous to relaxation, avocation, pastime or fun;" and "amusement places"
to include "theaters, cinemas, concert halls, circuses and other places of amusement where one seeks
admission to entertain oneself by seeing or viewing the show or performances." Thus, it can be inferred that
the Code considers these establishments as legitimate enterprises and activities. It is well to recall the maxim
reddendo singula singulis which means that words in different parts of a statute must be referred to their
appropriate connection, giving to each in its place, its proper force and effect, and, if possible, rendering none
of them useless or superfluous, even if strict grammatical construction demands otherwise. Likewise, where
words under consideration appear in different sections or are widely dispersed throughout an act the same
principle applies. 119

Not only does the Ordinance contravene the Code, it likewise runs counter to the provisions of P.D. 499. As
correctly argued by MTDC, the statute had already converted the residential Ermita-Malate area into a
commercial area. The decree allowed the establishment and operation of all kinds of commercial
establishments except warehouse or open storage depot, dump or yard, motor repair shop, gasoline service
station, light industry with any machinery or funeral establishment. The rule is that for an ordinance to be valid
and to have force and effect, it must not only be within the powers of the council to enact but the same must
not be in conflict with or repugnant to the general law. 120 As succinctly illustrated in Solicitor General v.
Metropolitan Manila Authority: 121

The requirement that the enactment must not violate existing law explains itself. Local political
subdivisions are able to legislate only by virtue of a valid delegation of legislative power from
the national legislature (except only that the power to create their own sources of revenue and
26
 to levy taxes is conferred by the Constitution itself). They are mere agents vested with what is
called the power of subordinate legislation. As delegates of the Congress, the local
government units cannot contravene but must obey at all times the will of their principal. In the
case before us, the enactment in question, which are merely local in origin cannot prevail
against the decree, which has the force and effect of a statute. 122

Petitioners contend that the Ordinance enjoys the presumption of validity. While this may be the rule, it has
already been held that although the presumption is always in favor of the validity or reasonableness of the
ordinance, such presumption must nevertheless be set aside when the invalidity or unreasonableness appears
on the face of the ordinance itself or is established by proper evidence. The exercise of police power by the
local government is valid unless it contravenes the fundamental law of the land, or an act of the legislature, or
unless it is against public policy or is unreasonable, oppressive, partial, discriminating or in derogation of a
common right. 123

Conclusion

All considered, the Ordinance invades fundamental personal and property rights and impairs personal
privileges. It is constitutionally infirm. The Ordinance contravenes statutes; it is discriminatory and
unreasonable in its operation; it is not sufficiently detailed and explicit that abuses may attend the enforcement
of its sanctions. And not to be forgotten, the City Council under the Code had no power to enact the Ordinance
and is therefore ultra vires, null and void. cHCSDa

Concededly, the challenged Ordinance was enacted with the best of motives and shares the concern of the
public for the cleansing of the Ermita-Malate area of its social sins. Police power legislation of such character
deserves the full endorsement of the judiciary — we reiterate our support for it. But inspite of its virtuous aims,
the enactment of the Ordinance has no statutory or constitutional authority to stand on. Local legislative
bodies, in this case, the City Council, cannot prohibit the operation of the enumerated establishments under
Section 1 thereof or order their transfer or conversion without infringing the constitutional guarantees of due
process and equal protection of laws — not even under the guise of police power.

WHEREFORE, the Petition is hereby DENIED and the decision of the Regional Trial Court declaring the
Ordinance void is AFFIRMED. Costs against petitioners.

SO ORDERED.

Davide, Jr., C.J., Puno, Quisumbing, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Carpio-Morales,
Callejo, Sr., Azcuna, Chico-Nazario and Garcia, JJ., concur.

Panganiban, J., concurs in the result.

Ynares-Santiago, J., concurs in the result only.

a) (City of Manila v. Laguio, Jr., G.R. No. 118127, [April 12, 2005], 495 PHIL 289-338)

Pollution Adjudication Board v. Court of Appeals, G.R. No. 93891 (Resolution), [March 11, 1991], 272-A PHIL
66-80

THIRD DIVISION

[G.R. No. 93891. March 11, 1991.]

POLLUTION ADJUDICATION BOARD, petitioner, vs. COURT OF APPEALS and SOLAR

TEXTILE FINISHING CORPORATION, respondents.

Oscar A. Pascua and Charemon Clio L. Borre for petitioner.

Leonardo A. Aurelio for respondent Solar Textile Finishing Corp.

SYLLABUS

27
d) ADMINISTRATIVE LAW; POLLUTION ADJUDICATION BOARD; MAY ISSUE CEASE AND DESIST
ORDERS EX-PARTE; BASIS. — Section 7(a) of P.D. No. 984 authorized petitioner Board to issue ex parte
cease and desist orders. An ex parte cease and desist order may be issued by the Board (a) whenever the
wastes discharged by an establishment pose an "immediate threat to life, public health, safety or welfare, or to
animal or plant life," or (b) whenever such discharges or wastes exceed "the allowable standards set by the
[NPCC]." On the one hand, it is not essential that the Board prove that an "immediate threat to life, public
health, safety or welfare, or to animal or plant life" exists before an ex parte cease and desist order may be
issued. It is enough if the Board finds that the wastes discharged do exceed "the allowable standards set by
the [NPCC]." In respect of discharges of wastes as to which allowable standards have been set by the
Commission, the Board may issue an ex partecease and desist order when there is prima facie evidence of an
establishment exceeding such allowable standards. Where, however, the effluents or discharges have not yet
been the subject matter of allowable standards set by the Commission, then the Board may act on an ex parte
basis when it finds at least prima facie proof that the wastewater or material involved presents an "immediate
threat to life, public health, safety or welfare or to animal or plant life." Since the applicable standards set by
the Commission existing at any given time may well not cover every possible or imaginable kind of effluent or
waste discharge, the general standard of an "immediate threat to life public health, safety or welfare, or to
animal and plant life" remains necessary.

e) POLITICAL LAW; POLICE POWER; ENACTMENT OF POLLUTION CONTROL STATUTES AND

IMPLEMENTING REGULATIONS, AN EXERCISE THEREOF. — The relevant pollution control statute and
implementing regulations were enacted and promulgated in the exercise of that persuasive, sovereign power to
protect the safety, health, and general welfare and comfort of the public, as well as the protection of plant and
animal life, commonly designated as the police power.

f) CONSTITUTIONAL LAW; DUE PROCESS; YIELDS TO THE EXERCISE OF POLICE POWER. — It is a

constitutional common place that the ordinary requirements of procedural due process yield to the necessities
of protecting vital public interests like those here involved, through the exercise of police power.

g) ADMINISTRATIVE LAW; POLLUTION ADJUDICATION BOARD; DUE PROCESS; HOLDING OF PUBLIC

HEARING AFTER EX-PARTE ISSUANCE OF A CEASE AND DESIST ORDER, SUFFICIENT COMPLIANCE
WITH DUE PROCESS CLAUSE. — Where the establishment affected by an ex parte cease and desist order
contests the correctness of the prima facie findings of the Board, the Board must hold a public hearing where
such establishment would have an opportunity to controvert the basis of such ex parte order. That such an
opportunity is subsequently available is really all that is required by the due process clause of the Constitution
in situations like that we have here.

REMEDIAL LAW; ACTIONS; APPEAL; PROPER REMEDY WHERE QUESTIONED ORDER

AND WRIT OF EXECUTION WHERE LAWFUL. — Solar claims finally that the petition for certiorari was
the proper remedy as the questioned Order and Writ of Execution issued by the Board were patent
nullities. Since we have concluded that Order and Writ of Execution were entirely within the lawful authority
of petitioner Board, the trial court did not err when it dismissed Solar's petition for certiorari. It follows that
the proper remedy was an appeal from the trial court to the Court of Appeals, as Solar did in fact appeal.

RESOLUTION

FELICIANO, J p:

Petitioner Pollution Adjudication Board ("Board") asks us to review the Decision and Resolution promulgated
on 7 February 1990 and 10 May 1990, respectively, by the Court of Appeals in C.A.-G.R. No. SP 18821
entitled "Solar Textile Finishing Corporation v. Pollution Adjudication Board." In that Decision and Resolution,
the Court of Appeals reversed an order of the Regional Trial Court, Quezon City, Branch 77, in Civil Case No.
Q-89-2287 dismissing private respondent Solar Textile Finishing Corporation's ("Solar") petition for certiorari
and remanded the case to the trial court for further proceedings.

On 22 September 1988, petitioner Board issued an ex parte Order directing Solar immediately to cease and
desist from utilizing its wastewater pollution source installations which were discharging untreated wastewater
directly into a canal leading to the adjacent Tullahan-Tinejeros River. The Order signed by Hon. Fulgencio
Factoran, Jr., as Board Chairman, reads in full as follows:

28
 "Respondent, Solar Textile Finishing Corporation with plant and place of business at 999
General Pascual Avenue, Malabon, Metro Manila is involved in bleaching, rinsing and dyeing
textiles with wastewater of about 30 gpm. being directly discharged untreated into the sewer.
Based on findings in the Inspections conducted on 05 November 1986 and 15 November
1986, the volume of untreated wastewater discharged in the final outfall outside of the plant's
compound was even greater. The result of inspection conducted on 06 September 1988
showed that respondent's Wastewater Treatment Plant was noted unoperational and the
combined wastewater generated from its operation was about 30 gallons per minute and 80%
of the wastewater was being directly discharged into a drainage canal leading to the Tullahan-
Tinejeros River by means of a by-pass and the remaining 20% was channeled into the plant's
existing Wastewater Treatment Plant (WTP). Result of the analyses of the sample taken from
the by - pass showed that the wastewater is highly pollutive in terms of Color units, BOD and
Suspended Solids, among others. These acts of respondent in spite of directives to comply
with the requirements are clearly in violation of Section 8 of Presidential Decree No. 984 and
Section 103 of its Implementing Rules and Regulations and the 1982 Effluent Regulations.

WHEREFORE, pursuant to Section 7 of P.D. 984 and Section 38 of its Implementing Rules
and Regulations, respondent is hereby ordered to cease and desist from utilizing its
wastewater pollution source installations and discharging its untreated wastewater directly into
the canal leading to the Tullahan-Tinejeros River effective immediately upon receipt hereof
and until such time when it has fully complied with all the requirements and until further orders
from this Board.

SO ORDERED." 1

We note that the above Order was based on findings of several inspections of Solar's plant:

a. inspections conducted on 5 November 1986 and 12 November 1986 by the National

Pollution Control Commission ("NPCC"), the predecessor of the Board; 2 and

b. the inspection conducted on 6 September 1988 by the Department of Environment and

Natural Resources ("DENR").

The findings of these two (2) inspections were that Solar's wastewater treatment plant was non-operational
and that its plant generated about 30 gallons per minute of wastewater, 80% of which was being directly
discharged into a drainage canal leading to the Tullahan-Tinejeros River. The remaining 20% of the
wastewater was being channeled through Solar's non-operational wastewater treatment plant. Chemical
analysis of samples of Solar's effluents showed the presence of pollutants on a level in excess of what was
permissible under P.D. No. 984 and its Implementing Regulations.

A copy of the above Order was received by Solar on 26 September 1988. A Writ of Execution issued by the
Board was received by Solar on 31 March 1989.

Meantime, Solar filed a motion for reconsideration appeal with prayer for stay of execution of the Order dated
22 September 1988. Acting on this motion, the Board issued an Order dated 24 April 1989 allowing Solar to
operate temporarily, to enable the Board to conduct another inspection and evaluation of Solar's wastewater
treatment facilities. In the same Order, the Board directed the Regional Executive Director of the DENR NCR
to conduct the inspection and evaluation within thirty (30) days.

On 21 April 1989, however, Solar went to the Regional Trial Court of Quezon City, Branch 77, on petition for
certiorari with preliminary injunction against the Board, the petition being docketed as Civil Case No. Q-89-
2287.

On 21 July 1989, the Regional Trial Court dismissed Solar's petition upon two (2) grounds, i.e., that appeal and
not certiorari from the questioned Order of the Board as well as the Writ of Execution was the proper remedy,
and that the Board's subsequent Order allowing Solar to operate temporarily had rendered Solar's petition
moot and academic.

Dissatisfied, Solar went on appeal to the Court of Appeals which, in the Decision here assailed, reversed the
Order of dismissal of the trial court and remanded the case to that court for further proceedings. In addition, the
Court of Appeals declared the Writ of Execution null and void. At the same time, the Court of Appeals said in
the dispositive portion of its Decision that:
29
 ". . . Still and all, this decision is without prejudice to whatever action the appellee [Board] may
take relative to the projected 'inspection and evaluation' of appellant's [Solar's] water
treatment facilities." 3

The Court of Appeals, in so ruling, held that certiorari was a proper remedy since the Orders of petitioner
Board may result in great and irreparable injury to Solar; and that while the case might be moot and academic,
"larger issues" demanded that the question of due process be settled. Petitioner Board moved for
reconsideration, without success. prcd

The Board is now before us on a Petition for Review basically arguing that:

f) its ex parte Order dated 22 September 1988 and the Writ of Execution were issued
in accordance with law and were not violative of the requirements of due
process; and

g) the ex parte Order and the Writ of Execution are not the proper subjects of a petition
for certiorari.

The only issue before us at this time is whether or not the Court of Appeals erred in reversing the trial court on
the ground that Solar had been denied due process by the Board. LibLex

Petitioner Board claims that under P.D. No. 984, Section 7(a), it has legal authority to issue ex parte orders to
suspend the operations of an establishment when there isprima facie evidence that such establishment is
discharging effluents or wastewater, the pollution level of which exceeds the maximum permissible standards
set by the NPCC (now, the Board). Petitioner Board contends that the reports before it concerning the effluent
discharges of Solar into the Tullahan-Tinejeros River provided prima facie evidence of violation by Solar of
Section 5 of the 1982 Effluent Code.

Solar, on the other hand, contends that under the Board's own rules and regulations, an ex parte order may
issue only if the effluents discharged pose an "immediate threat to life, public health; safety or welfare, or to
animal and plant life." In the instant case, according to Solar, the inspection reports before the Board made no
finding that Solar's wastewater discharged posed such a threat.

The Court is not persuaded by Solar's contention. Section 7(a) of P.D. No. 984 authorized petitioner Board to
issue ex parte cease and desist orders under the following circumstances:

"P.D. 984, Section 7, paragraph (a), provides:

h) Public Hearing . . . Provided, That whenever the Commission finds prima facie evidence
that the discharged sewage or wastes are of immediate threat to life, public health, safety or
welfare, or to animal or plant life, or exceeds the allowable standards set by the Commission,
the Commissioner may issue an ex-parte order directing the discontinuance of the same or
the temporary suspension or cessation of operation of the establishment or person generating
such sewage or wasteswithout the necessity of a prior public hearing. The said ex-parte order
shall be immediately executory and shall remain in force until said establishment or person
prevents or abates the said pollution within the allowable standards or modified or nullified by
a competent court." (Emphasis supplied).

We note that under the above-quoted portion of Section 7(a) of P.D. No. 984, an ex parte cease and desist
order may be issued by the Board (a) whenever the wastes discharged by an establishment pose an
"immediate threat to life, public health, safety or welfare, or to animal or plant life," or (b) whenever such
discharges or wastes exceed "the allowable standards set by the [NPCC]." On the one hand, it is not essential
that the Board prove that an "immediate threat to life, public health, safety or welfare, or to animal or plant life"
exists before an ex parte cease and desist order may be issued. It is enough if the Board finds that the wastes
discharged do exceed "the allowable standards set by the [NPCC]." In respect of discharges of wastes as to
which allowable standards have been set by the Commission, the Board may issue an ex parte cease and
desist order when there is prima facie evidence of an establishment exceeding such allowable standards.
Where, however, the effluents or discharges have not yet been the subject matter of allowable standards set
by the Commission, then the Board may act on an ex parte basis when it finds at least prima facie proof that
the wastewater or material involved presents an "immediate threat to life, public health, safety or welfare or to
animal or plant life." Since the applicable standards set by the Commission existing at any given time may well
30
not cover every possible or imaginable kind of effluent or waste discharge, the general standard of an
"immediate threat to life public health, safety or welfare, or to animal and plant life" remains necessary. Cdpr

Upon the other hand, the Court must assume that the extant allowable standards have been set by the
Commission or Board precisely in order to avoid or neutralize an "immediate threat to life, public health, safety
or welfare, or to animal or plant life."

Section 5 of the Effluent Regulations of 1982 4 sets out the maximum permissible levels of physical and
chemical substances which effluents from domestic wastewater treatment plants and industrial plants must not
exceed "when discharged into bodies of water classified as Class A, B, C, D, SB and SC in accordance with
the 1978 NPCC Rules and Regulations." The waters of Tullahan-Tinejeros River are classified as inland
waters Class D under Section 68 of the 1978 NPCC Rules and Regulations, 5 which in part provides that:

"Section 68. Water Usage and Classification. — The quality of Philippine waters shall be
maintained in a safe and satisfactory condition according to their best usages. For this
purpose, all water shall be classified according to the following beneficial usages:

j) Fresh Surface Water.

Classification Best usage

xxx xxx xxx

Class D For agriculture, irrigation,

live stock watering and

industrial cooling and

processing

xxx xxx xxx

(Emphases supplied)

The reports on the inspections carried on Solar's wastewater treatment facilities on 5 and 12 November 1986
and 6 September 1988 set forth the following identical finding:

"a. For legal action in [view of] violation of Section 103 of the implementing rules and
regulations of P.D. No. 984 and Section 5 of the Effluent Regulations of 1982."6

Placing the maximum allowable standards set in Section 5 of the Effluent Regulations of 1982 alongside the
findings of the November 1986 and September 1988 inspection reports, we get the following results:

"Inland November September

Waters 1986 1988

(Class C & D) 7 Report 8 Report 9

Station 1 Station 1

2. Color in 100 a) Color units 250 125

platinum (Apparent

cobalt Color)
units

3. p H 6-8.5 b) pH 9.3 8.7

4. Tempera- 40 c) Temperature

ture in ºC (ºC)
3. Phenols in 0.1 d) Phenols in
mg./l. mg./l.

4. Suspended 75 e) Suspended 340 80

solids in solids in

31
 mg./l. mg./l.

2. BOD in 80 f) BOD (5-day) 1,100 152

mg./l mg./l.

3. oil/Grease 10 g) Oil/Grease

in mg./l. mg./l.

6. Detergents 5 h) Detergents 2.93

in mg./l." mg./l. MBAS

Dissolved 0

Oxygen, mg./l.

||| Settleable 0.4 1.5

Matter, mg./l.

||| Total Dis- 800 610

solved Solids mg./l.

||| Total Solids 1,400 690

mg./l.

||| Turbidity

NTU/ppm. SiO3 70

The November 1986 inspections report concluded that:

"Records of the Commission show that the plant under its previous owner, Fine Touch
Finishing Corporation, was issued a Notice of Violation on 20 December 1985 directing same
to cease and desist from conducting dyeing operation until such time the waste treatment
plant is already completed and operational. The new owner Solar Textile Corporation informed
the Commission of the plant acquisition thru its letter dated March 1986 (sic).

The new owner was summoned to a hearing held on 13 October 1986 based on the adverse
findings during the inspection/water sampling test conducted on 08 August 1986. As per
instruction of the Legal Division a re-inspection/sampling test should be conducted first before
an appropriate legal action is instituted; hence, this inspection.

Based on the above findings, it is clear that the new owner continuously violates the directive
of the Commission by undertaking dyeing operation without completing first and operating its
existing WTP. The analysis of results on water samples taken showed that the untreated
wastewater from the firm pollutes our water resources. In this connection, it is recommended
that appropriate legal action be instituted immediately against the firm . . ." 10

The September 1988 inspection report's conclusions were:

"1. The plant was undertaking dyeing, bleaching and rinsing operations during the inspection.
The combined wastewater generated from the said operations was estimated at about 30
gallons per minute. About 80% of the wastewater was traced directly discharged into a
drainage canal leading to the Tullahan - Tinejeros river by means of a bypass. The remaining
20% was channeled into the plant's existing wastewater treatment plant (WTP).

1. The WTP was noted not yet fully operational — some accessories were not yet installed.
Only the sump pit and the holding/collecting tank are functional but appeared seldom used.
The wastewater mentioned channeled was noted held indefinitely into the collection tank for
primary treatment. There was no effluent discharge [from such collection tank].
32
 1. A sample from the bypass wastewater was collected for laboratory analyses. Result of the
analyses show that the bypass wastewater is polluted in terms of color units, BOD and
suspended solids, among others. (Please see attached laboratory result)." 11

From the foregoing reports, it is clear to this Court that there was at least prima facie evidence before the
Board that the effluents emanating from Solar's plant exceeded the maximum allowable levels of physical and
chemical substances set by the NPCC and that accordingly there was adequate basis supporting the ex
partecease and desist order issued by the Board. It is also well to note that the previous owner of the plant
facility — Fine Touch Finishing Corporation — had been issued a Notice of Violation on 20 December 1985
directing it to cease and refrain from carrying out dyeing operations until the water treatment plant was
completed and operational. Solar, the new owner, informed the NPCC of the acquisition of the plant on March
1986. Solar was summoned by the NPCC to a hearing on 13 October 1986 based on the results of the
sampling test conducted by the NPCC on 8 August 1986. Petitioner Board refrained from issuing an ex parte
cease and desist order until after the November 1986 and September 1988 re-inspections were conducted and
the violation of applicable standards was confirmed. In other words, petitioner Board appears to have been
remarkably forbearing in its efforts to enforce the applicable standards vis-a-vis Solar. Solar, on the other hand,
seemed very casual about its continued discharge of untreated, pollutive effluents into the Tullahan-Tinejeros
River, presumably loath to spend the money necessary to put its Wastewater Treatment Plant ("WTP") in an
operating condition. cdrep

In this connection, we note that in Technology Developers, Inc. v. Court of Appeals, et al., 12 the Court very
recently upheld the summary closure ordered by the Acting Mayor of Sta. Maria, Bulacan, of a pollution-
causing establishment, after finding that the records showed that:

"1. No mayor's permit had been secured. While it is true that the matter of determining
whether there is a pollution of the environment that requires control if not prohibition of the
operation of a business is essentially addressed to the then National Pollution Control
Commission of the Ministry of Human Settlements, now the Environmental Management
Bureau of the Department of Environment and Natural Resources, it must be recognized that
the mayor of a town has as much responsibility to protect its inhabitants from pollution, and by
virtue of his police power, he may deny the application for a permit to operate a business or
otherwise close the same unless appropriate measures are taken to control and or avoid
injury to the health of the residents of the community from the emission in the operation of the
business.

2. The Acting Mayor, in a letter of February 16, 1989, called the attention of petitioner to the
pollution emitted by the fumes of its plant whose offensive odor "not only pollute the air in the
locality but also affect the health of the residents in the area," so that petitioner was ordered to
stop its operation until further orders and it was required to bring the following:

xxx xxx

Region III-Department of Environment and Natural Resources Anti-Pollution

permit. (Annex A-2, petition).

3. This action of the Acting Mayor was in response to the complaint of the residents of
Barangay Guyong, Sta. Maria, Bulacan, directed to the Provincial Governor through channels
(Annex A-B, petition). . . .

4. The closure order of the Acting Mayor was issued only after an investigation was made by
Marivic Guina who in her report of December 8, 1988 observed that the fumes emitted by the
plant of petitioner goes directly to the surrounding houses and that no proper air pollution
device has been installed. (Annex A-9, petition).

xxx xxx

3. While petitioner was able to present a temporary permit to operate by the then National
Pollution Control Commission on December 15, 1987, the permit was good only up to May 25,
1988 (Annex A-12, petition). Petitioner had not exerted any effort to extend or validate its
permit much less to install any device to control the pollution and prevent any hazard to the
health of the residents of the community."
33
In the instant case, the ex parte cease and desist Order was issued not by a local government official but by
the Pollution Adjudication Board, the very agency of the Government charged with the task of determining
whether the effluents of a particular industrial establishment comply with or violate applicable anti-pollution
statutory and regulatory provisions.

Ex parte cease and desist orders are permitted by law and regulations in situations like that here presented
precisely because stopping the continuous discharge of pollutive and untreated effluents into the rivers and
other inland waters of the Philippines cannot be made to wait until protracted litigation over the ultimate
correctness or propriety of such orders has run its full course, including multiple and sequential appeals such
as those which Solar has taken, which of course may take several years. The relevant pollution control statute
and implementing regulations were enacted and promulgated in the exercise of that persuasive, sovereign
power to protect the safety, health, and general welfare and comfort of the public, as well as the protection of
plant and animal life, commonly designated as the police power. It is a constitutional common place that the
ordinary requirements of procedural due process yield to the necessities of protecting vital public interests like
those here involved, through the exercise of police power. The Board's ex parte Order and Writ of Execution
would, of course, have compelled Solar temporarily to stop its plant operations, a state of affairs Solar could in
any case have avoided by simply absorbing the bother and burden of putting its WTP on an operational basis.
Industrial establishments are not constitutionally entitled to reduce their capitals costs and operating expenses
and to increase their profits by imposing upon the public threats and risks to its safety, health, general welfare
and comfort, by disregarding the requirements of anti-pollution statutes and their implementing regulations. cdll

It should perhaps be made clear the Court is not here saying that the correctness of the ex parte Order and
Writ of Execution may not be contested by Solar in a hearing before the Board itself. Where the establishment
affected by an ex parte cease and desist order contests the correctness of the prima facie findings of the
Board, the Board must hold a public hearing where such establishment would have an opportunity to
controvert the basis of such ex parte order. That such an opportunity is subsequently available is really all that
is required by the due process clause of the Constitution in situations like that we have here. The Board's
decision rendered after the public hearing may then be tested judicially by an appeal to the Court of Appeals in
accordance with Section 7(c) of P.D. No. 984 and Section 42 of the Implementing Rules and Regulations. A
subsequent public hearing is precisely what Solar should have sought instead of going to court to seek
nullification of the Board's Order and Writ of Execution and instead of appealing to the Court of Appeals. It will
be recalled that the Board in fact gave Solar authority temporarily to continue operations until still another
inspection of its wastewater treatment facilities and then another analysis of effluent samples could be taken
and evaluated.

Solar claims finally that the petition for certiorari was the proper remedy as the questioned Order and Writ of
Execution issued by the Board were patent nullities. Since we have concluded that Order and Writ of Execution
were entirely within the lawful authority of petitioner Board, the trial court did not err when it dismissed Solar's
petition for certiorari. It follows that the proper remedy was an appeal from the trial court to the Court of
Appeals, as Solar did in fact appeal.

ACCORDINGLY, the Petition for Review is given DUE COURSE and the Decision of the Court of Appeals
dated 7 February 1990 and its Resolution dated 10 May 1990 in A.C.-G.R. No. SP 18821 are hereby SET
ASIDE. The Order of petitioner Board dated 22 September 1988 and the Writ of Execution, as well as the
decision of the trial court dated 21 July 1989, are hereby REINSTATED, without prejudice to the right of Solar
to contest the correctness of the basis of the Board's Order and Writ of Execution at a public hearing before
the Board.

Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

||| (Pollution Adjudication Board v. Court of Appeals, G.R. No. 93891 (Resolution), [March 11, 1991], 272-A
PHIL 66-80)

Metropolitan Manila Development Authority v. Garin, G.R. No. 130230, [April 15, 2005], 496 PHIL 82-97

SECOND DIVISION

[G.R. No. 130230. April 15, 2005.]

34
 METROPOLITAN MANILA DEVELOPMENT AUTHORITY, petitioner, vs. DANTE O. GARIN,
respondent.

DECISION

CHICO-NAZARIO, J p:

At issue in this case is the validity of Section 5(f) of Republic Act No. 7924 creating the Metropolitan Manila
Development Authority (MMDA), which authorizes it to confiscate and suspend or revoke driver's licenses in
the enforcement of traffic laws and regulations.

The issue arose from an incident involving the respondent Dante O. Garin, a lawyer, who was issued a traffic
violation receipt (TVR) and his driver's license confiscated for parking illegally along Gandara Street, Binondo,
Manila, on 05 August 1995. The following statements were printed on the TVR:

YOU ARE HEREBY DIRECTED TO REPORT TO THE MMDA TRAFFIC OPERATIONS

CENTER PORT AREA MANILA AFTER 48 HOURS FROM DATE OF APPREHENSION FOR
DISPOSITION/APPROPRIATE ACTION THEREON. CRIMINAL CASE SHALL BE FILED
FOR FAILURE TO REDEEM LICENSE AFTER 30 DAYS.

VALID AS TEMPORARY DRIVER'S LICENSE FOR SEVEN DAYS FROM DATE OF

APPREHENSION. 1

Shortly before the expiration of the TVR's validity, the respondent addressed a letter 2 to then MMDA
Chairman Prospero Oreta requesting the return of his driver's license, and expressing his preference for his
case to be filed in court.

Receiving no immediate reply, Garin filed the original complaint 3 with application for preliminary injunction in
Branch 260 of the Regional Trial Court (RTC) of Parañaque, on 12 September 1995, contending that, in the
absence of any implementing rules and regulations, Sec. 5(f) of Rep. Act No. 7924 grants the MMDA unbridled
discretion to deprive erring motorists of their licenses, pre-empting a judicial determination of the validity of the
deprivation, thereby violating the due process clause of the Constitution. The respondent further contended
that the provision violates the constitutional prohibition against undue delegation of legislative authority,
allowing as it does the MMDA to fix and impose unspecified — and therefore unlimited — fines and other
penalties on erring motorists. SaHTCE

In support of his application for a writ of preliminary injunction, Garin alleged that he suffered and continues to
suffer great and irreparable damage because of the deprivation of his license and that, absent any
implementing rules from the Metro Manila Council, the TVR and the confiscation of his license have no legal
basis.

For its part, the MMDA, represented by the Office of the Solicitor General, pointed out that the powers granted
to it by Sec. 5(f) of Rep. Act No. 7924 are limited to the fixing, collection and imposition of fines and penalties
for traffic violations, which powers are legislative and executive in nature; the judiciary retains the right to
determine the validity of the penalty imposed. It further argued that the doctrine of separation of powers does
not preclude "admixture" of the three powers of government in administrative agencies. 4

The MMDA also refuted Garin's allegation that the Metro Manila Council, the governing board and policy
making body of the petitioner, has as yet to formulate the implementing rules for Sec. 5(f) of Rep. Act No. 7924
and directed the court's attention to MMDA Memorandum Circular No. TT-95-001 dated 15 April 1995.
Respondent Garin, however, questioned the validity of MMDA Memorandum Circular No. TT-95-001, as he
claims that it was passed by the Metro Manila Council in the absence of a quorum.

Judge Helen Bautista-Ricafort issued a temporary restraining order on 26 September 1995, extending the
validity of the TVR as a temporary driver's license for twenty more days. A preliminary mandatory injunction
was granted on 23 October 1995, and the MMDA was directed to return the respondent's driver's license.

On 14 August 1997, the trial court rendered the assailed decision 5 in favor of the herein respondent and held
that:
35
 a. There was indeed no quorum in that First Regular Meeting of the MMDA Council held on
March 23, 1995, hence MMDA Memorandum Circular No. TT-95-001, authorizing confiscation
of driver's licenses upon issuance of a TVR, is void ab initio.

b. The summary confiscation of a driver's license without first giving the driver an opportunity
to be heard; depriving him of a property right (driver's license) without DUE PROCESS; not
filling (sic) in Court the complaint of supposed traffic infraction, cannot be justified by any
legislation (and is) hence unconstitutional.

WHEREFORE, the temporary writ of preliminary injunction is hereby made permanent; th(e)
MMDA is directed to return to plaintiff his driver's license; th(e) MMDA is likewise ordered to
desist from confiscating driver's license without first giving the driver the opportunity to be
heard in an appropriate proceeding.

In filing this petition, 6 the MMDA reiterates and reinforces its argument in the court below and contends that a
license to operate a motor vehicle is neither a contract nor a property right, but is a privilege subject to
reasonable regulation under the police power in the interest of the public safety and welfare. The petitioner
further argues that revocation or suspension of this privilege does not constitute a taking without due process
as long as the licensee is given the right to appeal the revocation.

To buttress its argument that a licensee may indeed appeal the taking and the judiciary retains the power to
determine the validity of the confiscation, suspension or revocation of the license, the petitioner points out that
under the terms of the confiscation, the licensee has three options:

1. To voluntarily pay the imposable fine,

2. To protest the apprehension by filing a protest with the MMDA Adjudication

Committee, or

3. To request the referral of the TVR to the Public Prosecutor's Office.

The MMDA likewise argues that Memorandum Circular No. TT-95-001 was validly passed in the presence of a
quorum, and that the lower court's finding that it had not was based on a "misapprehension of facts," which the
petitioner would have us review. Moreover, it asserts that though the circular is the basis for the issuance of
TVRs, the basis for the summary confiscation of licenses is Sec. 5(f) of Rep. Act No. 7924 itself, and that such
power is self-executory and does not require the issuance of any implementing regulation or circular. SHacCD

Meanwhile, on 12 August 2004, the MMDA, through its Chairman Bayani Fernando, implemented
Memorandum Circular No. 04, Series of 2004, outlining the procedures for the use of the Metropolitan Traffic
Ticket (MTT) scheme. Under the circular, erring motorists are issued an MTT, which can be paid at any
Metrobank branch. Traffic enforcers may no longer confiscate drivers' licenses as a matter of course in cases
of traffic violations. All motorists with unredeemed TVRs were given seven days from the date of
implementation of the new system to pay their fines and redeem their license or vehicle plates. 7

It would seem, therefore, that insofar as the absence of a prima facie case to enjoin the petitioner from
confiscating drivers' licenses is concerned, recent events have overtaken the Court's need to decide this case,
which has been rendered moot and academic by the implementation of Memorandum Circular No. 04, Series
of 2004.

The petitioner, however, is not precluded from re-implementing Memorandum Circular No. TT-95-001, or any
other scheme, for that matter, that would entail confiscating drivers' licenses. For the proper implementation,
therefore, of the petitioner's future programs, this Court deems it appropriate to make the following
observations:

1 A license to operate a motor vehicle is a privilege that the state may withhold in the exercise of its
police power.

The petitioner correctly points out that a license to operate a motor vehicle is not a property right, but a
privilege granted by the state, which may be suspended or revoked by the state in the exercise of its police
power, in the interest of the public safety and welfare, subject to the procedural due process requirements.
This is consistent with our rulings in Pedro v. Provincial Board of Rizal 8 on the license to operate a cockpit,
Tan v. Director of Forestry 9 and Oposa v. Factoran 10 on timber licensing agreements, and Surigao Electric
Co., Inc. v. Municipality of Surigao 11 on a legislative franchise to operate an electric plant.
36
Petitioner cites a long list of American cases to prove this point, such as State ex. Rel. Sullivan, 12 which
states in part that, "the legislative power to regulate travel over the highways and thoroughfares of the state for
the general welfare is extensive. It may be exercised in any reasonable manner to conserve the safety of
travelers and pedestrians. Since motor vehicles are instruments of potential danger, their registration and the
licensing of their operators have been required almost from their first appearance. The right to operate them in
public places is not a natural and unrestrained right, but a privilege subject to reasonable regulation, under the
police power, in the interest of the public safety and welfare. The power to license imports further power to
withhold or to revoke such license upon noncompliance with prescribed conditions."

Likewise, the petitioner quotes the Pennsylvania Supreme Court in Commonwealth v. Funk, 13 to the effect
that: "Automobiles are vehicles of great speed and power. The use of them constitutes an element of danger to
persons and property upon the highways. Carefully operated, an automobile is still a dangerous
instrumentality, but, when operated by careless or incompetent persons, it becomes an engine of destruction.
The Legislature, in the exercise of the police power of the commonwealth, not only may, but must, prescribe
how and by whom motor vehicles shall be operated on the highways. One of the primary purposes of a system
of general regulation of the subject matter, as here by the Vehicle Code, is to insure the competency of the
operator of motor vehicles. Such a general law is manifestly directed to the promotion of public safety and is
well within the police power."

The common thread running through the cited cases is that it is the legislature, in the exercise of police power,
which has the power and responsibility to regulate how and by whom motor vehicles may be operated on the
state highways. HIAEcT

6. The MMDA is not vested with police power.

In Metro Manila Development Authority v. Bel-Air Village Association, Inc., 14 we categorically stated that Rep.
Act No. 7924 does not grant the MMDA with police power, let alone legislative power, and that all its functions
are administrative in nature.

The said case also involved the herein petitioner MMDA which claimed that it had the authority to open a
subdivision street owned by the Bel-Air Village Association, Inc. to public traffic because it is an agent of the
state endowed with police power in the delivery of basic services in Metro Manila. From this premise, the
MMDA argued that there was no need for the City of Makati to enact an ordinance opening Neptune Street to
the public.

Tracing the legislative history of Rep. Act No. 7924 creating the MMDA, we concluded that the MMDA is not a
local government unit or a public corporation endowed with legislative power, and, unlike its predecessor, the
Metro Manila Commission, it has no power to enact ordinances for the welfare of the community. Thus, in the
absence of an ordinance from the City of Makati, its own order to open the street was invalid.

We restate here the doctrine in the said decision as it applies to the case at bar: police power, as an inherent
attribute of sovereignty, is the power vested by the Constitution in the legislature to make, ordain, and establish
all manner of wholesome and reasonable laws, statutes and ordinances, either with penalties or without, not
repugnant to the Constitution, as they shall judge to be for the good and welfare of the commonwealth, and for
the subjects of the same.

Having been lodged primarily in the National Legislature, it cannot be exercised by any group or body of
individuals not possessing legislative power. The National Legislature, however, may delegate this power to
the president and administrative boards as well as the lawmaking bodies of municipal corporations or local
government units (LGUs). Once delegated, the agents can exercise only such legislative powers as are
conferred on them by the national lawmaking body.

Our Congress delegated police power to the LGUs in the Local Government Code of 1991. 15 A local
government is a "political subdivision of a nation or state which is constituted by law and has substantial
control of local affairs." 16 Local government units are the provinces, cities, municipalities and barangays,
which exercise police power through their respective legislative bodies.

Metropolitan or Metro Manila is a body composed of several local government units. With the passage of Rep.
Act No. 7924 in 1995, Metropolitan Manila was declared as a "special development and administrative region"
and the administration of "metro-wide" basic services affecting the region placed under "a development
authority" referred to as the MMDA. Thus:
37
 . . . [T]he powers of the MMDA are limited to the following acts: formulation, coordination,
regulation, implementation, preparation, management, monitoring, setting of policies,
installation of a system and administration. There is no syllable in R. A. No. 7924 that
grants the MMDA police power, let alone legislative power. Even the Metro Manila
Council has not been delegated any legislative power. Unlike the legislative bodies of the
local government units, there is no provision in R. A. No. 7924 that empowers the MMDA
or its Council to "enact ordinances, approve resolutions and appropriate funds for the
general welfare" of the inhabitants of Metro Manila. The MMDA is, as termed in the charter
itself, a "development authority." It is an agency created for the purpose of laying down
policies and coordinating with the various national government agencies, people's
organizations, non-governmental organizations and the private sector for the efficient
and expeditious delivery of basic services in the vast metropolitan area. All its
functions are administrative in nature and these are actually summed up in the charter
itself, viz:

"Sec. 2. Creation of the Metropolitan Manila Development Authority. — . . .

The MMDA shall perform planning, monitoring and coordinative functions, and in the
process exercise regulatory and supervisory authority over the delivery of metro-wide
services within Metro Manila, without diminution of the autonomy of the local
government units concerning purely local matters." IcHSCT

xxx xxx xxx

Clearly, the MMDA is not a political unit of government. The power delegated to the MMDA is
that given to the Metro Manila Council to promulgate administrative rules and regulations in
the implementation of the MMDA's functions. There is no grant of authority to enact
ordinances and regulations for the general welfare of the inhabitants of the metropolis.
17 (footnotes omitted, emphasis supplied)

Therefore, insofar as Sec. 5(f) of Rep. Act No. 7924 is understood by the lower court and by the petitioner to
grant the MMDA the power to confiscate and suspend or revoke drivers' licenses without need of any other
legislative enactment, such is an unauthorized exercise of police power.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Sec. 5(f) grants the MMDA with the duty to
enforce existing traffic rules and regulations.

Section 5 of Rep. Act No. 7924 enumerates the "Functions and Powers of the Metro Manila Development
Authority." The contested clause in Sec. 5(f) states that the petitioner shall "install and administer a single
ticketing system, fix, impose and collect fines and penalties for all kinds of violations of traffic rules and
regulations, whether moving or nonmoving in nature, and confiscate and suspend or revoke drivers' licenses in
the enforcement of such traffic laws and regulations, the provisions of Rep. Act No. 4136 18 and P.D. No. 1605
19 to the contrary notwithstanding," and that "(f)or this purpose, the Authority shall enforce all traffic laws and
regulations in Metro Manila, through its traffic operation center, and may deputize members of the PNP, traffic
enforcers of local government units, duly licensed security guards, or members of non-governmental
organizations to whom may be delegated certain authority, subject to such conditions and requirements as the
Authority may impose."

Thus, where there is a traffic law or regulation validly enacted by the legislature or those agencies to whom
legislative powers have been delegated (the City of Manila in this case), the petitioner is not precluded — and
in fact is duty-bound — to confiscate and suspend or revoke drivers' licenses in the exercise of its mandate of
transport and traffic management, as well as the administration and implementation of all traffic enforcement
operations, traffic engineering services and traffic education programs. 20

This is consistent with our ruling in Bel-Air that the MMDA is a development authority created for the purpose
of laying down policies and coordinating with the various national government agencies, people's
organizations, non-governmental organizations and the private sector, which may enforce, but not enact,
ordinances.

This is also consistent with the fundamental rule of statutory construction that a statute is to be read in a
manner that would breathe life into it, rather than defeat it, 21and is supported by the criteria in cases of this
nature that all reasonable doubts should be resolved in favor of the constitutionality of a statute. 22
38
A last word. The MMDA was intended to coordinate services with metro-wide impact that transcend local
political boundaries or would entail huge expenditures if provided by the individual LGUs, especially with
regard to transport and traffic management, 23 and we are aware of the valiant efforts of the petitioner to
untangle the increasingly traffic-snarled roads of Metro Manila. But these laudable intentions are limited by the
MMDA's enabling law, which we can but interpret, and petitioner must be reminded that its efforts in this
respect must be authorized by a valid law, or ordinance, or regulation arising from a legitimate source. AEDISC

WHEREFORE, the petition is dismissed.

SO ORDERED.

Puno, Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Metropolitan Manila Development Authority v. Garin, G.R.

No. 130230, [April 15, 2005], 496 PHIL 82-97)

Ortigas & Co. Ltd. v. Court of Appeals, G.R. No. 126102, [December 4, 2000], 400 PHIL 615-626

SECOND DIVISION

[G.R. No. 126102. December 4, 2000.]

ORTIGAS & CO. LTD., petitioner, vs. THE COURT OF APPEALS and ISMAEL G. MATHAY
III, respondents.

Atty. Eulogio R. Rodriguez for petitioner.

Puhawan Aldon & Associates Law Offices for private respondent.

SYNOPSIS

Petitioner Ortigas sold to the Hermosos a parcel of land in Greenhills Subdivision. The contract of sale
provided that the lot will be used for single-family residential building only and this was annotated at the back of
the title of the lot. In 1981, the Metropolitan Commission enacted MMC Ordinance No. 81-01 reclassifying as a
commercial zone the stretch of Ortigas Avenue from Roosevelt Street to Madison Street. Subsequently in
1984, private respondent Mathay III leased the lot from Hermoso and constructed a commercial building for
Greenhills Autohaus, Inc., a car sales company.

Petitioner filed Civil Case No. 4 seeking to enjoin the building by respondent of structure on the lot and sought
the demolition of the commercial structure for having violated the terms and conditions of the Deed of Sale.
The trial court issued the injunctive order ruling that the ordinance should be given prospective application. On
certiorari, however, the CA granted the petition, ruling that the trial court gravely abused its discretion in
refusing to treat MMC Ordinance No. 81-01 as applicable to Civil Case No. 64931. CA held that the ordinance
effectively nullified the restrictions allowing only residential use of the property in question.

In this petition, petitioner claims that even with the zoning ordinance, the seller and buyer of the re-classified lot
can voluntarily agree to an exclusive residential use thereof; and that respondent Mathay III as a mere lessee
of the lot in question, is a total stranger to the deed of sale and is thus barred from questioning the condition of
said deed.

The Supreme Court denied the petition, ruling: that while as a rule, laws are to be construed as having only
prospective operation, one exception is a law which involves police power, which could be given retroactive
effect and may reasonably impair vested rights or contracts; that the MMC Ordinance No. 81-01 has been held
to be a legitimate police power measure to which the non-impairment of contracts or vested rights clauses will
have to yield; and that Mathay III in this case is clearly a real party in interest because he holds the lot pursuant
to a valid lease and it is his building of a commercial structure which petitioner seeks to enjoin.

SYLLABUS

39
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ STATUTORY CONSTRUCTION; LAWS ARE
GENERALLY GIVEN PROSPECTIVE APPLICATION; LAW WHICH INVOLVES POLICE POWER IS AN
EXCEPTION. — In general, we agree that laws are to be construed as having only prospective operation. Lex
prospicit, non respicit. Equally settled, only laws existing at the time of the execution of a contract are
applicable thereto and are not later statutes, unless the latter are specifically intended to have a retroactive
effect. A later law which enlarges, abridges, or in any manner changes the intent of the parties to the contract
necessarily impairs the contract itself and cannot be given retroactive effect without violating the constitutional
prohibition against impairment of contracts. But, the foregoing principles do admit of certain exceptions. One
involves police power. A law enacted in the exercise of police power to regulate or govern certain activities or
transactions could be given retroactive effect and may reasonably impair vested rights or contracts. Police
power legislation is applicable not only to future contracts, but equally to those already in existence.
Nonimpairment of contracts or vested rights clauses will have to yield to the superior and legitimate exercise by
the State of police power to promote the health, morals, peace, education, good order, safety, and general
welfare of the people. Moreover, statutes in exercise of valid police power must be read into every contract.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CONSTITUTIONAL LAW; POLICE POWER;

CONTRACTUAL STIPULATIONS AND VESTED RIGHTS MUST YIELD TO POLICE POWER; CASE AT
BAR. — Noteworthy, inSangalang vs. Intermediate Appellate Court, we already upheld MMC Ordinance No.
81-01 as a legitimate police power measure. Following our ruling in Ortigas & Co., Ltd. vs. Feati Bank & Trust
Co., 94 SCRA 533 (1979), the contractual stipulations annotated on the Torrens Title, on which Ortigas relies,
must yield to the ordinance. When that stretch of Ortigas Avenue from Roosevelt Street to Madison Street was
reclassified as a commercial zone by the Metropolitan Manila Commission in March 1981, the restrictions in
the contract of sale between Ortigas and Hermoso, limiting all construction on the disputed lot to single-family
residential buildings, were deemed extinguished by the retroactive operation of the zoning ordinance and could
no longer be enforced. While our legal system upholds the sanctity of contract so that a contract is deemed law
between the contracting parties, nonetheless, stipulations in a contract cannot contravene "law, morals, good
customs, public order, or public policy." Otherwise such stipulations would be deemed null and void.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ REMEDIAL LAW; CIVIL PROCEDURE; REAL PARTY IN

INTEREST; LESSEE WHO BUILT COMMERCIAL STRUCTURE SOUGHT TO BE DEMOLISHED IS A REAL
PARTY IN INTEREST. — By real interest is meant a present substantial interest, as distinguished from a mere
expectancy or a future, contingent, subordinate, or consequential interest. Tested by the foregoing definition,
private respondent in this case is clearly a real party in interest. It is not disputed that he is in possession of the
lot pursuant to valid lease. He is a possessor in the concept of a "holder of the thing" under Article 525 of the
Civil Code. He was impleaded as a defendant in the amended complaint in Civil Case No. 64931. Further,
what petitioner seeks to enjoin is the building by respondent of a commercial structure on the lot. Clearly, it is
private respondent's acts which are in issue, and his interest in said issue cannot be a mere incidental interest.
In its amended complaint, petitioner prayed for, among others, judgment "ordering the demolition of all
improvements illegally built on the lot in question." These show that it is petitioner Mathay III, doing business
as "Greenhills Autohaus, Inc.," and not only the Hermosos, who will be adversely affected by the court's
decree. ACEIac

DECISION

QUISUMBING, J p:

This petition seeks to reverse the decision of the Court of Appeals, dated March 25, 1996, in CA-G.R. SP No.
39193, which nullified the writ of preliminary injunction issued by the Regional Trial Court of Pasig City, Branch
261, in Civil Case No. 64931. It also assails the resolution of the appellate court, dated August 13, 1996,
denying petitioner's motion for reconsideration. ATcEDS

The facts of this case, as culled from the records, are as follows:

On August 25, 1976, petitioner Ortigas & Company sold to Emilia Hermoso, a parcel of land known as Lot 1,
Block 21, Psd-66759, with an area of 1,508 square meters, located in Greenhills Subdivision IV, San Juan,
Metro Manila, and covered by Transfer Certificate of Title No. 0737. The contract of sale provided that the lot:

1. . . . (1) be used exclusively . . . for residential purposes only, and not more than one
single-family residential building will be constructed thereon, . . .
40
 xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The BUYER shall not erect . .

. any sign or billboard on the roof . . . for advertising purposes . . .

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ No single-family residential

building shall be erected . . . until the building plans, specification . . . have
been approved by the SELLER . . .

xxx xxx xxx

14. . . . restrictions shall run with the land and shall be construed as real covenants
until December 31, 2025 when they shall cease and terminate . . . 1

These and the other conditions were duly annotated on the certificate of title issued to Emilia.

In 1981, the Metropolitan Manila Commission (now Metropolitan Manila Development Authority) enacted MMC
Ordinance No. 81-01, also known as the Comprehensive Zoning Area for the National Capital Region. The
ordinance reclassified as a commercial area a portion of Ortigas Avenue from Madison to Roosevelt Streets of
Greenhills Subdivision where the lot is located.

On June 8, 1984, private respondent Ismael Mathay III leased the lot from Emilia Hermoso and J.P. Hermoso
Realty Corp.. The lease contract did not specify the purposes of the lease. Thereupon, private respondent
constructed a single story commercial building for Greenhills Autohaus, Inc., a car sales company.

On January 18, 1995, petitioner filed a complaint against Emilia Hermoso with the Regional Trial Court of
Pasig, Branch 261. Docketed as Civil Case No. 64931, the complaint sought the demolition of the said
commercial structure for having violated the terms and conditions of the Deed of Sale. Complainant prayed for
the issuance of a temporary restraining order and a writ of preliminary injunction to prohibit petitioner from
constructing the commercial building and/or engaging in commercial activity on the lot. The complaint was later
amended to implead Ismael G. Mathay III and J.P. Hermoso Realty Corp., which has a ten percent (10%)
interest in the lot.

In his answer, Mathay III denied any knowledge of the restrictions on the use of the lot and filed a cross-claim
against the Hermosos.

On June 16, 1995, the trial court issued the writ of preliminary injunction. On June 29, 1995, Mathay III moved
to set aside the injunctive order, but the trial court denied the motion.

Mathay III then filed with the Court of Appeals a special civil action for certiorari, docketed as CA-G.R. SP No.
39193, ascribing to the trial court grave abuse of discretion in issuing the writ of preliminary injunction. He
claimed that MMC Ordinance No. 81-01 classified the area where the lot was located as commercial area and
said ordinance must be read into the August 25, 1976 Deed of Sale as a concrete exercise of police power.

Ortigas and Company averred that inasmuch as the restrictions on the use of the lot were duly annotated on
the title it issued to Emilia Hermoso, said restrictions must prevail over the ordinance, specially since these
restrictions were agreed upon before the passage of MMC Ordinance No. 81-01.

On March 25, 1996, the appellate court disposed of the case as follows:

WHEREFORE, in light of the foregoing, the petition is hereby GRANTED. The assailed orders
are hereby nullified and set aside.

SO ORDERED. 2

In finding for Mathay III, the Court of Appeals held that the MMC Ordinance No. 81-01 effectively nullified the
restrictions allowing only residential use of the property in question.

Ortigas seasonably moved for reconsideration, but the appellate court denied it on August 13, 1996.

Hence, the instant petition.

In its Memorandum, petitioner now submits that the "principal issue in this case is whether respondent Court of
Appeals correctly set aside the Order dated June 16, 1995 of the trial court which issued the writ of preliminary
injunction on the sole ground that MMC Ordinance No. 81-01 nullified the building restriction imposing

41
exclusive residential use on the property in question." 3 It also asserts that "Mathay III lacks legal capacity to
question the validity of conditions of the deed of sale; and he is barred by estoppel or waiver to raise the same
question like his principals, the owners." 4 Lastly, it avers that the appellate court "unaccountably failed to
address" several questions of fact.

Principally, we must resolve the issue of whether the Court of Appeals erred in holding that the trial court
committed grave abuse of discretion when it refused to apply MMC Ordinance No. 81-01 to Civil Case No.
64931.

But first, we must address petitioner's allegation that the Court of Appeals "unaccountably failed to address"
questions of fact. For basic is the rule that factual issues may not be raised before this Court in a petition for
review and this Court is not duty-bound to consider said questions. 5 CA-G.R. SP No. 39193 was a special civil
action for certiorari, and the appellate court only had to determine if the trial court committed grave abuse of
discretion amounting to want or excess of jurisdiction in issuing the writ of preliminary injunction. Thus, unless
vital to our determination of the issue at hand, we shall refrain from further consideration of factual questions.

Petitioner contends that the appellate court erred in limiting its decision to the cited zoning ordinance. It avers
that a contractual right is not automatically discarded once a claim is made that it conflicts with police power.
Petitioner submits that the restrictive clauses in the questioned contract is not in conflict with the zoning
ordinance. For one, according to petitioner, the MMC Ordinance No. 81-01 did not prohibit the construction of
residential buildings. Petitioner argues that even with the zoning ordinance, the seller and buyer of the re-
classified lot can voluntarily agree to an exclusive residential use thereof. Hence, petitioner concludes that the
Court of Appeals erred in holding that the condition imposing exclusive residential use was effectively nullified
by the zoning ordinance. EcHAaS

In its turn, private respondent argues that the appellate court correctly ruled that the trial court had acted with
grave abuse of discretion in refusing to subject the contract to the MMC Ordinance No. 81-01. He avers that
the appellate court properly held the police power superior to the non-impairment of contract clause in the
Constitution. He concludes that the appellate court did not err in dissolving the writ of preliminary injunction
issued by the trial court in excess of its jurisdiction.

We note that in issuing the disputed writ of preliminary injunction, the trial court observed that the contract of
sale was entered into in August 1976, while the zoning ordinance was enacted only in March 1981. The trial
court reasoned that since private respondent had failed to show that MMC Ordinance No. 81-01 had
retroactive effect, said ordinance should be given prospective application only, 6 citing Co vs. Intermediate
Appellate Court, 162 SCRA 390 (1988).

In general, we agree that laws are to be construed as having only prospective operation. Lex prospicit, non
respicit. Equally settled, only laws existing at the time of the execution of a contract are applicable thereto and
not later statutes, unless the latter are specifically intended to have retroactive effect. 7 A later law which
enlarges, abridges, or in any manner changes the intent of the parties to the contract necessarily impairs the
contract itself 8 and cannot be given retroactive effect without violating the constitutional prohibition against
impairment of contracts. 9

But, the foregoing principles do admit of certain exceptions. One involves police power. A law enacted in the
exercise of police power to regulate or govern certain activities or transactions could be given retroactive effect
and may reasonably impair vested rights or contracts. Police power legislation is applicable not only to future
contracts, but equally to those already in existence. 10 Non-impairment of contracts or vested rights clauses
will have to yield to the superior and legitimate exercise by the State of police power to promote the health,
morals, peace, education, good order, safety, and general welfare of the people. 11 Moreover, statutes in
exercise of valid police power must be read into every contract. 12 Noteworthy, in Sangalang vs. Intermediate
Appellate Court, 13 we already upheld MMC Ordinance No. 81-01 as a legitimate police power measure.

The trial court's reliance on the Co vs. IAC, 14 is misplaced. In Co, the disputed area was agricultural and
Ordinance No. 81-01 did not specifically provide that "it shall have retroactive effect so as to discontinue all
rights previously acquired over lands located within the zone which are neither residential nor light industrial in
nature,"15 and stated with respect to agricultural areas covered that "the zoning ordinance should be given
prospective operation only." 16 The area in this case involves not agricultural but urban residential land.
Ordinance No. 81-01 retroactively affected the operation of the zoning ordinance in Greenhills by reclassifying
certain locations therein as commercial.

42
Following our ruling in Ortigas & Co., Ltd. vs. Feati Bank & Trust Co., 94 SCRA 533 (1979), the contractual
stipulations annotated on the Torrens Title, on which Ortigas relies, must yield to the ordinance. When that
stretch of Ortigas Avenue from Roosevelt Street to Madison Street was reclassified as a commercial zone by
the Metropolitan Manila Commission in March 1981, the restrictions in the contract of sale between Ortigas
and Hermoso, limiting all construction on the disputed lot to single-family residential buildings, were deemed
extinguished by the retroactive operation of the zoning ordinance and could no longer be enforced. While our
legal system upholds the sanctity of contract so that a contract is deemed law between the contracting parties,
17 nonetheless, stipulations in a contract cannot contravene "law, morals, good customs, public order, or
public policy." 18 Otherwise such stipulations would be deemed null and void. Respondent court correctly
found that the trial court committed in this case a grave abuse of discretion amounting to want of or excess of
jurisdiction in refusing to treat Ordinance No. 81-01 as applicable to Civil Case No. 64931. In resolving matters
in litigation, judges are not only duty-bound to ascertain the facts and the applicable laws, 19 they are also
bound by their oath of office to apply the applicable law. 20

As a secondary issue, petitioner contends that respondent Mathay III, as a mere lessee of the lot in question, is
a total stranger to the deed of sale and is thus barred from questioning the conditions of said deed. Petitioner
points out that the owners of the lot voluntarily agreed to the restrictions on the use of the lot and do not
question the validity of these restrictions. Petitioner argues that Mathay III as a lessee is merely an agent of the
owners, and could not override and rise above the status of his principals. Petitioner submits that he could not
have a higher interest than those of the owners, the Hermosos, and thus had no locus standi to file CA-G.R.
SP No. 39193 to dissolve the injunctive writ issued by the RTC of Pasig City.

For his part, private respondent argues that as the lessee who built the commercial structure, it is he and he
alone who stands to be either benefited or injured by the results of the judgment in Civil Case No. 64931. He
avers he is the party with real interest in the subject matter of the action, as it would be his business, not the
Hermosos', which would suffer had not the respondent court dissolved the writ of preliminary injunction.

A real party in interest is defined as "the party who stands to be benefited or injured by the judgment or the
party entitled to the avails of the suit." "Interest" within the meaning of the rule means material interest, an
interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved,
or a mere incidental interest. 21 By real interest is meant a present substantial interest, as distinguished from a
mere expectancy or a future, contingent, subordinate, or consequential interest. 22

Tested by the foregoing definition, private respondent in this case is clearly a real party in interest. It is not
disputed that he is in possession of the lot pursuant to a valid lease. He is a possessor in the concept of a
"holder of the thing" under Article 525 of the Civil Code. 23 He was impleaded as a defendant in the amended
complaint in Civil Case No. 64931. Further, what petitioner seeks to enjoin is the building by respondent of a
commercial structure on the lot. Clearly, it is private respondent's acts which are in issue, and his interest in
said issue cannot be a mere incidental interest. In its amended complaint, petitioner prayed for, among others,
judgment "ordering the demolition of all improvements illegally built on the lot in question." 24 These show that
it is petitioner Mathay III, doing business as "Greenhills Autohaus, Inc.," and not only the Hermosos, who will
be adversely affected by the court's decree.

Petitioner also cites the rule that a stranger to a contract has no rights or obligations under it, 25 and thus has
no standing to challenge its validity. 26 But in seeking to enforce the stipulations in the deed of sale, petitioner
impleaded private respondent as a defendant. Thus petitioner must recognize that where a plaintiff has
impleaded a party as a defendant, he cannot subsequently question the latter's standing in court. 27

WHEREFORE, the instant petition is DENIED. The challenged decision of the Court of Appeals dated March
25, 1996, as well as the assailed resolution of August 13, 1996, in CA-G.R. SP No. 39193 is AFFIRMED.
Costs against petitioner.

SO ORDERED.

Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Ortigas & Co. Ltd. v. Court of Appeals, G.R. No. 126102,
[December 4, 2000], 400 PHIL 615-626)
43
Professional Regulation Commission v. De Guzman, G.R. No. 144681, [June 21, 2004], 476 PHIL 596-623

SECOND DIVISION

[G.R. No. 144681. June 21, 2004.]

PROFESSIONAL REGULATION COMMISSION (PRC), CHAIRMAN HERMOGENES P. POBRE,

ASSOCIATE COMMISSIONER ARMANDO PASCUAL, BOARD OF MEDICINE, CHAIRMAN RODOLFO P.
DE GUZMAN, JOSE S. RAMIREZ, JUANITO B. BILLOTE, RUBEN R. POLICARPIO, EDGARDO T.
FERNANDO and RICARDO D. FULGENCIO II, petitioners, vs. ARLENE V. DE GUZMAN, VIOLETA V.
MENESES, CELERINA S. NAVARRO, JOSE RAMONCITO P. NAVARRO, ARNEL V. HERRERA and

GERALDINE ELIZABETH M. PAGILAGAN, ELNORA R. RAQUENO, MARISSA A. REGODON, LAURA M.

SANTOS, KARANGALAN D. SERRANO, DANILO A. VILLAVER, MARIA ROSARIO L. LEONOR, ALICIA S.
LIZANO, MARITEL M. ECHIVERRI, BERNADETTE T. MENDOZA, FERNANDO F. MANDAPAT, ALELI A.
GOLLAYAN, ELCIN C. ARRIOLA, HERMINIGILDA E. CONEJOS, SALLY B. BUNAGAN, ROGELIO B.
ANCHETA, OSCAR H. PADUA, JR., EVELYN D. GRAJO, EVELYN S. ACOSTA, MARGARITA BELINDA L.
VICENCIO, VALENTINO P. ARBOLEDA, EVELYN O. RAMOS, ACHILLES J. PERALTA, CORAZON M.
CRUZ, LEUVINA P. CHICO, JOSEPH A. JAO, MA. LUISA S. GUTIERREZ, LYDIA C. CHAN, OPHELIA C.
HIDALGO, FERNANDO T. CRUZ, MELVIN M. USITA, RAFAEL I. TOLENTINO, GRACE E. UY, CHERYL R.
TRIGUERO, MICHAEL L. SERRANO, FEDERICO L. CASTILLO, MELITA J. CAÑEDO, SAMUEL B.
BANGOY, BERNARDITA B. SY, GLORIA T. JULARBAL, FREDERICK D. FRANCISCO, CARLOS M.
BERNARDO, JR., HUBERT S. NAZARENO, CLARISSA B. BACLIG, DAYMINDA G. BONTUYAN,
BERNADETTE H. CABUHAT, NANCY J. CHAVEZ, MARIO D. CUARESMA, ERNESTO L. CUE, EVELYN C.
CUNDANGAN, RHONEIL R. DEVERATURDA, DERILEEN D. DORADO, SAIBZUR N. EDDING, VIOLETA C.
FELIPE, HERMINIO V. FERNANDEZ, JR., MARIA VICTORIA M. LACSAMANA, NORMA G. LAFAVILLA,
RUBY B. LANTIN, MA. ELOISA Q. MALLARI, CLARISA SJ. NICOLAS, PERCIVAL H. PANGILINAN,
ARNULFO A. SALVADOR, ROBERT B. SANCHEZ, MERLY D. STA. ANA and YOLANDA P. UNICA,
respondents.

DECISION

TINGA, J p:

This petition for review under Rule 45 of the 1997 Rules of Civil Procedure seeks to nullify the Decision, 1
dated May 16, 2000, of the Court of Appeals in CA-G.R. SP No. 37283. The appellate court affirmed the
judgment 2 dated December 19, 1994, of the Regional Trial Court (RTC) of Manila, Branch 52, in Civil Case
No. 93-66530. The trial court allowed the respondents to take their physician's oath and to register as duly
licensed physicians. Equally challenged is the Resolution 3 promulgated on August 25, 2000 of the Court of
Appeals, denying petitioners' Motion for Reconsideration.

The facts of this case are as follows:

The respondents are all graduates of the Fatima College of Medicine, Valenzuela City, Metro Manila. They
passed the Physician Licensure Examination conducted in February 1993 by the Board of Medicine (Board).
Petitioner Professional Regulation Commission (PRC) then released their names as successful examinees in
the medical licensure examination.

Shortly thereafter, the Board observed that the grades of the seventy-nine successful examinees from Fatima
College in the two most difficult subjects in the medical licensure exam, Biochemistry (Bio-Chem) and
Obstetrics and Gynecology (OB-Gyne), were unusually and exceptionally high. Eleven Fatima examinees
scored 100% in Bio-Chem and ten got 100% in OB-Gyne, another eleven got 99% in Bio-Chem, and twenty-
one scored 99% in OB-Gyne. The Board also observed that many of those who passed from Fatima got marks
of 95% or better in both subjects, and no one got a mark lower than 90%. A comparison of the performances of
the candidates from other schools was made. The Board observed that strangely, the unusually high ratings
were true only for Fatima College examinees. It was a record-breaking phenomenon in the history of the
Physician Licensure Examination.

44
On June 7, 1993, the Board issued Resolution No. 19, withholding the registration as physicians of all the
examinees from the Fatima College of Medicine. 4 The PRC asked the National Bureau of Investigation (NBI)
to investigate whether any anomaly or irregularity marred the February 1993 Physician Licensure Examination.

Prior to the NBI investigation, the Board requested Fr. Bienvenido F. Nebres, S.J., an expert mathematician
and authority in statistics, and later president of the Ateneo de Manila University, to conduct a statistical
analysis of the results in Bio-Chem and Ob-Gyne of the said examination.

On June 10, 1993, Fr. Nebres submitted his report. He reported that a comparison of the scores in Bio-Chem
and Ob-Gyne, of the Fatima College examinees with those of examinees from De La Salle University and
Perpetual Help College of Medicine showed that the scores of Fatima College examinees were not only
incredibly high but unusually clustered close to each other. He concluded that there must be some unusual
reason creating the clustering of scores in the two subjects. It must be a cause "strong enough to eliminate the
normal variations that one should expect from the examinees [of Fatima College] in terms of talent, effort,
energy, etc." 5

For its part, the NBI found that "the questionable passing rate of Fatima examinees in the [1993] Physician
Examination leads to the conclusion that the Fatima examinees gained early access to the test questions." 6

On July 5, 1993, respondents Arlene V. De Guzman, Violeta V. Meneses, Celerina S. Navarro, Jose
Ramoncito P. Navarro, Arnel V. Herrera, and Geraldine Elizabeth M. Pagilagan (Arlene V. De Guzman et al.,
for brevity) filed a special civil action for mandamus, with prayer for preliminary mandatory injunction docketed
as Civil Case No. 93-66530 with the Regional Trial Court (RTC) of Manila, Branch 52. Their petition was
adopted by the other respondents as intervenors.

Meanwhile, the Board issued Resolution No. 26, dated July 21, 1993, charging respondents with "immorality,
dishonest conduct, fraud, and deceit" in connection with the Bio-Chem and Ob-Gyne examinations. It
recommended that the test results of the Fatima examinees be nullified. The case was docketed as Adm. Case
No. 1687 by the PRC.

On July 28, 1993, the RTC issued an Order in Civil Case No. 93-66530 granting the preliminary mandatory
injunction sought by the respondents. It ordered the petitioners to administer the physician's oath to Arlene V.
De Guzman et al., and enter their names in the rolls of the PRC.

The petitioners then filed a special civil action for certiorari with the Court of Appeals to set aside the
mandatory injunctive writ, docketed as CA-G.R. SP No. 31701.

On October 21, 1993, the appellate court decided CA-G.R. SP No. 31701, with the dispositive portion of the

Decision ordaining as follows:

WHEREFORE, this petition is GRANTED. Accordingly, the writ of preliminary mandatory injunction issued by
the lower court against petitioners is hereby nullified and set aside.

SO ORDERED. 7

Arlene V. de Guzman, et al., then elevated the foregoing Decision to this Court in G.R. No. 112315. In our
Resolution dated May 23, 1994, we denied the petition for failure to show reversible error on the part of the
appellate court. DcCEHI

Meanwhile, on November 22, 1993, during the pendency of the instant petition, the pre-trial conference in Civil
Case No. 93-66530 was held. Then, the parties, agreed to reduce the testimonies of their respective witnesses
to sworn questions-and-answers. This was without prejudice to cross-examination by the opposing counsel.

On December 13, 1993, petitioners' counsel failed to appear at the trial in the mistaken belief that the trial was
set for December 15. The trial court then ruled that petitioners waived their right to cross-examine the
witnesses.

On January 27, 1994, counsel for petitioners filed a Manifestation and Motion stating the reasons for her non-
appearance and praying that the cross-examination of the witnesses for the opposing parties be reset. The trial
court denied the motion for lack of notice to adverse counsel. It also denied the Motion for Reconsideration that
followed on the ground that adverse counsel was notified less than three (3) days prior to the hearing.
Meanwhile, to prevent the PRC and the Board from proceeding with Adm. Case No. 1687, the respondents
herein moved for the issuance of a restraining order, which the lower court granted in its Order dated April 4,
1994.

45
The petitioners then filed with this Court a petition for certiorari docketed as G.R. No. 115704, to annul the
Orders of the trial court dated November 13, 1993, February 28, 1994, and April 4, 1994. We referred the
petition to the Court of Appeals where it was docketed as CA-G.R. SP No. 34506.

On August 31, 1994, the appellate court decided CA-G.R. SP No. 34506 as follows:

WHEREFORE, the present petition for certiorari with prayer for temporary restraining order/preliminary
injunction is GRANTED and the Orders of December 13, 1993, February 7, 1994, February 28, 1994, and April
4, 1994 of the RTC-Manila, Branch 52, and all further proceedings taken by it in Special Civil Action No. 93-
66530 are hereby DECLARED NULL and VOID. The said RTC-Manila is ordered to allow petitioners' counsel
to cross-examine the respondents' witnesses, to allow petitioners to present their evidence in due course of
trial, and thereafter to decide the case on the merits on the basis of the evidence of the parties. Costs against
respondents.

IT IS SO ORDERED. 8

The trial was then set and notices were sent to the parties.

A day before the first hearing, on September 22, 1994, the petitioners filed an Urgent Ex-Parte Manifestation
and Motion praying for the partial reconsideration of the appellate court's decision in CA-G.R. SP No. 34506,
and for the outright dismissal of Civil Case No. 93-66530. The petitioners asked for the suspension of the
proceedings.

In its Order dated September 23, 1994, the trial court granted the aforesaid motion, cancelled the scheduled
hearing dates, and reset the proceedings to October 21 and 28, 1994.

Meanwhile, on October 25, 1994, the Court of Appeals denied the partial motion for reconsideration in CA-G.R.

SP No. 34506. Thus, petitioners filed with the Supreme Court a petition for review docketed as G.R. No.

117817, entitled Professional Regulation Commission, et al. v. Court of Appeals, et al.

On November 11, 1994, counsel for the petitioners failed to appear at the trial of Civil Case No. 93-66530.
Upon motion of the respondents herein, the trial court ruled that herein petitioners waived their right to cross-
examine the herein respondents. Trial was reset to November 28, 1994.

On November 25, 1994, petitioners' counsel moved for the inhibition of the trial court judge for alleged
partiality. On November 28, 1994, the day the Motion to Inhibitwas to be heard, petitioners failed to appear.
Thus, the trial court denied the Motion to Inhibit and declared Civil Case No. 93-66530 deemed submitted for
decision.

On December 19, 1994, the trial court handed down its judgment in Civil Case No. 93-66530, the fallo of which
reads:

WHEREFORE, judgment is rendered ordering the respondents to allow the petitioners and intervenors (except
those with asterisks and footnotes in pages 1 & 2 of this decision) [sic], 9 to take the physician's oath and to
register them as physicians.

It should be made clear that this decision is without prejudice to any administrative disciplinary action which
may be taken against any of the petitioners for such causes and in the manner provided by law and consistent
with the requirements of the Constitution as any other professionals.

No costs.

SO ORDERED. 10

As a result of these developments, petitioners filed with this Court a petition for review on certiorari docketed
as G.R. No. 118437, entitled Professional Regulation Commission v. Hon. David G. Nitafan, praying inter alia,
that (1) G.R. No. 118437 be consolidated with G.R. No. 117817; (2) the decision of the Court of Appeals dated
August 31, 1994 in CA-G.R. SP No. 34506 be nullified for its failure to decree the dismissal of Civil Case No.
93-66530, and in the alternative, to set aside the decision of the trial court in Civil Case No. 93-66530, order
the trial court judge to inhibit himself, and Civil Case No. 93-66530 be re-raffled to another branch.
On December 26, 1994, the petitioners herein filed their Notice of Appeal 11 in Civil Case No. 93-66530,
thereby elevating the case to the Court of Appeals, where it was docketed as CA-G.R. SP No. 37283.

46
In our Resolution of June 7, 1995, G.R. No. 118437 was consolidated with G.R. No. 117817.

On July 9, 1998, we disposed of G.R. Nos. 117817 and 118437 in this wise:

WHEREFORE, the petition in G.R. No. 117817 is DISMISSED for being moot. The petition in G.R. No. 118437
is likewise DISMISSED on the ground that there is a pending appeal before the Court of Appeals. Assistant
Solicitor General Amparo M. Cabotaje-Tang is advised to be more circumspect in her dealings with the courts
as a repetition of the same or similar acts will be dealt with accordingly.

SO ORDERED. 12

While CA-G.R. SP No. 37283 was awaiting disposition by the appellate court, Arnel V. Herrera, one of the
original petitioners in Civil Case No. 93-66530, joined by twenty-seven intervenors, to wit: Fernando F.
Mandapat, Ophelia C. Hidalgo, Bernadette T. Mendoza, Ruby B. Lantin-Tan, Fernando T. Cruz, Marissa A.
Regodon, Ma. Eloisa Q. Mallari-Largoza, Cheryl R. Triguero, Joseph A. Jao, Bernadette H. Cabuhat, Evelyn S.
Acosta-Cabanes, Laura M. Santos, Maritel M. Echiverri, Bernadette C. Escusa, Carlosito C. Domingo, Alicia S.
Lizano, Elnora R. Raqueno-Rabaino, Saibzur N. Edding, Derileen D. Dorado-Edding, Robert B. Sanchez,
Maria Rosario L. Leonor-Lacandula, Geraldine Elizabeth M. Pagilagan-Palma, Margarita Belinda L. Vicencio-
Gamilla, Herminigilda E. Conejos, Leuvina P. Chico-Paguio, Elcin C. Arriola-Ocampo, and Jose Ramoncito P.
Navarro, manifested that they were no longer interested in proceeding with the case and moved for its
dismissal. A similar manifestation and motion was later filed by intervenors Mary Jean I. Yeban-Merlan,
Michael L. Serrano, Norma G. Lafavilla, Arnulfo A. Salvador, Belinda C. Rabara, Yolanda P. Unica, Dayminda
G. Bontuyan, Clarissa B. Baclig, Ma. Luisa S. Gutierrez, Rhoneil R. Deveraturda, Aleli A. Gollayan, Evelyn C.
Cundangan, Frederick D. Francisco, Violeta V. Meneses, Melita J. Cañedo, Clarisa SJ. Nicolas, Federico L.
Castillo, Karangalan D. Serrano, Danilo A. Villaver, Grace E. Uy, Lydia C. Chan, and Melvin M. Usita. The
Court of Appeals ruled that its decision in CA-G.R. SP No. 37283 would not apply to them.

On May 16, 2000, the Court of Appeals decided CA-G.R. SP No. 37283, with the following fallo, to wit:

WHEREFORE, finding no reversible error in the decision appealed from, We hereby AFFIRM the same and
DISMISS the instant appeal.

No pronouncement as to costs.

SO ORDERED. 13

In sustaining the trial court's decision, the appellate court ratiocinated that the respondents complied with all
the statutory requirements for admission into the licensure examination for physicians in February 1993. They
all passed the said examination. Having fulfilled the requirements of Republic Act No. 2382, 14 they should be
allowed to take their oaths as physicians and be registered in the rolls of the PRC. aSDHCT

Hence, this petition raising the following issues:

WHETHER OR NOT RESPONDENTS HAVE A VALID CAUSE OF ACTION FOR MANDAMUS AGAINST
PETITIONERS IN THE LIGHT OF THE RESOLUTION OF THIS HONORABLE COURT IN G.R. NO. 112315
AFFIRMING THE COURT OF APPEALS' DECISION DECLARING THAT IF EVER THERE IS SOME DOUBT
AS TO THE MORAL FITNESS OF EXAMINEES, THE ISSUANCE OF LICENSE TO PRACTICE MEDICINE IS
NOT AUTOMATICALLY GRANTED TO THE SUCCESSFUL EXAMINEES.

II

WHETHER OR NOT THE PETITION FOR MANDAMUS COULD PROCEED DESPITE THE PENDENCY OF
ADMINISTRATIVE CASE NO. 1687, WHICH WAS PRECISELY LODGED TO DETERMINE THE MORAL
FITNESS OF RESPONDENTS TO BECOME DOCTORS. 15

To our mind, the only issue is: Did the Court of Appeals commit a reversible error of law in sustaining the
judgment of the trial court that respondents are entitled to a writ of mandamus?

The petitioners submit that a writ of mandamus will not lie in this case. They point out that for a writ of
mandamus to issue, the applicant must have a well-defined, clear and certain legal right to the thing demanded
and it is the duty of the respondent to perform the act required. Thus, mandamus may be availed of only when
the duty sought to be performed is a ministerial and not a discretionary one. The petitioners argue that the
appellate court's decision in CA-G.R. SP No. 37283 upholding the decision of the trial court in Civil Case No.
47
93-66530 overlooked its own pronouncement in CA-G.R. SP No. 31701. The Court of Appeals held in CA-G.R.
SP No. 31701 that the issuance of a license to engage in the practice of medicine becomes discretionary on
the PRC if there exists some doubt that the successful examinee has not fully met the requirements of the law.
The petitioners stress that this Court's Resolution dated May 24, 1994 in G.R. No. 112315 held that there was
no showing "that the Court of Appeals had committed any reversible error in rendering the questioned
judgment" in CA-G.R. SP No. 31701. The petitioners point out that our Resolution in G.R. No. 112315 has long
become final and executory.

Respondents counter that having passed the 1993 licensure examinations for physicians, the petitioners have
the obligation to administer to them the oath as physicians and to issue their certificates of registration as
physicians pursuant to Section 20 16 of Rep. Act No. 2382. The Court of Appeals in CA-G.R. SP No. 37283,
found that respondents complied with all the requirements of Rep. Act No. 2382. Furthermore, respondents
were admitted by the Medical Board to the licensure examinations and had passed the same. Hence, pursuant
to Section 20 of Rep. Act No. 2382, the petitioners had the obligation to administer their oaths as physicians
and register them.

Mandamus is a command issuing from a court of competent jurisdiction, in the name of the state or the
sovereign, directed to some inferior court, tribunal, or board, or to some corporation or person requiring the
performance of a particular duty therein specified, which duty results from the official station of the party to
whom the writ is directed, or from operation of law. 17 Section 3 of Rule 65 18 of the 1997 Rules of Civil
Procedure outlines two situations when a writ of mandamus may issue, when any tribunal, corporation, board,
officer or person unlawfully (1) neglects the performance of an act which the law specifically enjoins as a duty
resulting from an office, trust, or station; or (2) excludes another from the use and enjoyment of a right or office
to which the other is entitled.

We shall discuss the issues successively.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ On The Existence of a Duty of the Board of Medicine To

Issue Certificates of Registration as Physicians under Rep. Act No. 2382.

For mandamus to prosper, there must be a showing that the officer, board, or official concerned, has a clear
legal duty, not involving discretion. 19 Moreover, there must be statutory authority for the performance of the
act, 20 and the performance of the duty has been refused. 21 Thus, it must be pertinently asked now: Did
petitioners have the duty to administer the Hippocratic Oath and register respondents as physicians under the
Medical Act of 1959?

As found by the Court of Appeals, on which we agree on the basis of the records:

It bears emphasizing herein that petitioner-appellees and intervenor-appellees have fully complied with all the
statutory requirements for admission into the licensure examinations for physicians conducted and
administered by the respondent-appellants on February 12, 14, 20 and 21, 1993. Stress, too, must be made of
the fact that all of them successfully passed the same examinations. 22

The crucial query now is whether the Court of Appeals erred in concluding that petitioners should allow the
respondents to take their oaths as physicians and register them, steps which would enable respondents to
practice the medical profession 23 pursuant to Section 20 of the Medical Act of 1959?

The appellate court relied on a single provision, Section 20 of Rep. Act No. 2382, in concluding that the
petitioners had the ministerial obligation to administer the Hippocratic Oath to respondents and register them
as physicians. But it is a basic rule in statutory construction that each part of a statute should be construed in
connection with every other part to produce a harmonious whole, not confining construction to only one
section. 24 The intent or meaning of the statute should be ascertained from the statute taken as a whole, not
from an isolated part of the provision. Accordingly, Section 20, of Rep. Act No. 2382, as amended should be
read in conjunction with the other provisions of the Act. Thus, to determine whether the petitioners had the
ministerial obligation to administer the Hippocratic Oath to respondents and register them as physicians,
recourse must be had to the entirety of the Medical Act of 1959.

A careful reading of Section 20 of the Medical Act of 1959 discloses that the law uses the word "shall" with
respect to the issuance of certificates of registration. Thus, the petitioners "shall sign and issue certificates of
registration to those who have satisfactorily complied with the requirements of the Board." In statutory
construction the term "shall" is a word of command. It is given imperative meaning. Thus, when an examinee
48
satisfies the requirements for the grant of his physician's license, the Board is obliged to administer to him his
oath and register him as a physician, pursuant to Section 20 and par. (1) of Section 22 25 of the Medical Act of
1959.

However, the surrounding circumstances in this case call for serious inquiry concerning the satisfactory
compliance with the Board requirements by the respondents. The unusually high scores in the two most
difficult subjects was phenomenal, according to Fr. Nebres, the consultant of PRC on the matter, and raised
grave doubts about the integrity, if not validity, of the tests. These doubts have to be appropriately resolved.

Under the second paragraph of Section 22, the Board is vested with the power to conduct administrative
investigations and "disapprove applications for examination or registration," pursuant to the objectives of Rep.
Act No. 2382 as outlined in Section 1 26 thereof. In this case, after the investigation, the Board filed before the
PRC, Adm. Case No. 1687 against the respondents to ascertain their moral and mental fitness to practice
medicine, as required by Section 9 27 of Rep. Act No. 2382. In its Decisiondated July 1, 1997, the Board ruled:

WHEREFORE, the BOARD hereby CANCELS the respondents['] examination papers in the Physician
Licensure Examinations given in February 1993 and further DEBARS them from taking any licensure
examination for a period of ONE (1) YEAR from the date of the promulgation of this DECISION. They may, if
they so desire, apply for the scheduled examinations for physicians after the lapse of the period imposed by
the BOARD.

SO ORDERED. 28

Until the moral and mental fitness of the respondents could be ascertained, according to petitioners, the Board
has discretion to hold in abeyance the administration of the Hippocratic Oath and the issuance of the
certificates to them. The writ of mandamus does not lie to compel performance of an act which is not duly
authorized.

The respondents nevertheless argue that under Section 20, the Board shall not issue a certificate of
registration only in the following instances: (1) to any candidate who has been convicted by a court of
competent jurisdiction of any criminal offense involving moral turpitude; (2) or has been found guilty of immoral
or dishonorable conduct after the investigation by the Board; or (3) has been declared to be of unsound mind.
They aver that none of these circumstances are present in their case.

Petitioners reject respondents' argument. We are informed that in Board Resolution No. 26, 29 dated July 21,
1993, the Board resolved to file charges against the examinees from Fatima College of Medicine for
"immorality, dishonesty, fraud, and deceit in the Obstetrics-Gynecology and Biochemistry examinations." It
likewise sought to cancel the examination results obtained by the examinees from the Fatima College.
cHaADC

Section 8 30 of Rep. Act No. 2382 prescribes, among others, that a person who aspires to practice medicine in
the Philippines, must have "satisfactorily passed the corresponding Board Examination." Section 22, in turn,
provides that the oath may only be administered "to physicians who qualified in the examinations." The
operative word here is "satisfactorily," defined as "sufficient to meet a condition or obligation" or "capable of
dispelling doubt or ignorance." 31 Gleaned from Board Resolution No. 26, the licensing authority apparently
did not find that the respondents "satisfactorily passed" the licensure examinations. The Board instead sought
to nullify the examination results obtained by the respondents.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ On the Right Of The Respondents To Be Registered As

Physicians

The function of mandamus is not to establish a right but to enforce one that has been established by law. If no
legal right has been violated, there can be no application of a legal remedy, and the writ of mandamus is a
legal remedy for a legal right. 32 There must be a well-defined, clear and certain legal right to the thing
demanded. 33 It is long established rule that a license to practice medicine is a privilege or franchise granted
by the government. 34

It is true that this Court has upheld the constitutional right 35 of every citizen to select a profession or course of
study subject to a fair, reasonable, and equitable admission and academic requirements. 36 But like all rights
and freedoms guaranteed by the Charter, their exercise may be so regulated pursuant to the police power of
the State to safeguard health, morals, peace, education, order, safety, and general welfare of the people. 37
Thus, persons who desire to engage in the learned professions requiring scientific or technical knowledge may
be required to take an examination as a prerequisite to engaging in their chosen careers. This regulation takes
particular pertinence in the field of medicine, to protect the public from the potentially deadly effects of

49
incompetence and ignorance among those who would practice medicine. In a previous case, it may be
recalled, this Court has ordered the Board of Medical Examiners to annul both its resolution and certificate
authorizing a Spanish subject, with the degree of Licentiate in Medicine and Surgery from the University of
Barcelona, Spain, to practice medicine in the Philippines, without first passing the examination required by the
Philippine Medical Act. 38 In another case worth noting, we upheld the power of the State to upgrade the
selection of applicants into medical schools through admission tests. 39

It must be stressed, nevertheless, that the power to regulate the exercise of a profession or pursuit of an
occupation cannot be exercised by the State or its agents in an arbitrary, despotic, or oppressive manner. A
political body that regulates the exercise of a particular privilege has the authority to both forbid and grant such
privilege in accordance with certain conditions. Such conditions may not, however, require giving up ones
constitutional rights as a condition to acquiring the license. 40 Under the view that the legislature cannot validly
bestow an arbitrary power to grant or refuse a license on a public agency or officer, courts will generally strike
down license legislation that vests in public officials discretion to grant or refuse a license to carry on some
ordinarily lawful business, profession, or activity without prescribing definite rules and conditions for the
guidance of said officials in the exercise of their power. 41

In the present case, the aforementioned guidelines are provided for in Rep. Act No. 2382, as amended, which
prescribes the requirements for admission to the practice of medicine, the qualifications of candidates for the
board examinations, the scope and conduct of the examinations, the grounds for denying the issuance of a
physician's license, or revoking a license that has been issued. Verily, to be granted the privilege to practice
medicine, the applicant must show that he possesses all the qualifications and none of the disqualifications.
Furthermore, it must appear that he has fully complied with all the conditions and requirements imposed by the
law and the licensing authority. Should doubt taint or mar the compliance as being less than satisfactory, then
the privilege will not issue. For said privilege is distinguishable from a matter of right, which may be demanded
if denied. Thus, without a definite showing that the aforesaid requirements and conditions have been
satisfactorily met, the courts may not grant the writ of mandamus to secure said privilege without thwarting the
legislative will.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ On the Ripeness of the Petition for Mandamus

Lastly, the petitioners herein contend that the Court of Appeals should have dismissed the petition for
mandamus below for being premature. They argue that the administrative remedies had not been exhausted.
The records show that this is not the first time that petitioners have sought the dismissal of Civil Case No. 93-
66530. This issue was raised in G.R. No. 115704, which petition we referred to the Court of Appeals, where it
was docketed as CA-G.R. SP No. 34506. On motion for reconsideration in CA-G.R. SP No. 34506, the
appellate court denied the motion to dismiss on the ground that the prayers for the nullification of the order of
the trial court and the dismissal of Civil Case No. 93-66530 were inconsistent reliefs. In G.R. No. 118437, the
petitioners sought to nullify the decision of the Court of Appeals in CA-G.R. SP No. 34506 insofar as it did not
order the dismissal of Civil Case No. 93-66530. In our consolidated decision, dated July 9, 1998, in G.R. Nos.

117817 & 118437, this Court speaking through Justice Bellosillo opined that:

Indeed, the issue as to whether the Court of Appeals erred in not ordering the dismissal of Civil Case No. 93-
66530 sought to be resolved in the instant petition has been rendered meaningless by an event taking place
prior to the filing of this petition and denial thereof should follow as a logical consequence. 42 There is no
longer any justiciable controversy so that any declaration thereon would be of no practical use or value. 43 It
should be recalled that in its decision of 19 December 1994 the trial court granted the writ of mandamus
prayed for by private respondents, which decision was received by petitioners on 20 December 1994. Three

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ days after, or on 23 December 1994, petitioners filed the
instant petition. By then, the remedy available to them was to appeal the decision to the Court of Appeals,
which they in fact did, by filing a notice of appeal on 26 December 1994. 44

The petitioners have shown no cogent reason for us to reverse the aforecited ruling. Nor will their reliance
upon the doctrine of the exhaustion of administrative remedies in the instant case advance their cause any.

Section 26 45 of the Medical Act of 1959 provides for the administrative and judicial remedies that respondents
herein can avail to question Resolution No. 26 of the Board of Medicine, namely: (a) appeal the unfavorable
judgment to the PRC; (b) should the PRC ruling still be unfavorable, to elevate the matter on appeal to the
Office of the President; and (c) should they still be unsatisfied, to ask for a review of the case or to bring the
case to court via a special civil action of certiorari. Thus, as a rule,mandamus will not lie when administrative
50
remedies are still available. 46 However, the doctrine of exhaustion of administrative remedies does not apply
where, as in this case, a pure question of law is raised. 47 On this issue, no reversible error may, thus, be laid
at the door of the appellate court in CA-G.R. SP No. 37283, when it refused to dismiss Civil Case No. 93-
66530.

As we earlier pointed out, herein respondents Arnel V. Herrera, Fernando F. Mandapat, Ophelia C. Hidalgo,
Bernadette T. Mendoza, Ruby B. Lantin-Tan, Fernando T. Cruz, Marissa A. Regodon, Ma. Eloisa Q. Mallari-
Largoza, Cheryl R. Triguero, Joseph A. Jao, Bernadette H. Cabuhat, Evelyn S. Acosta-Cabanes, Laura M.
Santos, Maritel M. Echiverri, Bernadette C. Escusa, Carlosito C. Domingo, Alicia S. Lizano, Elnora R.
Raqueno-Rabaino, Saibzur N. Edding, Derileen D. Dorado-Edding, Robert B. Sanchez, Maria Rosario Leonor-
Lacandula, Geraldine Elizabeth M. Pagilagan-Palma, Margarita Belinda L. Vicencio-Gamilla, Herminigilda E.
Conejos, Leuvina P. Chico-Paguio, Elcin C. Arriola-Ocampo, and Jose Ramoncito P. Navarro manifested to
the Court of Appeals during the pendency of CA-G.R. SP No. 37283, that they were no longer interested in
proceeding with the case and moved for its dismissal insofar as they were concerned. A similar manifestation
and motion were later filed by intervenors Mary Jean I. Yeban-Merlan, Michael L. Serrano, Norma G. Lafavilla,
Arnulfo A. Salvador, Belinda C. Rabarra, Yolanda P. Unica, Dayminda G. Bontuyan, Clarissa B. Baclig, Ma.
Luisa S. Gutierrez, Rhoneil R. Deveraturda, Aleli A. Gollayan, Evelyn C. Cundangan, Frederick D. Francisco,
Violeta V. Meneses, Melita J. Cañedo, Clarisa SJ. Nicolas, Federico L. Castillo, Karangalan D. Serrano, Danilo
A. Villaver, Grace E. Uy, Lydia C. Chan, and Melvin M. Usita. Following these manifestations and motions, the
appellate court in CA-G.R. SP No. 37283 decreed that its ruling would not apply to them. Thus, inasmuch as
the instant case is a petition for review of the appellate court's ruling in CA-G.R. SP No. 37283, a decision
which is inapplicable to the aforementioned respondents will similarly not apply to them.

As to Achilles J. Peralta, Evelyn O. Ramos, Sally B. Bunagan, Rogelio B. Ancheta, Oscar H. Padua, Jr., Evelyn
D. Grajo, Valentino P. Arboleda, Carlos M. Bernardo, Jr., Mario D. Cuaresma, Violeta C. Felipe, Percival H.
Pangilinan, Corazon M. Cruz and Samuel B. Bangoy, herein decision shall not apply pursuant to the Orders of
the trial court in Civil Case No. 93-66530, dropping their names from the suit.

Consequently, this Decision is binding only on the remaining respondents, namely: Arlene V. de Guzman,
Celerina S. Navarro, Rafael I. Tolentino, Bernardita B. Sy, Gloria T. Jularbal, Hubert S. Nazareno, Nancy J.
Chavez, Ernesto L. Cue, Herminio V. Fernandez, Jr., Maria Victoria M. Lacsamana and Merly D. Sta. Ana, as
well as the petitioners.

WHEREFORE, the instant petition is GRANTED. Accordingly, (1) the assailed decision dated May 16, 2000, of
the Court of Appeals, in CA-G.R. SP No. 37283, which affirmed the judgment dated December 19, 1994, of the
Regional Trial Court of Manila, Branch 52, in Civil Case No. 93-66530, ordering petitioners to administer the
physician's oath to herein respondents as well as the resolution dated August 25, 2000, of the appellate court,
denying the petitioners' motion for reconsideration, are REVERSED and SET ASIDE; and (2) the writ of
mandamus, issued in Civil Case No. 93-66530, and affirmed by the appellate court in CA-G.R. SP No. 37283
is NULLIFIED AND SET ASIDE. EcICDT

SO ORDERED.

Puno and Callejo, Sr., JJ ., concur.

Quisumbing, J ., took no part.

Austria-Martinez, J ., took no part — is on leave.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Professional Regulation Commission v. De Guzman, G.R.

No. 144681, [June 21, 2004], 476 PHIL 596-623)

Philippine Press Institute, Inc. v. Commission on Elections, G.R. No. 119694 (Resolution), [May 22, 1995], 314
PHIL 131-149

EN BANC

[G.R. No. 119694. May 22, 1995.]

PHILIPPINE PRESS INSTITUTE, INC., for and in behalf of 139 members, represented by
its President Amado P. Macasaet and its Executive Director Ermin F. Garcia, Jr.,
petitioner, vs. COMMISSION ON ELECTIONS, respondent.
51
 SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CONSTITUTIONAL LAW; BILL OF RIGHTS;

PROHIBITION AGAINST TAKING OF PRIVATE PROPERTY FOR PUBLIC USE WITHOUT JUST
COMPENSATION; COMPELLING PUBLISHERS TO "DONATE" COMELEC SPACE, A VIOLATION OF. — To
compel print media companies to donate "Comelec space" of the dimensions specified in Section 2 of
Resolution No. 2722 (not less than one-half page), amounts to "taking" of private personal property for public
use or purposes. Section 2 failed to specify the intended frequency of such compulsory "donation": only once
during the period from 6 March 1995 (or 21 March 1995) until 12 May 1995? or everyday or once a week? or
as often as Comelec may direct during the same period? The extent of the taking or deprivation is not
insubstantial; this is not a case of a de minimis temporary limitation or restraint upon the use of private
property. The monetary value of the compulsory "donation," measured by the advertising rates ordinarily
charged by newspaper publishers whether in cities or in non-urban areas, may be very substantial indeed. The
taking of private property for public use is, of course, authorized bythe Constitution, but not without payment of
"just compensation" (Article III, Section 9). And apparently the necessity of paying compensation for "Comelec
space" is precisely what is sought to be avoided by respondent Commission, whether Section 2 of Resolution
No. 2772 is read as petitioner PPI reads it, as an assertion of authority to require newspaper publishers to
"donate" free print space for Comelec purposes, or as an exhortation, or perhaps an appeal, to publishers to
donate free print space, as Section 1 of Resolution No. 2772-A attempts to suggest. The threshold requisites
for a lawful taking of private property for public use need to be examined here: one is the necessity for the
taking; another is the legal authority to effect the taking. The element of necessity for the taking has not been
shown by respondent Comelec. It has not been suggested that the members of PPI are unwilling to sell print
space at their normal rates to Comelec for election purposes. Indeed, the unwillingness or reluctance of
Comelec to buy print space lies at the heart of the problem. Similarly, it has not been suggested, let alone
demonstrated, that Comelec has been granted the power of eminent domain either by the Constitution or by
the legislative authority. A reasonable relationship between that power and the enforcement and administration
of election laws by Comelec must be shown; it is not casually to be assumed. .

. . Section 2 does not constitute a valid exercise of the power of eminent domain.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; ID.; PUBLIC FUNDS, NOT PUBLISHERS
SOLELY, SHOULD BEAR COSTS FOR PUBLIC INFORMATION OF ELECTORAL PROCESSES. — The
ruling here laid down by the Court is entirely in line with the theory of democratic representative government.
The economic costs of informing the general public about the qualifications and programs of those seeking
elective office are most appropriately distributed as widely as possible throughout our society by the utilization
of public funds, especially funds raised by taxation, rather than cast solely on one small sector of society, i.e.,
print media enterprises. The benefits which flow from a heightened level of information on and the awareness
of the electoral process are commonly thought to be community-wide; the burdens should be allocated on the
same basis.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; POLICE POWER; REQUISITES FOR A VALID

EXERCISE THEREOF NOT COMPLIED WITH IN CASE AT BAR. — As earlier noted, the Solicitor General
also contended that Section 2 of Resolution No. 2772, even if read as compelling publishers to "donate"
"Comelec space," may be sustained as a valid exercise of the police power of the state. This argument was,
however, made too casually to require prolonged consideration on our part. Firstly, there was no effort (and
apparently no inclination on the part of Comelec) to show that the police power — essentially a power of
legislation — has been constitutionally delegated to respondent Commission. Secondly, while private property
may indeed be validly taken in the legitimate exercise of the police power of the state, there was no attempt to
show compliance in the instant case with the requisites of a lawful taking under the police power. Section 2 of
Resolution No. 2772 is a blunt and heavy instrument that purports, without a showing of existence of a national
emergency or other imperious public necessity, indiscriminately and without regard to the individual business
condition of particular newspapers or magazines located in differing parts of the country, to take private
property of newspaper or magazine publishers. No attempt was made to demonstrate that a real and palpable
or urgent necessity for the taking of print space confronted the Comelec and that Section 2 of Resolution No.
2772 was itself the only reasonable and calibrated response to such necessity available to the Comelec.
Section 2 does not constitute a valid exercise of the police power of the State.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; SUPREME COURT; POWER OF JUDICIAL REVIEW;

CONSTITUTIONALITY OF SEC. 8 COMELEC RESOLUTION NO. 2772, WITHOUT ACTUAL
CONTROVERSY, IS NOT RIPE FOR JUDICIAL REVIEW; CASE AT BAR. — Section 8 of Resolution No.
2772 should be viewed in the context of our decision in National Press Club v. Commission on Elections.
There the Court sustained the constitutionality of Section 11 (b) of R.A. No. 6646, known as the Electoral
Reforms Law of 1987, which prohibits the sale or donation of print

52
space and airtime for campaign or other political purposes, except to the Comelec. In doing so, the Court
carefully distinguished (a) paid political advertisements which are reached by the prohibition of Section 11 (b),
from (b) the reporting of news, commentaries and expressions of belief or opinion by reporters, broadcasters,
editors, commentators or columnists which fall outside the scope of Section 11 (b) and which are protected by
the constitutional guarantees of freedom of speech and of the press. . . . Section 8 of Resolution No. 2772
appears to represent the effort of the Comelec to establish a guideline for implementation of the above-quoted
distinction and doctrine in National Press Club, an effort not blessed with evident success. Section 2 of
Resolution No. 2772-A while possibly helpful, does not add substantially to the utility of Section 8 of Resolution
No. 2772. The distinction between paid political advertisements on the one hand and news reports,
commentaries and expressions of belief or opinion by reporters, broadcasters, editors, etc. on the other hand,
can realistically be given operative meaning only in actual cases or controversies, on a case-to-case basis, in
terms of very specific sets of facts. At all events, the Court is bound to note that PPI has failed to allege any
specific affirmative action on the part of Comelec designed to enforce or implement Section 8. PPI has not
claimed that it or any of its members has sustained actual or imminent injury by reason of Comelec action
under Section 8. Put a little differently, the Court considers that the precise constitutional issue here sought to
be raised — whether or not Section 8 of Resolution No. 2772 constitutes a permissible exercise of the
Comelec's power under Article IX, Section 4 of the Constitution . . . is not ripe for judicial review for lack of an
actual case or controversy involving, as the very lis mota thereof, the constitutionality of Section 8.

RESOLUTION

FELICIANO, J p:

The Philippine Press Institute, Inc. ("PPI") is before this Court assailing the constitutional validity of
Resolution No. 2772 issued by respondent Commission on Elections ("Comelec") and its corresponding
Comelec directive dated 22 March 1995, through a Petition for Certiorari and Prohibition. Petitioner PPI is a
non-stock, non-profit organization of newspaper and magazine publishers. cdphil

On 2 March 1995, Comelec promulgated Resolution No. 2772, which reads in part:

xxx xxx xxx

Sec. 2. Comelec Space. — The Commission shall procure free print space of not less than
one half (1/2) page in at least one newspaper of general circulation in every province or city
for use as 'Comelec Space' from March 6, 1995 in the case of candidates for senators and
from March 21, 1995 until May 12, 1995. In the absence of said newspaper, 'Comelec Space'
shall be obtained from any magazine or periodical of said province or city.

Sec. 3. Uses of Comelec Space. — 'Comelec Space' shall be allocated by the Commission,
free of charge, among all candidates within the area in which the newspaper, magazine or
periodical is circulated to enable the candidates to make known their qualifications, their stand
on public issues and their platforms and programs of government.

'Comelec Space' shall also be used by the Commission for dissemination of vital election
information.

Sec. 4. Allocation of Comelec Space. — (a) 'Comelec Space' shall be available to all
candidates during the periods stated in Section 2 hereof. Its allocation shall be equal and
impartial among all candidates for the same office. All candidates concerned shall be
furnished a copy of the allocation of 'Comelec Space' for their information, guidance and
compliance.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Any candidate desiring to avail

himself of 'Comelec Space' from newspapers or publications based in the Metropolitan Manila
Area shall submit an application therefor, in writing, to the Committee on Mass Media of the
Commission. Any candidate desiring to avail himself of 'Comelec Space' in newspapers or
publications based in the provinces shall submit his application therefor, in writing, to the
Provincial Election Supervisor concerned. Applications for availment of 'Comelec Space' may
be filed at any time from the date of effectivity of this Resolution.

53
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Committee on Mass Media and the
Provincial Election Supervisors shall allocate available 'Comelec Space' among the candidates
concerned by lottery of which said candidates shall be notified in advance, in writing, to be
present personally or by representative to witness the lottery at the date, time and place
specified in the notice. Any party objecting to the result of the lottery may appeal to the
Commission.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The candidates concerned shall be notified

by the Committee on Mass Media or the Provincial Election Supervisor, as the case may be,
sufficiently in advance and in writing of the date of issue and the newspaper or publication
allocated to him, and the time within which he must submit the written material for publication in
the 'Comelec Space'.

xxx xxx xxx

Sec. 8. Undue Reference to Candidates/Political Parties in Newspapers. — No newspaper or

publication shall allow to be printed or published in the news, opinion, features, or other sections
of the newspaper or publication accounts or comments which manifestly favor or oppose any
candidate or political party by unduly or repeatedly referring to or including therein said
candidate or political party. However, unless the facts and circumstances clearly indicate
otherwise, the Commission will respect the determination by the publisher and/or editors of the
newspapers or publication that the accounts or views published are significant, newsworthy and
of public interest." (Emphasis supplied)

Apparently in implementation of this Resolution, Comelec through Commissioner Regalado E.

Maambong sent identical letters, dated 22 March 1995, to various publishers of newspapers like the
Business World, the Philippine Star, the Malaya and the Philippine Times Journal, all members of PPI. These
letters read as follows:

"This is to advise you that pursuant to Resolution No. 2772 of the Commission on Elections, you
are directed to provide free print space of not less than one half (½) page for use as 'Comelec
Space' or similar to the print support which you have extended during the May 11, 1992
synchronized elections which was 2 full pages for each political party fielding senatorial
candidates, from March 6, 1995 to May 6, 1995, to make known to their qualifications, their
stand on public issues and their platforms and programs of government.

We shall be informing the political parties and candidates to submit directly to you their pictures,
biographical data, stand on key public issues and platforms of government, either as raw data or
in the form of positives or camera-ready materials.

Please be reminded that the political parties/candidates may be accommodated in your

publications any day upon receipt of their materials until May 6, 1995 which is the day for
campaigning.

We trust you to extend your full support and cooperation in this regard." (Emphasis supplied)

In this Petition for Certiorari and Prohibition with prayer for the issuance of a Temporary restraining
order, PPI asks us to declare Comelec Resolution No. 2772 unconstitutional and void on the ground that it
violates the prohibition imposed by the Constitution upon the government, and any of its agencies, against
the taking of private property for public use without just compensation. Petitioner also contends that the 22
March 1995 letter directives of Comelec requiring publishers to give free "Comelec Space" and at the same
time process raw data to make it camera-ready, constitute impositions of involuntary servitude, contrary to
the provisions of Section 18 (2), Article III of the 1987 Constitution. Finally, PPI argues that Section 8 of
Comelec Resolution No. 2772 is violative of the constitutionally guaranteed freedom of speech, of the press
and of expression. 1

On 20 April 1995, this Court issued a Temporary Restraining Order enjoining Comelec from enforcing
and implementing Section 2 of Resolution No. 2772, as well as the Comelec directives addressed to various
print media enterprises all dated 22 March 1995. The Court also required the respondent to file a Comment
on the Petition. prcd
 The Office of the Solicitor General filed its Comment on behalf of respondent Comelec alleging that
Comelec Resolution No. 2772 does not impose upon the publishers any obligation to provide free print space
in the newspapers as it does not provide any criminal or administrative sanction for non-compliance

54
with that Resolution. According to the Solicitor General, the questioned Resolution merely established
guidelines to be followed in connection with the procurement of "Comelec space," the procedure for and
mode of allocation of such space to candidates and the conditions or requirements for the candidate's
utilization of the "Comelec space" procured. At the same time, however, the Solicitor General argues that
even if the questioned Resolution and its implementing letter directives are viewed as mandatory, the same
would nevertheless be valid as an exercise of the police power of the State. The Solicitor general also
maintains that Section 8 of Resolution No. 2772 is a permissible exercise of the power of supervisor or
regulation of the Comelec over the communication and information operations of print media enterprises
during the election period to safeguard and ensure a fair, impartial and credible election. 2

At the oral hearing of this case held on 28 April 1995, respondent Comelec through its Chairman,
Hon. Bernardo Pardo, in response to inquiries from the Chief Justice and other Members of the Court, stated
that Resolution No. 2772, particularly Section 2 thereof and the 22 March 1995 letters dispatched to various
members of petitioner PPI, were not intended to compel those members to supply Comelec with free print
space. Chairman Pardo represented to the Court that that Resolution and the related letter-directives were
merely designed to solicit from the publishers the same free print space which many publishers had
voluntarily given to Comelec during the election period relating to the 11 May 1992 elections. Indeed, the
Chairman stated that the Comelec would, that very afternoon, meet and adopt an appropriate amending or
clarifying resolution, a certified true copy of which would forthwith be filed with the Court. cdrep

On 5 May 1995, the Court received from the Office of the Solicitor general a manifestation which
attached a copy of Comelec resolution No. 2772-A dated 4 May 1995. The operative portion of this
Resolution follows:

NOW THEREFORE, pursuant to the powers vested in it by the Constitution, the Omnibus
Election Code, Republic Acts No. 6646 and 7166 and other election laws, the Commission on
Elections RESOLVED to clarify Sections 2 and 8 of Res. No. 2772 as follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Section 2 of Res. No. 2772

shall not be construed to mean as requiring publishers of the different
mass media print publications to provide print space under pain of
prosecution, whether administrative, civil or criminal, there being no
sanction or penalty for violation of said Section provided for either in said
Resolution or in Section 90 of Batas Pambansa Blg. 881, otherwise
known as the Omnibus Election Code, on the grant of 'Comelec Space.'

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Section 8 of Res. No. 2772

shall not be construed to mean as constituting prior restraint on the part of
the publishers with respect to the printing or publication of materials in the
news, opinion, features or other sections of their respective publications
or other accounts or comments, it being clear from the last sentence of
said Section 8 that the Commission shall, 'unless the facts and
circumstances clearly indicate otherwise . . .

respect the determination by the publishers and/or editors of the

newspapers or publications that the accounts or views published are
significant, newsworthy and of public interest.'

This Resolution shall take effect upon approval." (Emphasis in the original)

While, at this point, the Court could perhaps simply dismiss the petition for Certiorari and Prohibition
as having become moot and academic, we consider it not inappropriate to pass upon the first constitutional
issue raised in this case. Our hope is to put this issue to rest and prevent its resurrection.

Section 2 of Resolution No. 2772 is not a model of clarity in expression. Section 1 of Resolution No.
2772-A did not try to redraft Section 2; accordingly, Section 2 of resolution No. 2772 persists in its original
form. Thus, we must point out that, as presently worded, and in particular as interpreted and applied by the
Comelec itself in its 22 March 1995 letter-directives to newspaper publishers, Section 2 of Resolution No.
2772 is clearly susceptible of the reading that petitioner PPI has given it. That Resolution No. 2772 does not,
in express terms, threaten publishers who would disregard it or its implementing letters with some criminal or
other sanction, does not by itself demonstrate that the Comelec's original intention was simply to solicit or
request voluntary donations of print space from publishers. A written communication officially directing a print
media company to supply free print space, dispatched by government (here a

55
constitutional) agency and signed by member of the Commission presumably legally authorized to do so, is
bound to produce a coercive effect upon the company so addressed. That the agency may not be legally
authorized to impose, or cause the imposition of, criminal or other sanctions for disregard of such direction,
only aggravates the constitutional difficulties inhering in the present situation. The enactment or addition of
such sanctions by the legislative authority itself would be open to serious constitutional objection.

To compel print media companies to donate "Comelec space" of the dimensions specified in Section
2 of Resolution No. 2772 (not less than one-half Page), amounts to "taking" of private personal property for
public use or purposes. Section 2 failed to specify the intended frequency of such compulsory "donation:"
only once during the period from 6 March 1995 (or 21 March 1995) until 12 May 1995? or everyday or once a
week? or has often as Comelec may direct during the same period? the extent of the taking or deprivation is
not insubstantial; this is not a case of a de minimis temporary limitation or restraint upon the use of private
property. The monetary value of the compulsory "donation," measured by the advertising rates ordinarily
charged by newspaper publishers whether in cities or in non-urban areas, may be very substantial indeed.
LexLib

The taking of print space here sought to be effected may first be appraised under the rubric of
expropriation of private personal property for public use. The threshold requisites for a lawful taking of private
property for public use need to be examined here: one is the necessity for the taking; another is the legal
authority to effect the taking. The element of necessity for the taking has not been shown by respondent
Comelec. It has not been suggested that the members of PPI are unwilling to sell print space at their normal
rates to Comelec for election purposes. Indeed, the unwillingness or reluctance of Comelec to buy print
space lies at the heart of the problem. 3 Similarly, it has not been suggested, let alone demonstrated, that
Comelec has been granted the power of imminent domain either by the Constitution or by the legislative
authority. A reasonable relationship between that power and the enforcement and administration of election
laws by Comelec must be shown; it is not casually to be assumed.

That the taking is designed to subserve "public use" is not contested by petitioner PPI. We note only
that, under Section 3 of Resolution No. 2772, the free "Comelec space" sought by the respondent
Commission would be used not only for informing the public about the identities, qualifications and programs
of government of candidates for elective office but also for "dissemination of vital election information"
(including, presumably, circulars, regulations, notices, directives, etc. issued by Comelec). It seems to the
Court a matter of judicial notice that government offices and agencies (including the Supreme Court) simply
purchase print space, in the ordinary course of events, when their rules and regulations, circulars, notices
and so forth need officially to be brought to the attention of the general public.

The taking of private property for public use is, of course, authorized by the Constitution, but not
without payment of "just compensation" (Article III, Section 9). And apparently the necessity of paying
compensation for "Comelec space" is precisely what is sought to be avoided by respondent Commission,
whether Section 2 of Resolution No. 2772 is read as petitioner PPI reads it, as an assertion of authority to
require newspaper publishers to "donate" free print space for Comelec purposes, or as an exhortion, or
perhaps an appeal, to publishers to donate free print space, as Section 1 of Resolution No. 2772-A attempts
to suggest. There is nothing at all to prevent newspaper and magazine publishers from voluntarily giving free
print space to Comelec for the purposes contemplated in Resolution No. 2772. Section 2 of Resolution No.
2772 does not, however, provide a constitutional basis for compelling publishers, against their will, in the kind
of factual context here present, to provide free print space for Comelec purposes. Section 2 does not
constitute a valid exercise of the power of eminent domain. Cdpr

We would note that the ruling here laid down by the Court is entirely in line with the theory of
democratic representative government. The economic costs of informing the general public about the
qualifications and programs of those seeking elective office are most appropriately distributed as widely as
possible throughout our society by the utilization of public funds, especially funds raised by taxation, rather
than cast solely on one small sector of society, i.e., print media enterprises. The benefits which flow from a
heightened level of information on and the awareness of the electoral process are commonly thought to be
community-wide; the burdens should be allocated on the same basis.

As earlier noted, the Solicitor General also contended that Section 2 of Resolution No. 2772, even if
read as compelling publishers to "donate" "Comelec space," may be sustained as a valid exercise of the
police power of the state. This argument was, however, made too casually to require prolonged consideration
on their part. Firstly, there was no effort (and apparently no inclination on the part of Comelec) to show that
the police power — essentially a power of legislation — has been constitutionally
56
delegated to respondent Commission. 4 Secondly, while private property may indeed be validly taken in the
legitimate exercise of the police power of the state, there was no attempt to show compliance in the instant
case with the requisites of a lawful taking under the police power. 5

Section 2 of Resolution No. 2772 is a blunt and heavy instrument that purports, without a showing of
existence of a national emergency or other imperious public necessity, indiscriminately and without regard to
the individual business condition of particular newspapers or magazines located in different parts of the
country, to take private property of newspaper or magazine publishers. No attempt was made to demonstrate
that a real and palpable or urgent necessity for the taking of print space confronted the Comelec and that
Section 2 of Resolution No. 2772 was itself the only reasonable and calibrated response to such necessity
available to Comelec. Section 2 does not constitute a valid exercise of the police power of the State.

We turn to Section 8 of Resolution No. 2772, which needs to be quoted in full again:

Sec. 8. Undue Reference to Candidates/Political parties in Newspaper. — No

newspaper or publication shall allow to be printed or published in the news, opinion, features, or
other sections of the newspaper or publication accounts or comments which manifest favor or
oppose any candidate or political party by unduly or repeatedly referring to or including therein
said candidate or political party. However, unless the facts and circumstances clearly indicates
otherwise, the Commission will respect the determination by the publisher and/or editors of the
newspapers or publications that the accounts or views published are significant, newsworthy
and of public interest."

It is not easy to understand why Section 8 was included at all in Resolution No 2772. In any case,
Section 8 should be viewed in the context of our decision inNational Press Club v. Commission on Elections.
6 There the Court sustained the constitutionality of Section 11 (b) of R.A. No. 6646, known as the Electoral
Reforms Law of 1987, which prohibits the sale or donation of print space and airtime for campaign or other
political purposes, except to the Comelec. In doing so, the Court carefully distinguished

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ paid political advertisements which are reached by the
prohibition of Section 11 (b), from (b) the reporting of news, commentaries and expressions of belief or
opinion by reporters, broadcasters, editors, commentators or columnists which fall outside the scope of
Section 11 (b) and which are protected by the constitutional guarantees of freedom of speech and of the
press: LLjur

"Secondly, and more importantly, Section 11 (b) is limited in its scope of application. Analysis of
Section 11 (b) shows that it purports to apply only to the purchase and sale, including purchase
and sale disguised as a donation, of print space and air time for campaign or other political
purposes. Section 11 (b) does not purport in any way to restrict the reporting by newspapers or
radio or television stations of news or news-noteworthy events relating to candidates, their
qualifications, political parties and programs of government. Moreover, Section 11 (b) does not
reach commentaries and expressions of belief or opinion by reporters or broadcasters or editors
or commentators or columnists in respect of candidates, their qualifications, and programs and
so forth, so long at least as such comments, opinions and beliefs are not in fact advertisements
for particular candidates covertly paid for. In sum Section 11 (b) is not to be read as reaching
any report or commentary or other coverage that, in responsible media, is not paid for by
candidates for political office. We read Section 11 (b) as designed to cover only paid political
advertisements of particular candidates.

The above limitation in scope of application of Section 11 (b) — that it does not restrict either
the reporting of or the expression of belief or opinion or comment upon the qualifications and
programs and activities of any and all candidates for office — constitutes the critical distinction
which must be made between the instant case and that of Sanidad v. Commission on Elections.
. . ."7 (Citations omitted; emphasis supplied)

Section 8 of Resolution No. 2772 appears to represent the effort of the Comelec to establish a
guidelines for implementation of the above-quoted distinction and doctrine in National Press Club,
an effort not blessed with evident success. Section 2 of Resolution No. 2772-A while possibly helpful,
does not add substantially to the utility of Section 8 of Resolution No. 2772. The distinction between
paid political advertisements on the one hand and news reports, commentaries and expressions of
belief or opinion by reporters, broadcasters, editors, etc. on the other hand, can realistically be given
operative meaning only in actual cases or controversies, on a case-to-case basis, in terms of very
specific sets of facts.

57
 At all events, the Court is bound to note that PPI has failed to allege any specific affirmative
action on the part of Comelec designed to enforce or implement Section 8. PPI has not claimed that
it or any of its members has sustained actual or imminent injury by reason of Comelec action under
Section 8. Put a little differently, the Court considers that the precise constitutional issue here
sought to be raised — whether or not Section 8 of Resolution No. 2772 constitutes a permissible
exercise of the Comelec's power under Article IX, Section 4 of the Constitution to

"supervise or regulate the enjoyment or utilization of all franchise or permits for the
operation of — media of communication or information — [for the purpose of ensuring]
equal opportunity, time and space, and the right of reply, including reasonable, equal
rates therefor, for public-information campaigns and forums among candidates in
connection with the objective of holding free, orderly, honest, peaceful and credible
elections —"

is not ripe for judicial review for lack of an actual case or controversy involving, as the very lis
mota thereof, the constitutionality of Section 8.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Section 2 of Resolution No. 2772, in its

present form and as interpreted by Comelec in its 22 March 1995 letter directives, purports to
require print media enterprises to "donate" free print space to Comelec. As such, Section 2 suffers
from fatal constitutional vice and must be set aside and nullified. cdll

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To the extent it pertains to Section 8 of

Resolution No. 2772, the Petition for Certiorari and Prohibition must be dismissed for lack of an
actual, justiciable case or controversy.

WHEREFORE, for all the foregoing, the Petition for Certiorari and Prohibition is GRANTED in
part and Section 2 of Resolution No. 2772 in its present from and the related letter-directives dated
22 March 1995 are hereby SET ASIDE as null and void, and the Temporary Restraining Order is
hereby MADE PERMANENT. The Petition is DISMISSED in part, to the extent it relates to Section 8
of Resolution No. 2772. No pronouncement as to costs.

Narvasa, C.J ., Padilla, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza
and Francisco, JJ., concur.

Quiason, J., is on leave.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Philippine Press Institute, Inc. v. Commission on

Elections, G.R. No. 119694 (Resolution), [May 22, 1995], 314 PHIL 131-149)

JMM Promotion and Management, Inc. v. Court of Appeals, G.R. No. 120095, [August 5, 1996], 329 PHIL 87-
102

FIRST DIVISION

[G.R. No. 120095. August 5, 1996.]

JMM PROMOTION AND MANAGEMENT, INC., and KARY INTERNATIONAL, INC.,

petitioners, vs. HON. COURT OF APPEALS, HON. MA. NIEVES CONFESSOR, then

Secretary of the Department of Labor and Employment, HON. JOSE BRILLANTES, in

his capacity as acting Secretary of the Department of Labor and Employment and HON.
FELICISIMO JOSON, in his capacity as Administrator of the Philippine Overseas
Employment Administration, respondents.

Don P. Porciuncula for petitioner.

Ma. Bezen Ringpis Liban/Solicitor General for respondents.

SYLLABUS

58
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ POLITICAL LAW; INHERENT POWERS OF THE STATE;
POLICE POWER; NATURE AND SCOPE. — The latin maxim salus populi est suprema lex embodies the
character of the entire spectrum of public laws aimed at promoting the general welfare of the people under the
State's police power. As an inherent attribute of sovereignty which virtually "extends to all public needs," this
"least limitable" of governmental powers grants a wide panoply of instruments through which the state, as
parens patriaegives effect to a host of its regulatory powers. Describing the nature and scope of the police
power, Justice Malcolm, in the early case of Rubi v. Provincial Board of Mindoro (89 Phil. 660, 708, [1919])
wrote: "The police power of the State," one court has said . . . 'is a power coexistensive with self-protection,
and is not inaptly termed 'the law of overruling necessity.' It may be said to be that inherent and plenary power
in the state which enables it to prohibit all things hurtful to the comfort, safety and welfare of society." Carried
onward by the current of legislature. the judiciary rarely attempts to dam the onrushing power of legislative
discretion, provided the purposes of the law do not go beyond the great principles that mean security for the
public welfare or do not arbitrarily interfere with the right of the individual."

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; EXERCISE THEREOF ENJOYS A

PRESUMED VALIDITY UNLESS IT IS SHOWN THAT IT DOES NOT ENHANCE THE PUBLIC WELFARE OR
WAS EXERCISED ARBITRARILY OR UNREASONABLY. — Thus, police power concerns government
enactments which precisely interfere with personal liberty or property in order to promote the general welfare or
the common good. As the assailed Department Order enjoys a presumed validity, it follows that the burden
rests upon petitioners to demonstrate that the said order, particularly its ARB requirement, does not enhance
the public welfare or was exercised arbitrarily or unreasonably.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; THE PROPER REGULATION OF A

PROFESSION, CALLING, BUSINESS OR TRADE IS A VALID EXERCISE THEREOF. — Nevertheless, no
right is absolute, and the proper regulation of a profession, calling business or trade has always been upheld
as a legitimate subject of a valid exercise of the police power by the state particularly when their conduct
affects either the execution of legitimate governmental functions, the preservation of the State, the public
health and welfare and public morals. According to the maxim, sic utere tuo ut alienum non laedas, it must of
course be within the legitimate range of legislative action to define the mode and manner in which every one
may so use his own property so as not to pose injury to himself or others.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; WHERE THE LIBERTY CURTAILED
AFFECTS AT MOST THE RIGHT TO PROPERTY, THE PERMISSIBLE SCOPE OF REGULATORY
MEASURES IS MUCH WIDER. — In any case, where the liberty curtailed affects at most the rights of
property, the permissible scope of regulatory measures is certainly much wider. To pretend that licensing or
accreditation requirements violates the due process clause is to ignore the settled practice, under the mantle of
the police power, of regulating entry to the practice of various trades or professions. Professionals leaving for
abroad are required to pass rigid written and practical exams before they are deemed fit to practice their trade.
Seamen are required to take tests determining their seamanship. Locally, the Professional Regulation
Commission has began to require previously licensed doctors and other professionals to furnish documentary
proof that they had either re-trained or had undertaken continuing education courses as a requirement for
renewal of their licenses. It is not claimed that these requirements pose an unwarranted deprivation of a
property right under the due process clause. So long as professionals and other workers meet reasonable
regulatory standards no such deprivation exists.

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CONSTITUTIONAL LAW; STATE POLICIES; THE STATE

SHALL AFFORD FULL PROTECTION TO LABOR; ELUCIDATED. — Protection to labor does not indicate
promotion of employment alone. Under the welfare and social justice provisions of the Constitution, the
promotion of full employment, while desirable, cannot take a backseat to the government's constitutional duty
to provide mechanisms for the protection of our work-force, local or overseas. As this Court explained in
Philippine Association of Service Exporters (PASEI) v. Drilon, in reference to the recurring problems faced by
our overseas workers: what concerns the Constitution more paramountly is that such an employment be above
all, decent, just, and humane. It is bad enough that the country has to send its sons and daughters to strange
lands because it cannot satisfy their employment needs at home. Under these circumstances, the Government
is duty-bound to insure that our toiling expatriates have adequate protection, personally and economically,
while away from home. A profession, trade or calling is a property right within the meaning of our constitutional
guarantees. One cannot be deprived of the right to work and the right to make a living because these rights are
property rights, the arbitrary and unwarranted deprivation of which normally constitutes an actionable wrong.
࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; BILL OF RIGHTS; NON-IMPAIRMENT OF
OBLIGATIONS OF CONTRACTS; MUST YIELD TO THE STATE'S POLICE POWER. — It is a futile gesture
on the part of petitioners to invoke the non-impairment

59
clause of the Constitution to support their argument that the government cannot enact the assailed regulatory
measures because they abridge the freedom to contract. In Philippine Association of Service Exporters, Inc.
vs. Drilon, we held that "(t)he non-impairment clause of the Constitution . . . must yield to the loftier purposes
targeted by the government." Equally important, into every contract is read provisions of existing law, and
always, a reservation of the police power for so long as the agreement deals with a subject impressed with the
public welfare.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; EQUAL PROTECTION CLAUSE; MERELY

REQUIRES THAT ALL PERSONS BE TREATED ALIKE UNDER LIKE CONDITIONS. — The equal protection
clause is directed principally against undue favor and individual or class privilege. It is not intended to prohibit
legislation which is limited to the object to which it is directed or by the territory in which it is to operate. It does
not require absolute equality, but merely that all persons be treated alike under like conditions both as to
privileges conferred and liabilities imposed. We have held, time and again, that the equal protection clause of
the Constitution does not forbid classification for so long as such classification is based on real and substantial
differences having a reasonable relation to the subject of the particular legislation. If classification is germane
to the purpose of the law, concerns all members of the class, and applies equally to present and future
conditions, the classification does not violate the equal protection guarantee.

DECISION

KAPUNAN, J p:

This limits of government regulation under the State's police power are once again at the vortex of the instant
controversy. Assailed is the government's power to control deployment of female entertainers to Japan by
requiring an Artist Record Book (ARB) as a precondition to the processing by the POEA of any contract for
overseas employment. By contending that the right to overseas employment is a property right within the
meaning of the Constitution, petitioners vigorously aver that deprivation thereof allegedly through the onerous
requirement of an ARB violates the due process clause and constitutes an invalid exercise of the police power.

The factual antecedents are undisputed.

Following the much-publicized death of Maricris Sioson in 1991, former President Corazon C. Aquino ordered
a total ban against the deployment of performing artists to Japan and other foreign destinations. The ban was,
however, rescinded after leaders of the overseas employment industry promised to extend full support for a
program aimed at removing kinks in the system of deployment. In its place, the government, through the
Secretary of Labor and Employment, subsequently issued Department Order No. 28 creating the
Entertainment Industry Advisory Council (EIAC). which was tasked with issuing guidelines on the training,
testing certification and deployment of performing artists abroad.

Pursuant to the EIAC's recommendations, 1 the Secretary of Labor, on January 6, 1994, issued Department
Order No. 3 establishing various procedures and requirements for screening performing artists under a new
system of training, testing, certification and deployment of the former. Performing artists successfully hurdling
the test, training and certification requirement were to be issued an Artist's Record Book (ARB), a necessary
prerequisite to processing of any contract of employment by the POEA. Upon request of the industry,
implementation of the process, originally scheduled for April 1, 1994, was moved to October 1, 1994.

Thereafter, the Department of Labor, following the EIAC's recommendation, issued a series of orders fine-
tuning and implementing the new system. Prominent among these orders were the following issuances:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Department Order No. 3-A, providing

for additional guidelines on the training, testing, certification and deployment of performing
artists.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Department Order No. 3-B,

pertaining to the Artist Record Book (ARB) requirement, which could be processed only after
the artist could show proof of academic and skills training and has passed the required tests.
60
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Department Order No. 3-E, providing
the minimum salary a performing artist ought to receive (not less than US$600.00 for those
bound for Japan) and the authorized deductions therefrom.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Department Order No. 3-F, providing

for the guidelines on the issuance and use of the ARB by returning performing artists who,
unlike new artists, shall only undergo a Special Orientation Program (shorter than the basic
program) although they must pass the academic test.

In Civil No. 95-72750, the Federation of Entertainment Talent Managers of the Philippines (FETMOP), on
January 27, 1995 filed a class suit assailing these department orders, principally contending that said orders 1)
violated the constitutional right to travel; 2) abridged existing contracts for employment; and 3) deprived
individual artists of their licenses without due process of law. FETMOP, likewise, averred that the issuance of
the Artist Record Book (ARB) was discriminatory and illegal and "in gross violation of the constitutional right . .

. to life liberty and property." Said Federation consequently prayed for the issuance of a writ of preliminary
injunction against the aforestated orders.

On February 2, 1992, JMM Promotion and Management, Inc. and Kary International, Inc., herein petitioners,
filed a Motion for Intervention in said civil case, which was granted by the trial court in an Order dated 15
February, 1995.

However, on February 21, 1995, the trial court issued an Order denying petitioners' prayer for a writ of
preliminary injunction and dismissed the complaint.

On appeal from the trial court's Order, respondent court, in CA G.R. SP No. 36713 dismissed the same.
Tracing the circumstances which led to the issuance of the ARB requirement and the assailed Department
Order, respondent court concluded that the issuances constituted a valid exercise by the state of the police
power.

We agree.

The latin maxim salus populi est suprema lex embodies the character of the entire spectrum of public laws
aimed at promoting the general welfare of the people under the State's police power. As an inherent attribute
of sovereignty which virtually "extends to all public needs," 2 this "least limitable" 3of governmental powers
grants a wide panoply of instruments through which the state, as parens patriae gives effect to a host of its
regulatory powers.

Describing the nature and scope of the police power, Justice Malcolm, in the early case of Rubi v. Provincial
Board of Mindoro 4 wrote:

"The police power of the State," one court has said . . . 'is a power coextensive with self-
protection, and is not inaptly termed 'the law of overruling necessity.' It may be said to be that
inherent and plenary power in the state which enables it to prohibit all things hurtful to the
comfort, safety and welfare of society." Carried onward by the current of legislature, the
judiciary rarely attempts to dam the onrushing power of legislative discretion, provided the
purposes of the law do not go beyond the great principles that mean security for the public
welfare or do not arbitrarily interfere with the right of the individual." 5

Thus, police power concerns government enactments which precisely interfere with personal liberty or property
in order to promote the general welfare or the common good. As the assailed Department Order enjoys a
presumed validity, it follows that the burden rests upon petitioners to demonstrate that the said order,
particularly, its ARB requirement, does not enhance the public welfare or was exercised arbitrarily or
unreasonably.

A through review of the facts and circumstances leading to the issuance of the assailed orders compels us to
rule that the Artist Record Book requirement and the questioned Department Order related to its issuance were
issued by the Secretary of Labor pursuant to a valid exercise of the police power.

In 1984, the Philippines emerged as the largest labor sending country in Asia dwarfing the labor export of
countries with mammoth populations such as India and China. According to the National Statistics Office, this
diaspora was augmented annually by over 450,000 documented and clandestine or illegal (undocumented)
workers who left the country for various destinations abroad, lured by higher salaries, better work opportunities
and sometimes better living conditions.
61
Of the hundreds of thousands of workers who left the country for greener pastures in the last few years,
women composed slightly close to half of those deployed, constituting 47% between 1987-1991, exceeding
this proportion (58%) by the end of 1991, 6 the year former President Aquino instituted the ban on deployment
of performing artists to Japan and other countries as a result of the gruesome death of Filipino entertainer
Maricris Sioson.

It was during the same period that this Court took judicial notice not only of the trend, but also of the fact that
most of our women, a large number employed as domestic helpers and entertainers, worked under exploitative
conditions "marked by physical and personal abuse." 7 Even then, we noted that "[t]he sordid tales of
maltreatment suffered by migrant Filipina workers, even rape and various forms of torture, confirmed by
testimonies of returning workers" compelled "urgent government action." 8

Pursuant to the alarming number of reports that a significant number of Filipina performing artists ended up as
prostitutes abroad (many of whom were beaten, drugged and forced into prostitution), and following the deaths
of a number of these women, the government began instituting measures aimed at deploying only those
individuals who met set standards which would qualify them as legitimate performing artists. In spite of these
measures, however, a number of our countrymen have nonetheless fallen victim to unscrupulous recruiters,
ending up as virtual slaves controlled by foreign crime syndicates and forced into jobs other than those
indicated in their employment contracts. Worse, some of our women have been forced into prostitution.

Thus, after a number of inadequate and failed accreditation schemes, the Secretary of Labor issued on August
16, 1993, D.O. No. 28, establishing the Entertainment Industry Advisory Council (EIAC), the policy advisory
body of DOLE on entertainment industry matters. 9 Acting on the recommendations of the said body, the
Secretary of Labor, on January 6, 1994, issued the assailed orders. These orders embodied EIAC's Resolution
No. 1, which called for guidelines on screening, testing and accrediting performing overseas Filipino artists.
Significantly, as the respondent court noted, petitioners were duly represented in the EIAC, 10 which gave the
recommendations on which the ARB and other requirements were based.

Clearly, the welfare of Filipino performing artists, particularly the women was paramount in the issuance of
Department Order No. 3. Short of a total and absolute ban against the deployment of performing artists to
"high-risk" destinations, a measure which would only drive recruitment further underground, the new scheme at
the very least rationalizes the method of screening performing artists by requiring reasonable educational and
artistic skills from them and limits deployment to only those individuals adequately prepared for the
unpredictable demands of employment as artists abroad. It cannot be gainsaid that this scheme at least
lessens the room for exploitation by unscrupulous individuals and agencies.

Moreover, here or abroad, selection of performing artists is usually accomplished by auditions, where those
deemed unfit are usually weeded out through a process which is inherently subjective and vulnerable to bias
and differences in taste. The ARB requirement goes one step further, however, attempting to minimize the
subjectivity of the process by defining minimum skills required from entertainers and performing artists. As the
Solicitor General observed, this should be easily met by experienced artists possessing merely basic skills.
The tests are aimed at segregating real artists or performers from those passing themselves off as such, eager
to accept any available job and therefore exposing themselves to possible exploitation.

As to the other provisions of Department Order No. 3 questioned by petitioners, we see nothing wrong with the
requirement for document and booking confirmation (D.O. 3-C), a minimum salary scale (D.O. 3-E), or the
requirement for registration of returning performers. The requirement for a venue certificate or other documents
evidencing the place and nature of work allows the government closer monitoring of foreign employers and
helps keep our entertainers away from prostitution fronts and other worksites associated with unsavory,
immoral, illegal or exploitative practices. Parenthetically, none of these issuances appear to us, by any stretch
of the imagination, even remotely unreasonable or arbitrary. They address a felt need of according greater
protection for an oft-exploited segment of our OCW's. They respond to the industry's demand for clearer and
more practicable rules and guidelines. Many of these provisions were fleshed out following recommendations
by, and after consultations with, the affected sectors and non-government organizations. On the whole, they
are aimed at enhancing the safety and security of entertainers and artists bound for Japan and other
destinations, without stifling the industry's concerns for expansion and growth.

In any event, apart from the State's police power, the Constitution itself mandates government to extend the
fullest protection to our overseas workers. The basic constitutional statement on labor, embodied in Section 18
of Article II of the Constitution provides:

62
 Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights
of workers and promote their welfare.

More emphatically, the social justice provision on labor of the 1987 Constitution in its first paragraph states:

The State shall afford full protection to labor, local and overseas, organized and unorganized
and promote full employment and equality of employment opportunities for all.

Obviously, protection to labor does not indicate promotion of employment alone. Under the welfare and social
justice provisions of the Constitution, the promotion of full employment, while desirable, cannot take a backseat
to the government's constitutional duty to provide mechanisms for the protection of our workforce, local or
overseas. At this Court explained in Philippine Association of Service Exporters (PASEI) v. Drilon, 11 in
reference to the recurring problems faced by our overseas workers:

What concerns the Constitution more paramountly is that such an employment be above all,
decent, just, and humane. It is bad enough that the country has to send its sons and
daughters to strange lands because it cannot satisfy their employment needs at home. Under
these circumstances, the Government is duty-bound to insure that our toiling expatriates have
adequate protection, personally and economically, while away from home.

We now go to petitioners' assertion that the police power cannot, nevertheless, abridge the right of our
performing workers to return to work abroad after having earlier qualified under the old process, because,
having previously been accredited, their accreditation became a "property right," protected by the due process
clause. We find this contention untenable.

A profession, trade or calling is a property right within the meaning of our constitutional guarantees. One
cannot be deprived of the right to work and the right to make a living because these rights are property rights,
the arbitrary and unwarranted deprivation of which normally constitutes an actionable wrong. 12

Nevertheless, no right is absolute, and the proper regulation of a profession, calling, business or trade has
always been upheld as a legitimate subject of a valid exercise of the police power by the state particularly
when their conduct affects either the execution of legitimate governmental functions, the preservation of the
State, the public health and welfare and public morals. According to the maxim, sic utere tuo ut alienum non
laedas, it must of course be within the legitimate range of legislative action to define the mode and manner in
which every one may so use his own property so as not to pose injury to himself or others. 13

In any case, where the liberty curtailed affects at most the rights of property, the permissible scope of
regulatory measures is certainly much wider. 14 To pretend that licensing or accreditation requirements
violates the due process clause is to ignore the settled practice, under the mantle of the police power, of
regulating entry to the practice of various trades or professions. Professionals leaving for abroad are required
to pass rigid written and practical exams before they are deemed fit to practice their trade. Seamen are
required to take tests determining their seamanship. Locally, the Professional Regulation Commission has
began to require previously licensed doctors and other professionals to furnish documentary proof that they
had either re-trained or had undertaken continuing education courses as a requirement for renewal of their
licenses. It is not claimed that these requirements pose an unwarranted deprivation of a property right under
the due process clause. So long as professionals and other workers meet reasonable regulatory standards no
such deprivation exists.

Finally, it is a futile gesture on the part of petitioners to invoke the non-impairment clause of the Constitution to
support their argument that the government cannot enact the assailed regulatory measures because they
abridge the freedom to contract. In Philippine Association of Service Exporters, Inc. vs. Drilon, we held that
"[t]he non-impairment clause of the Constitution . . . must yield to the loftier purposes targeted by the
government." 15 Equally important, into every contract is read provisions of existing law, and always, a
reservation of the police power for so long as the agreement deals with a subject impressed with the public
welfare.

A last point. Petitioners suggest that the singling out of entertainers and performing artists under the assailed
department orders constitutes class legislation which violates the equal protection clause of the Constitution.
We do not agree.

The equal protection clause is directed principally against undue favor and individual or class privilege. It is not
intended to prohibit legislation which is limited to the object to which it is directed or by the territory in which it is
to operate. It does not require absolute equality, but merely that all persons be treated alike under like
63
conditions both as to privileges conferred and liabilities imposed. 16 We have held, time and again, that the
equal protection clause of the Constitution does not forbid classification for so long as such classification is
based on real and substantial differences having a reasonable relation to the subject of the particular
legislation. 17 If classification is germane to the purpose of the law, concerns all members of the class, and
applies equally to present and future conditions, the classification does not violate the equal protection
guarantee.

In the case at bar, the challenged Department Order clearly applies to all performing artists and entertainers
destined for jobs abroad. These orders, we stressed hereinbefore, further the Constitutional mandate requiring
government to protect our workforce, particularly those who may be prone to abuse and exploitation as they
are beyond the physical reach of government regulatory agencies. The tragic incidents must somehow stop,
but short of absolutely curtailing the right of these performers and entertainers to work abroad, the assailed
measures enable our government to assume a measure of control.

WHEREFORE, finding no reversible error in the decision sought to be reviewed, petition is hereby DENIED.

SO ORDERED.

Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (JMM Promotion and Management, Inc. v. Court of

Appeals, G.R. No. 120095, [August 5, 1996], 329 PHIL

87-102)

Knights of Rizal v. DMCI Homes, Inc., G.R. No. 213948, [April 25, 2017]

EN BANC

[G.R. No. 213948. April 25, 2017.]

KNIGHTS OF RIZAL, petitioner, vs. DMCI HOMES, INC., DMCI PROJECT DEVELOPERS,
INC., CITY OF MANILA, NATIONAL COMMISSION FOR CULTURE AND THE ARTS,
NATIONAL MUSEUM, and NATIONAL HISTORICAL COMMISSION OF THE PHILIPPINES,
respondents.

DECISION

CARPIO, J p:

Bury me in the ground, place a stone and a cross over it. My name, the date of my birth, and of my death.
Nothing more. If you later wish to surround my grave with a fence, you may do so. No anniversaries. I prefer
Paang Bundok.

- Jose Rizal

The Case

Before this Court is a Petition for Injunction, with Applications for Temporary Restraining Order, Writ
of Preliminary Injunction, and Others 1 filed by the Knights of Rizal (KOR) seeking, among others, for an
order to stop the construction of respondent DMCI Homes, Inc.'s condominium development project known
as the Torre de Manila. In its Resolution dated 25 November 2014, the Court resolved to treat the petition
as one for mandamus. 2

The Facts

On 1 September 2011, DMCI Project Developers, Inc. (DMCI-PDI) 3 acquired a 7,716.60-square

meter lot in the City of Manila, located near Taft Avenue, Ermita, beside the former Manila Jai-Alai Building
and Adamson University. 4 The lot was earmarked for the construction of DMCI-PDI's Torre de Manila
condominium project. HTcADC

64
 On 2 April 2012, DMCI-PDI secured its Barangay Clearance to start the construction of its project. It
then obtained a Zoning Permit from the City of Manila's City Planning and Development Office (CPDO) on 19
June 2012. 5

Then, on 5 July 2012, the City of Manila's Office of the Building Official granted DMCI-PDI a Building
Permit, allowing it to build a "Forty-Nine (49) Storey w/Basement & 2 penthouse Level Res'l./Condominium"
on the property. 6

On 24 July 2012, the City Council of Manila issued Resolution No. 121 enjoining the Office of the
Building Official to temporarily suspend the Building Permit of DMCI-PDI, citing among others, that "the Torre
de Manila Condominium, based on their development plans, upon completion, will rise up high above the
back of the national monument, to clearly dwarf the statue of our hero, and with such towering heights, would
certainly ruin the line of sight of the Rizal Shrine from the frontal Roxas Boulevard vantage point[.]" 7

Building Official Melvin Q. Balagot then sought the opinion of the City of Manila's City Legal Officer on
whether he is bound to comply with Resolution No. 121. 8In his letter dated 12 September 2012, City Legal
Officer Renato G. Dela Cruz stated that there is "no legal justification for the temporary suspension of the
Building Permit issued in favor of [DMCI-PDI]" since the construction "lies outside the Luneta Park" and is
"simply too far to be a repulsive distraction or have an objectionable effect on the artistic and historical
significance" of the Rizal Monument. 9 He also pointed out that "there is no showing that the [area of] subject
property has been officially declared as an anthropological or archeological area. Neither has it been
categorically designated by the National Historical Institute as a heritage zone, a cultural property, a historical
landmark or even a national treasure."

Subsequently, both the City of Manila and DMCI-PDI sought the opinion of the National Historical
Commission of the Philippines (NHCP) on the matter. In the letter 10 dated 6 November 2012 from NHCP
Chairperson Dr. Maria Serena I. Diokno addressed to DMCI-PDI and the letter 11 dated 7 November 2012
from NHCP Executive Director III Ludovico D. Badoy addressed to then Manila Mayor Alfredo S. Lim, the
NHCP maintained that the Torre de Manila project site is outside the boundaries of the Rizal Park and well to
the rear of the Rizal Monument, and thus, cannot possibly obstruct the frontal view of the National
Monument.

On 26 November 2013, following an online petition against the Torre de Manila project that garnered
about 7,800 signatures, the City Council of Manila issued Resolution No. 146, reiterating its directive in
Resolution No. 121 enjoining the City of Manila's building officials to temporarily suspend DMCI-PDI's
Building Permit. 12

In a letter to Mayor Joseph Ejercito Estrada dated 18 December 2013, DMCI-PDI President Alfredo
R. Austria sought clarification on the controversy surrounding its Zoning Permit. He stated that since the
CPDO granted its Zoning Permit, DMCI-PDI continued with the application for the Building Permit, which was
granted, and did not deem it necessary to go through the process of appealing to the local zoning board. He
then expressed DMCI-PDI's willingness to comply with the process if the City of Manila deemed it necessary.
13

On 23 December 2013, the Manila Zoning Board of Adjustments and Appeals (MZBAA) issued
Zoning Board Resolution No. 06, Series of 2013, 14 recommending the approval of DMCI-PDI's application
for variance. The MZBAA noted that the Torre de Manila project "exceeds the prescribed maximum
Percentage of Land Occupancy (PLO) and exceeds the prescribed Floor Area Ratio (FAR) as stipulated in
Article V, Section 17 of City Ordinance No. 8119[.]" However, the MZBAA still recommended the approval of
the variance subject to the five conditions set under the same resolution. CAIHTE

After some clarification sought by DMCI-PDI, the MZBAA issued Zoning Board Resolution No. 06-A,
Series of 2013, 15 on 8 January 2014, amending condition (c) in the earlier resolution. 16

On 16 January 2014, the City Council of Manila issued Resolution No. 5, Series of 2014, 17 adopting
Zoning Board Resolution Nos. 06 and 06-A. The City Council resolution states that "the City Council of
Manila find[s] no cogent reason to deny and/or reverse the aforesaid recommendation of the [MZBAA] and
hereby ratif[ies] and confirm[s] all previously issued permits, licenses and approvals issued by the City
[Council] of Manila for Torre de Manila[.]"

Arguments of the KOR

On 12 September 2014, the KOR, a "civic, patriotic, cultural, non-partisan, non-sectarian and non-
profit organization" 18 created under Republic Act No. 646, 19filed a Petition for Injunction seeking a
65
temporary restraining order, and later a permanent injunction, against the construction of DMCI-PDI's Torre
de Manila condominium project. The KOR argues that the subject matter of the present suit is one of
"transcendental importance, paramount public interest, of overarching significance to society, or with far-
reaching implication" involving the desecration of the Rizal Monument.

The KOR asserts that the completed Torre de Manila structure will "[stick] out like a sore thumb,
[dwarf] all surrounding buildings within a radius of two kilometer/s" and "forever ruin the sightline of the Rizal
Monument in Luneta Park: Torre de Manila building would loom at the back and overshadow the entire
monument, whether up close or viewed from a distance." 20

Further, the KOR argues that the Rizal Monument, as a National Treasure, is entitled to "full
protection of the law" 21 and the national government must abate the act or activity that endangers the
nation's cultural heritage "even against the wishes of the local government hosting it." 22 aScITE

Next, the KOR contends that the project is a nuisance per se 23 because "[t]he despoliation of the
sight view of the Rizal Monument is a situation that 'annoys or offends the senses' of every Filipino who
honors the memory of the National Hero Jose Rizal. It is a present, continuing, worsening and aggravating
status or condition. Hence, the PROJECT is a nuisance per se. It deserves to be abated summarily, even
without need of judicial proceeding." 24

The KOR also claims that the Torre de Manila project violates the NHCP's Guidelines on Monuments
Honoring National Heroes, Illustrious Filipinos and Other Personages, which state that historic monuments
should assert a visual "dominance" over its surroundings, 25 as well as the country's commitment under
theInternational Charter for the Conservation and Restoration of Monuments and Sites, otherwise known as
the Venice Charter. 26

Lastly, the KOR claims that the DMCI-PDI's construction was commenced and continues in bad faith,
and is in violation of the City of Manila's zoning ordinance.27

Arguments of DMCI-PDI

In its Comment, DMCI-PDI argues that the KOR's petition should be dismissed on the following
grounds:

I.

THIS HONORABLE COURT HAS NO JURISDICTION OVER THIS ACTION.

II.

KOR HAS NO LEGAL RIGHT OR INTEREST TO FILE OR PROSECUTE THIS ACTION.

III.

TORRE DE MANILA IS NOT A NUISANCE PER SE.

IV.

DMCI-PDI ACTED IN GOOD FAITH IN CONSTRUCTING TORRE DE MANILA; AND

V.

KOR IS NOT ENTITLED TO A TEMPORARY RESTRAINING ORDER AND/OR A WRIT OF

PRELIMINARY INJUNCTION. 28

First, DMCI-PDI asserts that the Court has no original jurisdiction over actions for injunction. 29 Even
assuming that the Court has concurrent jurisdiction, DMCI-PDI maintains that the petition should still have
been filed with the Regional Trial Court under the doctrine of hierarchy of courts and because the petition
involves questions of fact. 30 DETACa

DMCI-PDI also contends that the KOR's petition is in actuality an opposition or appeal from the
exemption granted by the City of Manila's MZBAA, a matter which is also not within the jurisdiction of the
Court. 31 DMCI-PDI claims that the proper forum should be the MZBAA, and should the KOR fail there, it
should appeal the same to the Housing and Land Use Regulatory Board (HLURB). 32
 DMCI-PDI further argues that since the Rizal Monument has been declared a National Treasure, the
power to issue a cease and desist order is lodged with the "appropriate cultural agency" under Section 25 of
Republic Act No. 10066 or the National Cultural Heritage Act of 2009. 33 Moreover, DMCI-PDI asserts that
the KOR availed of the wrong remedy since an action for injunction is not the proper remedy for abatement of
a nuisance. 34

66
 Second, DMCI-PDI maintains that the KOR has no standing to institute this proceeding because it is
not a real party in interest in this case. The purposes of the KOR as a public corporation do not include the
preservation of the Rizal Monument as a cultural or historical heritage site. 35 The KOR has also not shown
that it suffered an actual or threatened injury as a result of the alleged illegal conduct of the City of Manila. If
there is any injury to the KOR at all, the same was caused by the private conduct of a private entity and not
the City of Manila. 36

Third, DMCI-PDI argues that the Torre de Manila is not a nuisance per se. DMCI-PDI reiterates that it
obtained all the necessary permits, licenses, clearances, and certificates for its construction. 37 It also
refutes the KOR's claim that the Torre de Manila would dwarf all other structures around it, considering that
there are other tall buildings even closer to the Rizal Monument itself, namely, the Eton Baypark Tower at the
corner of Roxas Boulevard and T.M. Kalaw Street (29 storeys; 235 meters from the Rizal Monument) and
Sunview Palace at the corner of M.H. Del Pilar and T.M. Kalaw Streets (42 storeys; 250 meters from the
Rizal Monument). 38

Fourth, DMCI-PDI next argues that it did not act in bad faith when it started construction of its Torre
de Manila project. Bad faith cannot be attributed to it since it was within the "lawful exercise of [its] rights." 39
The KOR failed to present any proof that DMCI-PDI did not follow the proper procedure and zoning
restrictions of the City of Manila. Aside from obtaining all the necessary permits from the appropriate
government agencies, 40 DMCI-PDI also sought clarification on its right to build on its site from the Office of
the City Legal Officer of Manila, the Manila CPDO, and the NHCP. 41 Moreover, even if the KOR proffered
such proof, the Court would be in no position to declare DMCI-PDI's acts as illegal since the Court is not a
trier of facts. 42 HEITAD

Finally, DMCI-PDI opposes the KOR's application for a Temporary Restraining Order (TRO) and writ
of preliminary injunction. DMCI-PDI asserts that the KOR has failed to establish "a clear and unmistakable
right to enjoin the construction of Torre de Manila, much less request its demolition." 43 DMCI-PDI further
argues that it "has complied with all the legal requirements for the construction of Torre de Manila x x x [and]
has violated no right of KOR that must be protected. Further, KOR stands to suffer no damage because of its
lack of direct pecuniary interest in this petition. To grant the KOR's application for injunctive relief would
constitute an unjust taking of property without due process of law." 44

Arguments of the City of Manila

In its Comment, the City of Manila argues that the writ of mandamus cannot issue "considering that
no property or substantive rights whatsoever in favor of [the KOR] is being affected or x x x entitled to judicial
protection[.]" 45

The City of Manila also asserts that the "issuance and revocation of a Building Permit undoubtedly fall
under the category of a discretionary act or duty performed by the proper officer in light of his meticulous
appraisal and evaluation of the pertinent supporting documents of the application in accordance with the
rules laid out under the National Building Code [and] Presidential Decree No. 1096," 46 while the remedy of
mandamus is available only to compel the performance of a ministerial duty. 47

Further, the City of Manila maintains that the construction of the Torre de Manila did not violate any
existing law, since the "edifice [is] well behind (some 789 meters away) the line of sight of the Rizal
Monument." 48 It adds that the City of Manila's "prevailing Land Use and Zoning Ordinance [Ordinance No.
8119] x x x allows an adjustment in Floor Area Ratios thru the [MZBAA] subject to further final approval of the
City Council." 49 The City Council adopted the MZBAA's favorable recommendation in its Resolution No. 5,
ratifying all the licenses and permits issued to DMCI-PDI for its Torre de Manila project. aDSIHc

In its Position Paper dated 15 July 2015, the City of Manila admitted that the Zoning Permit issued to
DMCI-PDI was "in breach of certain provisions of City Ordinance No. 8119." 50 It maintained, however, that
the deficiency is "procedural in nature and pertains mostly to the failure of [DMCI-PDI] to comply with the
stipulations that allow an excess in the [FAR] provisions." 51 Further, the City of Manila argued that the
MZBAA, when it recommended the allowance of the project's variance, imposed certain conditions upon the
Torre de Manila project in order to mitigate the possible adverse effects of an excess FAR. 52

The Issue

The issues raised by the parties can be summed up into one main point: Can the Court issue a writ of
mandamus against the officials of the City of Manila to stop the construction of DMCI-PDI's Torre de Manila
project?
67
 The Court's Ruling

The petition for mandamus lacks merit and must be dismissed.

There is no law prohibiting the construction of the Torre de Manila.

In Manila Electric Company v. Public Service Commission, 53 the Court held that "what is not
expressly or impliedly prohibited by law may be done, except when the act is contrary to morals,
customs and public order." This principle is fundamental in a democratic society, to protect the weak
against the strong, the minority against the majority, and the individual citizen against the government. In
essence, this principle, which is the foundation of a civilized society under the rule of law, prescribes that the
freedom to act can be curtailed only through law. Without this principle, the rights, freedoms, and civil
liberties of citizens can be arbitrarily and whimsically trampled upon by the shifting passions of those who
can shout the loudest, or those who can gather the biggest crowd or the most number of Internet trolls. In
other instances, 54 the Court has allowed or upheld actions that were not expressly prohibited by statutes
when it determined that these acts were not contrary to morals, customs, and public order, or that upholding
the same would lead to a more equitable solution to the controversy. However, it is the law itself

— Articles 1306 55 and 1409 (1) 56 of the Civil Code — which prescribes that acts not contrary to
morals, good customs, public order, or public policy are allowed if also not contrary to law. ATICcS

In this case, there is no allegation or proof that the Torre de Manila project is "contrary to morals,
customs, and public order" or that it brings harm, danger, or hazard to the community. On the contrary, the
City of Manila has determined that DMCI-PDI complied with the standards set under the pertinent laws and
local ordinances to construct its Torre de Manila project.

There is one fact that is crystal clear in this case. There is no law prohibiting the construction of the
Torre de Manila due to its effect on the background "view, vista, sightline, or setting" of the Rizal Monument.

Zoning, as well as land use, in the City of Manila is governed by Ordinance No. 8119. The ordinance
provides for standards and guidelines to regulate development projects of historic sites and facilities within
the City of Manila.

Specifically, Section 47 reads:

SEC. 47. Historical Preservation and Conservation Standards. — Historic sites and facilities
shall be conserved and preserved. These shall, to the extent possible, be made accessible for
the educaional and cultural enrichment of the general public.

The following shall guide the development of historic sites and facilities:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Sites with historic buildings or places shall

be developed to conserve and enhance their heritage values.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Historic sites and facilities shall be adaptively re-
used.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Any person who proposes to add, to alter,

or partially demolish a designated heritage property will require the approval of the City Planning
and Development Office (CPDO) and shall be required to prepare a heritage impact statement
that will demonstrate to the satisfaction of CPDO that the proposal will not adversely impact the
heritage significance of the property and shall submit plans for review by the CPDO in
coordination with the National Historical Institute (NHI).

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Any proposed alteration and/or re-use of

designated heritage properties shall be evaluated based on criteria established by the heritage
significance of the particular property or site.

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Where an owner of a heritage property

applies for approval to demolish a designated heritage property or properties, the owner shall be
required to provide evidence to satisfaction that demonstrates that rehabilitation and re-use of
the property is not viable.
࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Any designated heritage property which is
to be demolished or significantly altered shall be thoroughly documented for archival purposes
with a history, photographic records, and measured drawings, in accordance with accepted
heritage recording guidelines, prior to demolition or alteration.

68
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Residential and commercial infill in heritage
areas will be sensitive to the existing scale and pattern of those areas, which maintains the
existing landscape and streetscape qualities of those areas, and which does not result in the
loss of any heritage resources. ETHIDa

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Development plans shall ensure that

parking facilities (surface lots, residential garages, stand-alone parking garages and parking
components as parts of larger developments) are compatibly integrated into heritage areas,
and/or are compatible with adjacent heritage resources.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Local utility companies (hydro, gas,

telephone, cable) shall be required to place metering equipment, transformer boxes, power
lines, conduit, equipment boxes, piping, wireless telecommunication towers and other utility
equipment and devices in locations which do not detract from the visual character of heritage
resources, and which do not have a negative impact on its architectural integrity.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Design review approval shall be secured

from the CPDO for any alteration of the heritage property to ensure that design guidelines and
standards are met and shall promote preservation and conservation of the heritage property.
(Emphasis supplied)

It is clear that the standards laid down in Section 47 of Ordinance No. 8119 only serve as guides, as it
expressly states that "the following shall guide the development of historic sites and facilities." A guide
simply sets a direction or gives an instruction to be followed by property owners and developers in order to
conserve and enhance a property's heritage values.

On the other hand, Section 48 states:

SEC. 48. Site Performance Standards. — The City considers it in the public interest that all
projects are designed and developed in a safe, efficient and aesthetically pleasing manner. Site
development shall consider the environmental character and limitations of the site and its
adjacent properties. All project elements shall be in complete harmony according to good design
principles and the subsequent development must be visually pleasing as well as efficiently
functioning especially in relation to the adjacent properties and bordering streets.

The design, construction, operation and maintenance of every facility shall be in harmony with
the existing and intended character of its neighborhood. It shall not change the essential
character of the said area but will be a substantial improvement to the value of the properties in
the neighborhood in particular and the community in general.

Furthermore, designs should consider the following:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Sites, buildings and facilities shall be

designed and developed with regard to safety, efficiency and high standards of design. The
natural environmental character of the site and its adjacent properties shall be considered in the
site development of each building and facility.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The height and bulk of buildings and

structures shall be so designed that it does not impair the entry of light and ventilation, cause
the loss of privacy and/or create nuisances, hazards or inconveniences to adjacent
developments. TIADCc

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Abutments to adjacent properties shall not

be allowed without the neighbor's prior written consent which shall be required by the City
Planning and Development Office (CPDO) prior to the granting of a Zoning Permit (Locational
Clearance).

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The capacity of parking areas/lots shall be

per the minimum requirements of the National Building Code. These shall be located, developed
and landscaped in order to enhance the aesthetic quality of the facility. In no case, shall parking
areas/lots encroach into street rights-of-way and shall follow the Traffic Code as set by the City.
࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Developments that attract a significant
volume of public modes of transportation, such as tricycles, jeepneys, buses, etc., shall provide
on-site parking for the same. These shall also provide vehicular loading and unloading bays so
as street traffic flow will not be impeded.

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Buffers, silencers, mufflers, enclosures and

other noise-absorbing materials shall be provided to all noise and vibration-producing
machinery. Noise levels shall be maintained according to levels specified in DENR DAO No. 30
— Abatement of Noise and Other Forms of Nuisance as Defined by Law.

69
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Glare and heat from any operation or
activity shall not be radiated, seen or felt from any point beyond the limits of the property.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ No large commercial signage and/or

pylon, which will be detrimental to the skyline, shall be allowed.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Design guidelines, deeds of restriction,

property management plans and other regulatory tools that will ensure high quality
developments shall be required from developers of commercial subdivisions and condominiums.
These shall be submitted to the City Planning and Development Office (CPDO) for review and
approval. (Emphasis supplied)

Section 47 of Ordinance No. 8119 specifically regulates the "development of historic sites and
facilities." Section 48 regulates "large commercial signage and/or pylon." There is nothing in Sections 47
and 48 of Ordinance No. 8119 that disallows the construction of a building outside the boundaries of a
historic site or facility, where such building may affect the background of a historic site. In this case, the
Torre de Manila stands 870 meters outside and to the rear of the Rizal Monument and "cannot possibly
obstruct the front view of the [Rizal] Monument." 57 Likewise, the Torre de Manila is not in an area that has
been declared as an "anthropological or archeological area" or in an area designated as a heritage zone,
cultural property, historical landmark, or a national treasure by the NHCP. 58

Section 15, Article XIV of the Constitution, which deals with the subject of arts and culture, provides
that "[t]he State shall conserve, promote and popularize the nation's historical and cultural heritage and
resources x x x." Since this provision is not self-executory, Congress passed laws dealing with the
preservation and conservation of our cultural heritage. cSEDTC

One such law is Republic Act No. 10066, 59 or the National Cultural Heritage Act of 2009, which
empowers the National Commission for Culture and the Arts and other cultural agencies to issue a cease
and desist order "when the physical integrity of the national cultural treasures or important cultural
properties [is] found to be in danger of destruction or significant alteration from its original state." 60
This law declares that the State should protect the "physical integrity" of the heritage property or building if
there is "danger of destruction or significant alteration from its original state." Physical integrity refers to
the structure itself— how strong and sound the structure is. The same law does not mention that
another project, building, or property, not itself a heritage property or building, may be the subject of a cease
and desist order when it adversely affects the background view, vista, or sightline of a heritage property or
building. Thus, Republic Act No. 10066 cannot apply to the Torre de Manila condominium project.

Mandamus does not lie against the City of Manila.

The Constitution states that "[n]o person shall be deprived of life, liberty or property without due
process of law x x x." 61 It is a fundamental principle that no property shall be taken away from an individual
without due process, whether substantive or procedural. The dispossession of property, or in this case the
stoppage of the construction of a building in one's own property, would violate substantive due process.

The Rules on Civil Procedure are clear that mandamus only issues when there is a clear legal duty
imposed upon the office or the officer sought to be compelled to perform an act, and when the party seeking
mandamus has a clear legal right to the performance of such act.

In the present case, nowhere is it found in Ordinance No. 8119 or in any law, ordinance, or rule for
that matter, that the construction of a building outside the Rizal Park is prohibited if the building is within the
background sightline or view of the Rizal Monument. Thus, there is no legal duty on the part of the City of
Manila"to consider," in the words of the Dissenting Opinion, "the standards set under Ordinance No.
8119" in relation to the applications of DMCI-PDI for the Torre de Manila since under the ordinance these
standards can never be applied outside the boundaries of Rizal Park. While the Rizal Park has been
declared a National Historical Site, the area where Torre de Manila is being built is a privately-owned
property that is "not part of the Rizal Park that has been declared as a National Heritage Site in 1995," and
the Torre de Manila area is in fact "well-beyond" the Rizal Park, according to NHCP Chairperson Dr. Maria
Serena I. Diokno. 62 Neither has the area of the Torre de Manila been designated as a "heritage zone, a
cultural property, a historical landmark or even a national treasure." 63
 Also, to declare that the City of Manila failed to consider the standards under Ordinance No. 8119
would involve making a finding of fact. A finding of fact requires notice, hearing, and the submission of
evidence to ascertain compliance with the law or regulation. In such a case, it is the Regional Trial Court

70
which has the jurisdiction to hear the case, receive evidence, make a proper finding of fact, and determine
whether the Torre de Manila project properly complied with the standards set by the ordinance. In Meralco v.
Public Service Commission, 64 we held that it is the cardinal right of a party in trials and administrative
proceedings to be heard, which includes the right of the party interested or affected to present his own case
and submit evidence in support thereof and to have such evidence presented considered by the proper court
or tribunal. AIDSTE

To compel the City of Manila to consider the standards under Ordinance No. 8119 to the Torre de
Manila project will be an empty exercise since these standards cannot apply outside of the Rizal Park — and
the Torre de Manila is outside the Rizal Park. Mandamus will lie only if the officials of the City of Manila have
a ministerial duty to consider these standards to buildings outside of the Rizal Park. There can be no such
ministerial duty because these standards are not applicable to buildings outside of the Rizal Park.

The KOR also invokes this Court's exercise of its extraordinary certiorari power of review under
Section 1, Article VIII 65 of the Constitution. However, this Court can only exercise its extraordinary certiorari
power if the City of Manila, in issuing the required permits and licenses, gravely abused its discretion
amounting to lack or excess of jurisdiction. Tellingly, neither the majority nor minority opinion in this case
has found that the City of Manila committed grave abuse of discretion in issuing the permits and licenses to
DMCI-PDI. Thus, there is no justification at all for this Court to exercise its extraordinary certiorari power.

Moreover, the exercise of this Court's extraordinary certiorari power is limited to actual cases and
controversies that necessarily involve a violation of theConstitution or the determination of the
constitutionality or validity of a governmental act or issuance. Specific violation of a statute that does not
raise the issue of constitutionality or validity of the statute cannot, as a rule, be the subject of the Court's
direct exercise of its expanded certiorari power. Thus, the KOR's recourse lies with other judicial remedies or
proceedings allowed under the Rules of Court.

In Association of Medical Clinics for Overseas Workers, Inc. v. GCC Approved Medical Centers
Association, Inc., 66 we held that in cases where the question of constitutionality of a governmental action is
raised, the judicial power that the courts exercise is likewise identified as the power of judicial review — the
power to review the constitutionality of the actions of other branches of government. As a rule, as required by
the hierarchy of courts principle, these cases are filed with the lowest court with jurisdiction over the subject
matter. The judicial review that the courts undertake requires: SDAaTC

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ there be an actual case or controversy

calling for the exercise of judicial power;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the person challenging the act must

have "standing" to challenge; he must have a personal and substantial interest in
the case such that he has sustained, or will sustain, direct injury as a result of its
enforcement;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the question of constitutionality must

be raised at the earliest possible opportunity; and

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the issue of constitutionality must be the

very lis mota of the case.

The lower court's decision under the constitutional scheme reaches the Supreme Court through the
appeal process, through a petition for review on certiorariunder Rule 45 of the Rules of Court.

In the present case, the KOR elevated this case immediately to this Court in an original petition for
injunction which we later on treated as one for mandamusunder Rule 65. There is, however, no clear legal
duty on the City of Manila to consider the provisions of Ordinance No. 8119 for applications for permits to
buildoutside the protected areas of the Rizal Park. Even if there were such legal duty, the determination of
whether the City of Manila failed to abide by this legal duty would involve factual matters which have not
been admitted or established in this case. Establishing factual matters is not within the realm of this Court.
Findings of fact are the province of the trial courts.

There is no standard in Ordinance No. 8119 for defining or determining the background sightline that
is supposed to be protected or that is part of the "physical integrity" of the Rizal Monument. How far should a
building like the Torre de Manila be from the Rizal Monument — one, two, three, four, or five kilometers?
Even the Solicitor General, during the Oral Arguments, conceded that the ordinance does not prescribe how
sightline is determined, neither is there any way to measure by metes and bounds whether a construction
that is not part of the historic monument itself or is outside the protected area can be said to violate the
Rizal Monument's physical integrity, except only to say "when you stand in front of the

71
Rizal Monument, there can be no doubt that your view is marred and impaired." This kind of a standard has
no parameters and can include a sightline or a construction as far as the human eyes can see when standing
in front of the Rizal Monument. Obviously, this Court cannot apply such a subjective and non-uniform
standard that adversely affects property rights several kilometers away from a historical sight or facility.

The Dissenting Opinion claims that "the City, by reason of a mistaken or erroneous construction of its
own Ordinance, had failed to consider its duties under [Ordinance No. 8119] when it issued permits in DMCI-
PDI's favor." However, MZBAA Zoning Board Resolution Nos. 06 and 06-A 67 easily dispel this claim.
According to the resolutions, the City of Manila, through the MZBAA, acted on DMCI-PDI's application for
variance under the powers and standards set forth in Ordinance No. 8119. AaCTcI

Without further proof that the MZBAA acted whimsically, capriciously, or arbitrarily in issuing said
resolution, the Court should respect MZBAA's exercise of discretion. The Court cannot "substitute its
judgment for that of said officials who are in a better position to consider and weigh the same in the light of
the authority specifically vested in them by law." 68 Since the Court has "no supervisory power over the
proceedings and actions of the administrative departments of the government," it "should not generally
interfere with purely administrative and discretionary functions." 69 The power of the Court in mandamus
petitions does not extend "to direct the exercise of judgment or discretion in a particular way or the
retraction or reversal of an action already taken in the exercise of either." 70

Still, the Dissenting Opinion insists on directing the re-evaluation by the City of Manila, through the
CPDO, of the permits previously issued in favor of the Torre de Manila project to determine compliance with
the standards under Ordinance No. 8119. It also declares that the circumstances in this case warrant the pro
hacvice conversion of the proceedings in the issuance of the permits into a "contested case" necessitating
notice and hearing with all the parties involved.

Pro hac vice means a specific decision does not constitute a precedent because the decision is for
the specific case only, not to be followed in other cases. Apro hac vice decision violates
statutory law — Article 8 of the Civil Code — which states that "judicial decisions applying or interpreting the
laws or the Constitutionshall form part of the legal system of the Philippines." The decision of the Court in this
case cannot be pro hac vice because by mandate of the law every decision of the Court forms part of the
legal system of the Philippines. If another case comes up with the same facts as the present case, that case
must be decided in the same way as this case to comply with the constitutional mandate of equal protection
of the law. Thus, a pro hac vice decision also violates the equal protection clause of the Constitution.

It is the policy of the courts not to interfere with the discretionary executive acts of the executive
branch unless there is a clear showing of grave abuse of discretion amounting to lack or excess of
jurisdiction. Mandamus does not lie against the legislative and executive branches or their members acting in
the exercise of their official discretionary functions. This emanates from the respect accorded by the judiciary
to said branches as co-equal entities under the principle of separation of powers.

In De Castro v. Salas, 71 we held that no rule of law is better established than the one that provides
that mandamus will not issue to control the discretion of an officer or a court when honestly exercised and
when such power and authority is not abused. acEHCD

In exceptional cases, the Court has granted a prayer for mandamus to compel action in matters
involving judgment and discretion, only "to act, but not to act one way or the other," 72 and only in cases
where there has been a clear showing of grave abuse of discretion, manifest injustice, or palpable
excess of authority. 73

In this case, there can be no determination by this Court that the City of Manila had been negligent or
remiss in its duty under Ordinance No. 8119 considering that this determination will involve questions of fact.
DMCI-PDI had been issued the proper permits and had secured all approvals and licenses months before
the actual construction began. Even the KOR could not point to any law that respondent City of Manila had
violated and could only point to declarations of policies by the NHCP and the Venice Charter which do not
constitute clear legal bases for the issuance of a writ of mandamus.

The Venice Charter is merely a codification of guiding principles for the preservation and restoration
of ancient monuments, sites, and buildings. It brings together principles in the field of historical conservation
and restoration that have been developed, agreed upon, and and laid down by experts over
72
the years. Each country, however, remains "responsible for applying the plan within the framework of its own
culture and traditions." 74

The Venice Charter is not a treaty and therefore does not become enforceable as law. The
Philippines is not legally bound to follow its directive, as in fact, these are not directives but mere guidelines

— a set of the best practices and techniques that have been proven over the years to be the most effective in
preserving and restoring historical monuments, sites and buildings.

The City of Manila concedes that DMCI-PDI's Zoning Permit was granted without going through the
process under Ordinance No. 8119. However, the same was properly rectified when, faced with mounting
opposition, DMCI-PDI itself sought clarification from the City of Manila and immediately began complying
with the procedure for applying for a variance. The MZBAA did subsequently recommend the approval of the
variance and the City Council of Manila approved the same, ratifying the licenses and permits already given
to DMCI-PDI. Such ratification was well within the right of the City Council of Manila. The City Council of
Manila could have denied the application had it seen any reason to do so. Again, the ratification is a function
of the City Council of Manila, an exercise of its discretion and well within the authority granted it by law and
the City's own Ordinance No. 8119.

The main purpose of zoning is the protection of public safety, health, convenience, and welfare.
There is no indication that the Torre de Manila project brings any harm, danger, or hazard to the people in
the surrounding areas except that the building allegedly poses an unsightly view on the taking of photos or
the visual appreciation of the Rizal Monument by locals and tourists. In fact, the Court must take the approval
of the MZBAA, and its subsequent ratification by the City Council of Manila, as the duly authorized exercise
of discretion by the city officials. Great care must be taken that the Court does not unduly tread upon the
local government's performance of its duties. It is not for this Court to dictate upon the other branches of the
government how their discretion must be exercised so long as these branches do not commit grave abuse of
discretion amounting to lack or excess of jurisdiction.

Likewise, any violation of Ordinance No. 8119 must be determined in the proper case and before the
proper forum. It is not within the power of this Court in this case to make such determination. Without such
determination, this Court cannot simply declare that the City of Manila had failed to consider its duties under
Ordinance No. 8119 when it issued the permits in DMCI-PDI's favor without making a finding of fact how the
City of Manila failed "to consider" its duties with respect to areas outside the boundaries of the Rizal Park. In
the first place, this Court has no jurisdiction to make findings of fact in an original action like this before this
Court. Moreover, the City of Manila could not legally apply standards to sites outside the area covered by the
ordinance that prescribed the standards. With this, taken in light of the lack of finding that there was grave
abuse of discretion on the part of the City of Manila, there is no basis to issue the writ of mandamus against
the City of Manila.

During the Oral Arguments, it was established that the granting of a variance is neither uncommon
nor irregular. On the contrary, current practice has made granting of a variance the rule rather than the
exception: EcTCAD

JUSTICE CARPIO:

Let's go to Ordinance 8119. For residential condominium that stand alone, in other
words not part of a commercial complex or an industrial complex . . .

ATTY. FLAMINIANO:

Yes, Your Honor.

JUSTICE CARPIO:

The [Floor Area Ratio (FAR)] is uniform for the entire City of Manila, the FAR 4,
correct?

ATTY. FLAMINIANO:

I believe so, Your Honor, it's FAR 4.

JUSTICE CARPIO:

So it's FAR 4 for all residential condominium complex or industrial projects.

ATTY. FLAMINIANO:

73
 There might be, the FAR might be different when it comes to condominiums in commercial
areas, Your Honor.

JUSTICE CARPIO:

Yes, I'm talking of stand-alone. . .

ATTY. FLAMINIANO:

Yes, Your Honor.

JUSTICE CARPIO:

. . . residential condominiums. . .

ATTY. FLAMINIANO:

Uniform at FAR 4, Your Honor.

JUSTICE CARPIO:

And the percentage of land occupancy is always 60 percent.

ATTY. FLAMINIANO:

60 percent, correct, Your Honor.

JUSTICE CARPIO:

Okay. . .how many square meters is this Torre de Manila?

xxx xxx xxx

ATTY. FLAMINIANO:

The land area, Your Honor, it's almost 5,000. . .5,556.

JUSTICE CARPIO: SDHTEC

So, it's almost half a hectare.

ATTY. FLAMINIANO:

Yes, Your Honor.

JUSTICE CARPIO:

And at FAR 4, it can only build up to 18 storeys, I mean at FAR 4, is that correct?

ATTY. FLAMINIANO:

If the 60 percent of the lot. . .

JUSTICE CARPIO:

Yes, but that is a rule.

ATTY. FLAMINIANO:

That is a rule, that's the rule. Your Honor.

JUSTICE CARPIO:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ percent of. . .

ATTY. FLAMINIANO: Of the

land area.

JUSTICE CARPIO:

. . .buildable, the rest not buildable.

ATTY. FLAMINIANO: Yes,
Your Honor.

JUSTICE CARPIO:

Okay, so if you look around here in the City of Manila anywhere you go, you look at stand
alone residential condominium buildings. . .

74
 ATTY. FLAMINIANO:

There's a lot of them, Your Honor. HSAcaE

JUSTICE CARPIO:

It's always not FAR 4, it's more than FAR 4.

ATTY. FLAMINIANO:

Yes, Your Honor.

JUSTICE CARPIO:

And the buildable area is to the edge of the property. . .it's not 60 percent, correct?

ATTY. FLAMINIANO:

Yes, Your Honor.

JUSTICE CARPIO:

So, if you look at all the . . . residential buildings in the last ten years, they [have]
all variances. They did not follow the original FAR 4 or the 60 percent (of
land occupancy). Every residential building that stand alone was a
variance.

ATTY. FLAMINIANO:

That's correct, Your Honor.

JUSTICE CARPIO:

So the rule really in the City of Manila is variance, and the exception which is
never followed is FAR 4.

ATTY. FLAMINIANO:

FAR 4, it appears to be that way, Your Honor.

xxx xxx xxx

JUSTICE CARPIO:

Every developer will have to get a variance because it doesn't make sense to
follow FAR 4 because the land is so expensive and if you can build only
two storeys on a 1,000-square meter lot, you will surely lose money,
correct?

ATTY. FLAMINIANO:

Exactly, Your Honor. 75 (Emphasis supplied)

Thus, the MZBAA's grant of the variance cannot be used as a basis to grant the mandamus
petition absent any clear finding that said act amounted to "grave abuse of discretion, manifest
injustice, or palpable excess of authority."

The KOR is Estopped from Questioning the

Torre de Manila Construction.

The KOR is now estopped from questioning the construction of the Torre de Manila project. The KOR
itself came up with the idea to build a structure right behind the Rizal Monument that would dwarf the Rizal
Monument. AScHCD

In the mid-1950s, the Jose Rizal National Centennial Commission (JRNCC) formulated a plan to build
an Educational Center within the Rizal Park. In July 1955, the KOR proposed the inclusion of a national
theater on the site of the Educational Center. The JRNCC adopted the proposal. The following year, a law —
Republic Act No. 1427 76 — authorized the establishment of the Jose Rizal National Cultural Shrine
consisting of a national theater, a national museum, and a national library on a single site. 77
 To be built on the open space right behind the 12.7 meter high Rizal Monument were: the KOR's
proposed national theater, standing 29.25 meters high and 286 meters in distance from the Rizal Monument;
the national library, standing 25.6 meters high and 180 meters in distance from the Rizal

75
Monument, with its rear along San Luis Street (now T.M. Kalaw Street); and facing it, the national museum,
at 19.5 meters high and 190 meters in distance from the Rizal Monument, with its back along P. Burgos
Street. 78

However, several sectors voiced their objections to the construction for various reasons. Among
them, the need to preserve the open space of the park, the high cost of construction, the desecration of the
park's hallowed grounds, and the fact that the proposed cultural center including the 29.25 meter high
national theater proposed by the KOR would dwarf the 12.7 meter high Rizal Monument. 79 The
JRNCC revised the plan and only the National Library — which still stands today — was built. 80

According to the NHCP, the KOR even proposed to build a Rizal Center on the park as recently as
2013. 81 The proposal was disapproved by the NHCP and the Department of Tourism.

Surely, as noble as the KOR's intentions were, its proposed center would have dwarfed the Rizal
Monument with its size and proximity.

In contrast, the Torre de Manila is located well outside the Rizal Park, and to the rear of the Rizal
Monument — approximately 870 meters from the Rizal Monument and 30 meters from the edge of Rizal
Park. 82

It is a basic principle that "one who seeks equity and justice must come to court with clean hands." 83
In Jenosa v. Delariarte, 84 the Court reiterated that he who seeks equity must do equity, and he who comes
into equity must come with clean hands. This "signifies that a litigant may be denied relief by a court of equity
on the ground that his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the
controversy in issue." 85 Thus, the KOR, having earlier proposed a national theater a mere 286 meters in
distance from the back of the Rizal Monument that would have dwarfed the Rizal Monument, comes to this
Court with unclean hands. It is now precluded from "seeking any equitable refuge" 86 from the Court. The
KOR's petition should be dismissed on this ground alone. HESIcT

Torre de Manila is Not a Nuisance Per Se.

In its petition, the KOR claims that the Torre de Manila is a nuisance per se that deserves to be
summarily abated even without judicial proceedings. 87However, during the Oral Arguments, counsel for the
KOR argued that the KOR now believes that the Torre de Manila is a nuisance per accidens and not a
nuisanceper se. 88

Article 694 of the Civil Code defines a nuisance as any act, omission, establishment,
business, condition of property, or anything else which: (1) injures or endangers the health or safety of
others; (2) annoys or offends the senses; (3) shocks, defies or disregards decency or morality; (4) obstructs
or interferes with the free passage of any public highway or street, or any body of water; or (5) hinders or
impairs the use of property.

The Court recognizes two kinds of nuisances. The first, nuisance per se, is one "recognized as a
nuisance under any and all circumstances, because it constitutes a direct menace to public health or safety,
and, for that reason, may be abated summarily under the undefined law of necessity." 89 The second,
nuisanceper accidens, is that which "depends upon certain conditions and circumstances, and its existence
being a question of fact, it cannot be abated without due hearing thereon in a tribunal authorized to decide
whether such a thing in law constitutes a nuisance." 90

It can easily be gleaned that the Torre de Manila is not a nuisance per se. The Torre de Manila
project cannot be considered as a "direct menace to public health or safety." Not only is a condominium
project commonplace in the City of Manila, DMCI-PDI has, according to the proper government agencies,
complied with health and safety standards set by law. DMCI-PDI has been granted the following permits and
clearances prior to starting the project: (1) Height Clearance Permit from the Civil Aviation Authority of the
Philippines; 91 (2) Development Permit from the HLURB; 92 (3) Zoning Certification from the HLURB; 93 (4)
Certificate of Environmental Compliance Commitment from the Environment Management Bureau of the
Department of Environment and Natural Resources; 94 (5) Barangay Clearance; 95 (6) Zoning Permit; 96 (7)
Building Permit; 97 (8) and Electrical and Mechanical Permit. 98

Later, DMCI-PDI also obtained the right to build under a variance recommended by the MZBAA and
granted by the City Council of Manila. Thus, there can be no doubt that the Torre de Manila project is not a
nuisance per se.
On the other hand, the KOR now claims that the Torre de Manila is a nuisance per accidens. AcICHD

76
 By definition, a nuisance per accidens is determined based on its surrounding conditions and
circumstances. These conditions and circumstances must be well established, not merely alleged. The Court
cannot simply accept these conditions and circumstances as established facts as the KOR would have us do
in this case. 99The KOR itself concedes that the question of whether the Torre de Manila is a nuisance per
accidens is a question of fact. 100

The authority to decide when a nuisance exists is an authority to find facts, to estimate their force,
and to apply rules of law to the case thus made. 101 This Court is no such authority. It is not a trier of facts. It
cannot simply take the allegations in the petition and accept these as facts, more so in this case where these
allegations are contested by the respondents.

The task to receive and evaluate evidence is lodged with the trial courts. The question, then, of
whether the Torre de Manila project is a nuisance per accidensmust be settled after due proceedings brought
before the proper Regional Trial Court. The KOR cannot circumvent the process in the guise of protecting
national culture and heritage.

The TRO must be lifted.

Injunctive reliefs are meant to preserve substantive rights and prevent further injury 102 until final
adjudication on the merits of the case. In the present case, since the legal rights of the KOR are not well-
defined, clear, and certain, the petition for mandamus must be dismissed and the TRO lifted.

The general rule is that courts will not disturb the findings of administrative agencies when they are
supported by substantial evidence. In this case, DMCI-PDI already acquired vested rights in the various
permits, licenses, or even variances it had applied for in order to build a 49-storey building which is, and had
been, allowed by the City of Manila's zoning ordinance.

As we have time and again held, courts generally hesitate to review discretionary decisions or actions
of administrative agencies in the absence of proof that such decisions or actions were arrived at with grave
abuse of discretion amounting to lack or excess of jurisdiction.

In JRS Business Corp. v. Montesa, 103 we held that mandamus is the proper remedy if it could be
shown that there was neglect on the part of a tribunal in the performance of an act which the law specifically
enjoins as a duty, or there was an unlawful exclusion of a party from the use and enjoyment of a right to
which he is clearly entitled. Only specific legal rights may be enforced by mandamus if they are clear and
certain. If the legal rights of the petitioner are not well-defined, definite, clear, and certain, 104 the petition
must be dismissed. Stated otherwise, the writ never issues in doubtful cases. It neither confers powers nor
imposes duties. It is simply a command to exercise a power already possessed and to perform a duty
already imposed. 105

In sum, bearing in mind the Court does not intervene in discretionary acts of the executive
department in the absence of grave abuse of discretion, 106 and considering that mandamus may only be
issued to enforce a clear and certain legal right, 107 the present special civil action for mandamus must be
dismissed and the TRO issued earlier must be lifted. caITAC

A FINAL WORD

It had been Rizal's wish to die facing the rising sun. In his Mi Ultimo Adios, the poem he left for his
family the night before he was executed, Rizal wrote:

Yo muero cuando veo que el cielo se colora

Y al fin anuncia el día tras lóbrego capuz 108

[Ako'y mamamatay, ngayong namamalas

na sa Silanganan ay namamanaag

yaong maligayang araw na sisikat

sa likod ng luksang nagtabing na ulap.] 109

[I die just when I see the dawn break,

Through the gloom of night, to herald the day] 110

 Yet at the point of his execution, he was made to stand facing West towards Manila Bay, with his
back to the firing squad, like the traitor the colonial government wished to portray him. He asked to face his
executioners, facing the East where the sun would be rising since it was early morning, but the Spanish

77
 captain did not allow it. As he was shot and a single bullet struck his frail body, Rizal forced himself, with
his last remaining strength, to turn around to face the East and thus he fell on his back with his face to the
sky and the rising sun. Then, the Spanish captain approached Rizal and finished him off with one pistol
shot to his head.

Before his death, Rizal wrote a letter to his family. He asked for a simple tomb, marked with a cross
and a stone with only his name and the date of his birth and death; no anniversary celebrations; and
interment at Paang Bundok (now, the Manila North Cemetery). Rizal never wanted his grave to be a
burden to future generations.

The letter never made it to his family and his wishes were not carried out. The letter was discovered
many years later, in 1953. By then, his remains had been entombed at the Rizal Monument, countless
anniversaries had been celebrated, with memorials and monuments built throughout the world.

Rizal's wish was unmistakable: to be buried without pomp or pageantry, to the point of reaching
oblivion or obscurity in the future. 111 For Rizal's life was never about fame or vainglory, but for the country
he loved dearly and for which he gave up his life.

The Rizal Monument is expressly against Rizal's own wishes. That Rizal's statue now stands facing
West towards Manila Bay, with Rizal's back to the East, adds salt to the wound. If we continue the present
orientation of Rizal's statue, with Rizal facing West, we would be like the Spanish captain who refused
Rizal's request to die facing the rising sun in the East. On the other hand, if Rizal's statue is made to face
East, as Rizal had desired when he was about to be shot, the background — the blue sky above Manila
Bay — would forever be clear of obstruction, and we would be faithful to Rizal's dying wish. TAIaHE

WHEREFORE, the petition for mandamus is DISMISSED for lack of merit. The Temporary
Restraining Order issued by the Court on 16 June 2015 is LIFTEDeffective immediately.

SO ORDERED.

Sereno, C.J., Bersamin, Del Castillo and Reyes, JJ., concur.

Velasco, Jr., J., please see concurring opinion.

Leonardo-de Castro, Peralta, Caguioa and Martires, JJ., join the dissent of Justice Jardeleza.

Mendoza, J., I join separate opinion of J. Jardeleza.

Perlas-Bernabe and Tijam JJ., please see separate concurring opinion.

Leonen, J., I concur. See separate opinion.

Jardeleza, J., please see dissenting opinion.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Knights of Rizal v. DMCI Homes, Inc., G.R. No. 213948,
[April 25, 2017])

Philippine Long Distance Telephone Co. v. National Telecommunications Commission, G.R. No. 88404,
[October 18, 1990], 268 PHIL 784-815

EN BANC

[G.R. No. 88404. October 18, 1990.]

PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT], petitioner, vs. THE NATIONAL
TELECOMMUNICATIONS COMMISSION AND CELLCOM, INC., (EXPRESS
TELECOMMUNICATIONS CO., INC. [ETCI]), respondents.

Alampan & Manhit Law Offices for petitioner.

Gozon, Fernandez, Defensor & Parel for private respondent.

DECISION

78
MELENCIO-HERRERA, J p:

Petitioner Philippine Long Distance Telephone Company (PLDT) assails, by way of Certiorari and Prohibition
under Rule 65, two (2) Orders of public respondent National Telecommunications Commission (NTC), namely,
the Order of 12 December 1988 granting private respondent Express Telecommunications Co., Inc. (ETCI)
provisional authority to install, operate and maintain a Cellular Mobile Telephone System in Metro-Manila
(Phase A) in accordance with specified conditions, and the Order, dated 8 May 1988, denying reconsideration.

On 22 June 1958, Rep. Act No. 2090, was enacted, otherwise known as "An Act Granting Felix Alberto and
Company, Incorporated, a Franchise to Establish Radio Stations for Domestic and Transoceanic
Telecommunications." Felix Alberto & Co., Inc. (FACI) was the original corporate name, which was changed to
ETCI with the amendment of the Articles of Incorporation in 1964. Much later, "CELLCOM, Inc." was the name
sought to be adopted before the Securities and Exchange Commission, but this was withdrawn and
abandoned.

On 13 May 1987, alleging urgent public need, ETCI filed an application with public respondent NTC (docketed
as NTC Case No. 87-89) for the issuance of a Certificate of Public Convenience and Necessity (CPCN) to
construct, install, establish, operate and maintain a Cellular Mobile Telephone System and an Alpha Numeric
Paging System in Metro Manila and in the Southern Luzon regions, with a prayer for provisional authority to
operate Phase A of its proposal within Metro Manila. llcd

PLDT filed an Opposition with a Motion to Dismiss, based primarily on the following grounds: (1) ETCI is not
capacitated or qualified under its legislative franchise to operate a systemwide telephone or network of
telephone service such as the one proposed in its application; (2) ETCI lacks the facilities needed and
indispensable to the successful operation of the proposed cellular mobile telephone system; (3) PLDT has
itself a pending application with NTC, Case No. 86-86, to install and operate a Cellular Mobile Telephone
System for domestic and international service not only in Manila but also in the provinces and that under the
"prior operator" or "protection of investment" doctrine, PLDT has the priority or preference in the operation of
such service; and (4) the provisional authority, if granted, will result in needless, uneconomical and harmful
duplication, among others.

In an Order, dated 12 November 1987, NTC overruled PLDT's Opposition and declared that Rep. Act No. 2090
(1958) should be liberally construed as to include among the services under said franchise the operation of a
cellular mobile telephone service.

In the same Order, ETCI was required to submit the certificate of registration of its Articles of Incorporation with
the Securities and Exchange Commission, the present capital and ownership structure of the company and
such other evidence, oral or documentary, as may be necessary to prove its legal, financial and technical
capabilities as well as the economic justifications to warrant the setting up of cellular mobile telephone and
paging systems. The continuance of the hearings was also directed.

After evaluating the reconsideration sought by PLDT, the NTC, in October 1988, maintained its ruling that
liberally construed, applicant's franchise carries with it the privilege to operate and maintain a cellular mobile
telephone service.

On 12 December 1988, NTC issued the first challenged Order. Opining that "public interest, convenience and
necessity further demand a second cellular mobile telephone service provider and finds PRIMA FACIE
evidence showing applicant's legal, financial and technical capabilities to provide a cellular mobile service
using the AMPS system," NTC granted ETCI provisional authority to install, operate and maintain a cellular
mobile telephone system initially in Metro Manila, Phase A only, subject to the terms and conditions set forth in
the same Order. One of the conditions prescribed (Condition No. 5) was that, within ninety (90) days from date
of the acceptance by ETCI of the terms and conditions of the provisional authority, ETCI and PLDT "shall enter
into an interconnection agreement for the provision of adequate interconnection facilities between applicant's
cellular mobile telephone switch and the public switched telephone network and shall jointly submit such
interconnection agreement to the Commission for approval."

In a "Motion to Set Aside the Order" granting provisional authority, PLDT alleged essentially that the
interconnection ordered was in violation of due process and that the grant of provisional authority was
jurisdictionally and procedurally infirm. On 8 May 1989, NTC denied reconsideration and set the date for
continuation of the hearings on the main proceedings. This is the second questioned Order.

79
PLDT urges us now to annul the NTC Orders of 12 December 1988 and 8 May 1989 and to order ETCI to
desist from, suspend, and/or discontinue any and all acts intended for its implementation.

On 15 June 1989, we resolved to dismiss the petition for its failure to comply fully with the requirements of
Circular No. 188. Upon satisfactory showing, however, that there was, in fact, such compliance, we
reconsidered the order, reinstated the Petition, and required the respondents NTC and ETCI to submit their
respective Comments.

On 27 February 1990, we issued a Temporary Restraining Order enjoining NTC to "Cease and Desist from all
or any of its on-going proceedings and ETCI from continuing any and all acts intended or related to or which
will amount to the implementation/execution of its provisional authority." This was upon PLDT's urgent
manifestation that it had been served an NTC Order, dated 14 February 1990, directing immediate compliance
with its Order of 12 December 1988, "otherwise the Commission shall be constrained to take the necessary
measures and bring to bear upon PLDT the full sanctions provided by law."

We required PLDT to post a bond of P5M. It has complied, with the statement that it was "post(ing) the same
on its agreement and/or consent to have the same forfeited in favor of Private Respondent ETCI/CELLCOM
should the instant Petition be dismissed for lack of merit." ETCI took exception to the sufficiency of the bond
considering its initial investment of approximately P225M, but accepted the forfeiture proferred.

ETCI moved to have the TRO lifted, which we denied on 6 March 1990 We stated, however, that the inaugural
ceremony ETCI had scheduled for that day could proceed, as the same was not covered by the TRO.

PLDT relies on the following grounds for the issuance of the Writs prayed for:

"1. Respondent NTC's subject order effectively licensed and/or authorized a corporate entity
without any franchise to operate a public utility, legislative or otherwise, to establish and
operate a telecommunications system.

"2. The same order validated stock transactions of a public service enterprise contrary to
and/or in direct violation of Section 20(h) of the Public Service Act.

"3. Respondent NTC adjudicated in the same order a controverted matter that was not heard
at all in the proceedings under which it was promulgated."

As correctly pointed out by respondents, this being a special civil action for Certiorari and Prohibition, we only
need determine if NTC acted without jurisdiction or with grave abuse of discretion amounting to lack or excess
of jurisdiction in granting provisional authority to ETCI under the NTC questioned Orders of 12 December 1988
and 8 May 1989.

The case was set for oral argument on 21 August 1990 with the parties directed to address, but not limited to,
the following issues: (1) the status and coverage of Rep. Act No. 2090 as a franchise; (2) the transfer of shares
of stock of a corporation holding a CPCN; and (3) the principle and procedure of interconnection. The parties
were thereafter required to submit their respective Memoranda, with which they have complied.

We find no grave abuse of discretion on the part of NTC, upon the following considerations:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ NTC Jurisdiction

There can be no question that the NTC is the regulatory agency of the national government with jurisdiction
over all telecommunications entities. It is legally clothed with authority and given ample discretion to grant a
provisional permit or authority. In fact, NTC may, on its own initiative, grant such relief even in the absence of a
motion from an applicant.

"Sec. 3. Provisional Relief . — Upon the filing of an application, complaint or petition or at any
stage thereafter, the Board may grant on motion of the pleaders or on its own initiative, the
relief prayed for, based on the pleading, together with the affidavits and supporting documents
attached thereto, without prejudice to a final decision after completion of the hearing which
shall be called within thirty (30) days from grant of authority asked for." (Rule 15, Rules of
Practice and Procedure Before the Board of Communications (now NTC).

What the NTC granted was such a provisional authority, with a definite expiry period of eighteen (18) months
unless sooner renewed, and which may be revoked, amended or revised by the NTC. It is also limited to Metro
Manila only. What is more, the main proceedings are clearly to continue as stated in the NTC Order of 8 May
1989.
80
The provisional authority was issued after due hearing, reception of evidence and evaluation thereof, with the
hearings attended by various oppositors, including PLDT. It was granted only after a prima facie showing that
ETCI hag the necessary legal, financial and technical capabilities and that public interest, convenience and
necessity so demanded.

PLDT argues, however, that a provisional authority is nothing short of a Certificate of Public Convenience and
Necessity (CPCN) and that it is merely a "distinction without a difference." That is not so. Basic differences do
exist, which need not be elaborated on. What should be borne in mind is that provisional authority would be
meaningless if the grantee were not allowed to operate. Moreover, it is clear from the very Order of 12
December 1988 itself that its scope is limited only to the first phase, out of four, of the proposed nationwide
telephone system. The installation and operation of an alpha numeric paging system was not authorized. The
provisional authority is not exclusive. Its lifetime is limited and may be revoked by the NTC at any time in
accordance with law. The initial expenditure of P130M more or less, is rendered necessary even under a
provisional authority to enable ETCI to prove its capability. And as pointed out by the Solicitor General, on
behalf of the NTC, if what had been granted were a CPCN, it would constitute a final order or award reviewable
only by ordinary appeal to the Court of Appeals pursuant to Section 9(3) ofBP Blg. 129, and not by Certiorari
before this Court.

The final outcome of the application rests within the exclusive prerogative of the NTC. Whether or not a CPCN
would eventually issue would depend on the evidence to be presented during the hearings still to be
conducted, and only after a full evaluation of the proof thus presented.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Coverage of ETCI's Franchise

Rep. Act No. 2090 grants ETCI (formerly FACI) "the right and privilege of constructing, installing, establishing
and operating in the entire Philippines radio stations forreception and transmission of messages on radio
stations in the foreign and domestic public fixed point-to-point and public base, aeronautical and land mobile
stations, . . . with the corresponding relay stations for the reception and transmission of wireless messages on
radiotelegraphy and/or radiotelephony . . . . " PLDT maintains that the scope of the franchise is limited to "radio
stations" and excludes telephone services such as the establishment of the proposed Cellular Mobile
Telephone System (CMTS). However, in its Order of 12 November 1987, the NTC construed the technical term
"radiotelephony" liberally as to include the operation of a cellular mobile telephone system. It said:

"In resolving the said issue, the Commission takes into consideration the different definitions
of the term "radiotelephony." As defined by the New International Webster Dictionary the term
"radiotelephony" is defined as a telephony carried on by aid of radiowaves without connecting
wires. The International Telecommunications Union (ITU) defines a "radiotelephone call" as a
"telephone call, originating in or intended on all or part of its route over the radio
communications channels of the mobile service or of the mobile satellite service." From the
above definitions, while under Republic Act 2090 a system-wide telephone or network of
telephone service by means of connecting wires may not have been contemplated, it can be
construed liberally that the operation of a cellular mobile telephone service which carries
messages, either voice or record, with the aid of radiowaves or a part of its route carried over
radio communication channels, is one included among the services under said franchise for
which a certificate of public convenience and necessity may be applied for."

The foregoing is the construction given by an administrative agency possessed of the necessary special
knowledge, expertise and experience and deserves great weight and respect (Asturias Sugar Central, Inc. v.
Commissioner of Customs, et al., L-19337, September 30, 1969, 29 SCRA 617). It can only be set aside on
proof of gross abuse of discretion, fraud, or error of law (Tupas Local Chapter No. 979 v. NLRC, et al., L-
60532-33, November 5, 1985, 139 SCRA 478). We discern none of those considerations sufficient to warrant
judicial intervention.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Status of ETCI's Franchise

PLDT alleges that the ETCI franchise had lapsed into non-existence for failure of the franchise holder to begin
and complete construction of the radio system authorized under the franchise as explicitly required in Section 4
of its franchise, Rep. Act No. 2090. 1 PLDT also invokes Pres. Decree No. 36, enacted on 2 November 1972,
which legislates the mandatory cancellation or invalidation of all franchises for the operation of communications
services, which have not been availed of or used by the party or parties in whose name they were issued.
81
However, whether or not ETCI, and before it FACI, in contravention of its franchise, started the first of its radio
telecommunication stations within (2) years from the grant of its franchise and completed the construction
within ten (10) years from said date; and whether or not its franchise had remained unused from the time of its
issuance, are questions of fact beyond the province of this Court, besides the well-settled procedural
consideration that factual issues are not subjects of a special civil action for Certiorari (Central Bank of the
Philippines vs. Court of Appeals, G.R. No. 41859, 8 March 1989, 171 SCRA 49; Ygay vs. Escareal, G.R. No.
44189, 8 February 1985, 135 SCRA 78; Filipino Merchant's Insurance Co., Inc. vs. Intermediate Appellate
Court, G.R. No. 71640, 27 June 1988, 162 SCRA 669). Moreover, neither Section 4, Rep. Act No. 2090 nor
Pres. Decree No. 36 should be construed as self-executing in working a forfeiture. Franchise holders should be
given an opportunity to be heard, particularly so, where, as in this case, ETCI does not admit any breach, in
consonance with the rudiments of fair play. Thus, the factual situation of this case differs from that in Angeles
Ry Co. vs. City of Los Angeles (92 Pacific Reporter 490) cited by PLDT, where the grantee therein admitted its
failure to complete the conditions of its franchise and yet insisted on a decree of forfeiture.

More importantly, PLDT's allegation partakes of a collateral attack on a franchise (Rep. Act No. 2090), which is
not allowed. A franchise is a property right and cannot be revoked or forfeited without due process of law. The
determination of the right to the exercise of a franchise, or whether the right to enjoy such privilege has been
forfeited by non-user, is more properly the subject of the prerogative writ of quo warranto, the right to assert
which, as a rule, belongs to the State "upon complaint or otherwise" (Sections 1, 2 and 3, Rule 66, Rules of
Court), 2 the reason being that the abuse of a franchise is a public wrong and not a private injury. A forfeiture
of a franchise will have to be declared in a direct proceeding for the purpose brought by the State because a
franchise is granted by law and its unlawful exercise is primarily a concern of Government.

"A . . . franchise is . . . granted by law, and its . . . unlawful exercise is the concern primarily of
the Government. Hence, the latter as a role is the party called upon to bring the action for
such . . . unlawful exercise of . . . franchise." (IV-B V. FRANCISCO, 298 [1963 ed.], citing Cruz
vs. Ramos, 84 Phil. 226).

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ETCI's Stock Transactions

ETCI admits that in 1964, the Albertos, as original owners of more than 40% of the outstanding capital stock
sold their holdings to the Orbes. In 1968, the Albertos re-acquired the shares they had sold to the Orbes. In
1987, the Albertos sold more than 40% of their shares to Horacio Yalung. Thereafter, the present stockholders
acquired their ETCI shares. Moreover, in 1964, ETCI had increased its capital stock from P40,000.00 to
P360,000.00; and in 1987, from P360,000.00 to P40M.

PLDT contends that the transfers in 1987 of the shares of stock to the new stockholders amount to a transfer
of ETCI's franchise, which needs Congressional approval pursuant to Rep. Act No. 2090, and since such
approval had not been obtained, ETCI's franchise had been invalidated. The provision relied on reads, in part,
as follows:

SECTION 10. The grantee shall not lease, transfer, grant the usufruct of, sell or assign this
franchise nor the rights and privileges acquired thereunder to any person, firm, company,
corporation or other commercial or legal entity nor merge with any other person, company or
corporation organized for the same purpose, without the approval of the Congress of the
Philippines first had. . . . . "

It should be noted, however, that the foregoing provision is, directed to the "grantee" of the franchise, which is
the corporation itself and refers to a sale, lease, or assignment of that franchise. It does not include the transfer
or sale of shares of stock of a corporation by the latter's stockholders.

The sale of shares of stock of a public utility is governed by another law, i.e., Section 20(h) of the Public
Service Act (Commonwealth Act No. 146). Pursuant thereto, the Public Service Commission (now the NTC) is
the government agency vested with the authority to approve the transfer of more than 40% of the subscribed
capital stock of a telecommunications company to a single transferee, thus:

SEC. 20. Acts requiring the approval of the Commission. Subject to established limitations
and exceptions and saving provisions to the contrary, it shall be unlawful for any public service
or for the owner, lessee or operator thereof, without the approval and authorization of the
Commission previously had —

xxx xxx xxx

82
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To sell or register in its books the
transfer or sale of shares of its capital stock, if the result of that sale in itself or in connection
with another previous sale, shall be to vest in the transferee more than forty per centum of the
subscribed capital of said public service. Any transfer made in violation of this provision shall
be void and of no effect and shall not be registered in the books of the public service
corporation. Nothing herein contained shall be construed to prevent the holding of shares
lawfully acquired. (As amended by Com. Act No. 454)."

In other words, transfers of shares of a public utility corporation need only NTC approval, not Congressional
authorization. What transpired in ETCI were a series of transfers of shares starting in 1964 until 1987. The
approval of the NTC may be deemed to have been met when it authorized the issuance of the provisional
authority to ETCI. There was full disclosure before the NTC of the transfers. In fact, the NTC Order of 12
November 1987 required ETCI to submit its "present capital and ownership structure." Further, ETCI even filed
a Motion before the NTC, dated 8 December 1987, or more than a year prior to the grant of provisional
authority, seeking approval of the increase in its capital stock from P960,000.00 to P40M, and the stock
transfers made by its stockholders. LibLex

A distinction should be made between shares of stock, which are owned by stockholders, the sale of which
requires only NTC approval, and the franchise itself which is owned by the corporation as the grantee thereof,
the sale or transfer of which requires Congressional sanction. Since stockholders own the shares of stock, they
may dispose of the same as they see fit. They may not, however, transfer or assign the property of a
corporation, like its franchise. In other words, even if the original stockholders had transferred their shares to
another group of shareholders, the franchise granted to the corporation subsists as long as the corporation, as
an entity, continues to exist. The franchise is not thereby invalidated by the transfer of the shares. A
corporation has a personality separate and distinct from that of each stockholder. It has the right of continuity
or perpetual succession (Corporation Code, Sec. 2).

To all appearances, the stock transfers were not just for the purpose of acquiring the ETCI franchise,
considering that, as heretofore stated, a series of transfers was involved from 1964 to 1987. And, contrary to
PLDT's assertion, the franchise was not the only property of ETCI of meaningful value. The "zero" book value
of ETCI assets, as reflected in its balance sheet, was plausibly explained as due to the accumulated
depreciation over the years entered for accounting purposes and was not reflective of the actual value that
those assets would command in the market.

But again, whether ETCI has offended against a provision of its franchise, or has subjected it to misuse or
abuse, may more properly be inquired into in quo warrantoproceedings instituted by the State. It is the
condition of every franchise that it is subject to amendment, alteration, or repeal when the common good so
requires (1987 Constitution, Article XII, Section 11).

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The NTC Interconnection Order

In the provisional authority granted by NTC to ETCI, one of the conditions imposed was that the latter and
PLDT were to enter into an interconnection agreement to be jointly submitted to NTC for approval.

PLDT vehemently opposes interconnection with its own public switched telephone network. It contends: that
while PLDT welcomes interconnections in the furtherance of public interest, only parties who can establish that
they have valid and subsisting legislative franchises are entitled to apply for a CPCN or provisional authority,
absent which, NTC has no jurisdiction to grant them the CPCN or interconnection with PLDT; that the 73
telephone systems operating all over the Philippines have a viability and feasibility independent of any
interconnection with PLDT; that "the NTC is not empowered to compel such a private raid on PLDT's legitimate
income arising out of its gigantic investment;" that "it is not public interest, but purely a private and selfish
interest which will be served by an interconnection under ETCI's terms;" and that "to compel PLDT to
interconnect merely to give viability to a prospective competitor, which cannot stand on its own feet, cannot be
justified in the name of a non-existent public need" (PLDT Memorandum, pp. 48 and 50).

PLDT cannot justifiably refuse to interconnect.

Rep. Act No. 6849, or the Municipal Telephone Act of 1989, approved on 8 February 1990, mandates
interconnection providing as it does that "all domestic telecommunications carriers or utilities . . . shall be
interconnected to the public switch telephone network." Such regulation of the use and ownership of
83
telecommunications systems is in the exercise of the plenary police power of the State for the promotion of the
general welfare. The 1987 Constitution recognizes the existence of that power when it provides:

"SEC. 6. The use of property bears a social function, and all economic agents shall contribute
to the common good. Individuals and private groups, including corporations, cooperatives, and
similar collective organizations, shall have the right to own, establish, and operate economic
enterprises, subject to the duty of the State to promote distributive justice and to intervene
when the common good so demands" (Article XII).

The interconnection which has been required of PLDT is a form of "intervention" with property rights dictated
by "the objective of government to promote the rapid expansion of telecommunications services in all areas of
the Philippines, . . . to maximize the use of telecommunications facilities available, . . . in recognition of the vital
role of communications in nation building . . . and to ensure that all users of the public telecommunications
service have access to all other users of the service wherever they may be within the Philippines at an
acceptable standard of service and at reasonable cost" (DOTC Circular No. 90-248). Undoubtedly, the
encompassing objective is the common good. The NTC, as the regulatory agency of the State, merely
exercised its delegated authority to regulate the use of telecommunications networks when it decreed
interconnection.

The importance and emphasis given to interconnection dates back to Ministry Circular No. 82-81, dated 6

December 1982, providing:

"Sec. 1. That the government encourages the provision and operation of public mobile
telephone service within local sub-base stations, particularly, in the highly commercialized
areas;

"Sec. 5. That, in the event the authority to operate said service be granted to other applicants,
other than the franchise holder, the franchise operator shall be under obligation to enter into
an agreement with the domestic telephone network, under an interconnection agreement;"

Department of Transportation and Communication (DOTC) Circular No. 87-188, issued in 1987, also decrees:

"12. All public communications carriers shall interconnect their facilities pursuant to
comparatively efficient interconnection (CEI) as defined by the NTC in the interest of
economic efficiency."

The sharing of revenue was an additional feature considered in DOTC Circular No. 90-248, dated 14 June
1990, laying down the "Policy on Interconnection and Revenue Sharing by Public Communications Carriers,"
thus:

"WHEREAS, it is the objective of government to promote the rapid expansion of

telecommunications services in all areas of the Philippines;

"WHEREAS, there is s need to maximize the use of telecommunications facilities available

and encourage investment in telecommunications infrastructure by suitably qualified service
providers;

"WHEREAS, in recognition of the vital role of communications in nation building, there is a

need to ensure that all users of the public telecommunications service have access to all other
users of the service wherever they may be within the Philippines at an acceptable standard of
service and at reasonable cost.

"WHEREFORE, xxx the following Department policies on interconnection and revenue sharing
are hereby promulgated:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ All facilities offering

public telecommunication services shall be interconnected into the nationwide
telecommunications network/s,

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The interconnection

of networks shall be effected in a fair and non-discriminatory manner and within the
shortest timeframe practicable.
 ࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The precise points of
interface between service operators shall be as defined by the NTC; and the
apportionment of costs and division of revenues resulting from

84
 interconnection of telecommunications networks shall be as approved and/or
prescribed by the NTC.

xxx xxx xxx"

Since then, the NTC, on 12 July 1990, issued Memorandum Circular No. 7-13-90 prescribing the "Rules and
Regulations Governing the Interconnection of Local Telephone Exchanges and Public Calling Offices with the
Nationwide Telecommunications Network/s, the Sharing of Revenue Derived Therefrom, and for Other
Purposes."

The NTC order to interconnect allows the parties themselves to discuss and agree upon the specific terms and
conditions of the interconnection agreement instead of the NTC itself laying down the standards of
interconnection which it can very well impose. Thus it is that PLDT cannot justifiably claim denial of due
process. It has been heard. It will continue to be heard in the main proceedings. It will surely be heard in the
negotiations concerning the interconnection agreement.

As disclosed during the hearing, the interconnection sought by ETCI is by no means a "parasitic dependence"
on PLDT. The ETCI system can operate on its own even without interconnection, but it will be limited to its own
subscribers. What interconnection seeks to accomplish is to enable the system to reach out to the greatest
number of people possible in line with governmental policies laid down. Cellular phones can access PLDT
units and vice versa in as wide an area as attainable. With the broader reach, public interest and convenience
will be better served. To be sure, ETCI could provide no mean competition (although PLDT maintains that it
has nothing to fear from the "innocuous interconnection"), and eat into PLDT's own toll revenue ("cream PLDT
revenue," in its own words), but all for the eventual benefit of all that the system can reach.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Ultimate Considerations

The decisive considerations are public need, public interest, and the common good. Those were the overriding
factors which motivated NTC in granting provisional authority to ETCI. Article II, Section 24 of the 1987
Constitution, recognizes the vital role of communication and information in nation building. It is likewise a State
policy to provide the environment for the emergence of communications structures suitable to the balanced
flow of information into, out of, and across the country (Article XVI, Section 10, ibid.). A modern and
dependable communications network rendering efficient and reasonably priced services is also indispensable
for accelerated economic recovery and development. To these public and national interests, public utility
companies must bow and yield.

Despite the fact that there is a virtual monopoly of the telephone system in the country at present, service is
sadly inadequate. Customer demands are hardly met, whether fixed or mobile. There is a unanimous cry to
hasten the development of a modern, efficient, satisfactory and continuous telecommunications service not
only in Metro Manila but throughout the archipelago. The need therefor was dramatically emphasized by the
destructive earthquake of 16 July 1990. It may be that users of the cellular mobile telephone would initially be
limited to a few and to highly commercialized areas. However, it is a step in the right direction towards the
enhancement of the telecommunications infrastructure, the expansion of telecommunications services in,
hopefully, all areas of the country, with chances of complete disruption of communications minimized. It will
thus impact on the total development of the country's telecommunications systems and redound to the benefit
of even those who may not be able to subscribe to ETCI.

Free competition in the industry may also provide the answer to a much-desired improvement in the quality
and delivery of this type of public utility, to improved technology, fast and handy mobile service, and reduced
user dissatisfaction. After all, neither PLDT nor any other public utility has a constitutional right to a monopoly
position in view of the Constitutional proscription that no franchise certificate or authorization shall be exclusive
in character or shall last longer than fifty (50) years (ibid., Section 11; Article XIV, Section 5, 1973 Constitution;
Article XIV, Section 8, 1935 Constitution). Additionally, the State is empowered to decide whether public
interest demands that monopolies be regulated or prohibited (1987 Constitution, Article XII, Section 19).

WHEREFORE, finding no grave abuse of discretion, tantamount to lack of or excess of jurisdiction, on the part
of the National Telecommunications Commission in issuing its challenged Orders of 12 December 1988 and 8
May 1989 in NTC Case No. 87-39, this Petition is DISMISSED for lack of merit. The Temporary Restraining
Order heretofore issued is LIFTED. The bond issued as a condition for the issuance of said restraining Order is
declared forfeited in favor of private responder Express Telecommunications Co., Inc.
85
Costs against petitioner.

SO ORDERED.

Paras, Feliciano, Padilla, Sarmiento, Cortes, Griño-Aquino and Regalado, JJ., concur.

Separate Opinions

GUTIERREZ, JR., J ., dissenting:

I share with the rest of the Court the desire to have a "modern, efficient, satisfactory, and continuous
telecommunications service" in the Philippines. I register this dissent, however, because I believe that any
frustrations over the present state of telephone services do not justify our affirming an illegal and inequitable
order of the National Telecommunication Commission (NTC). More so when it appears that the questioned
order is not really a solution to the problems bugging our telephone industry.

My dissent is based on three primary considerations, namely:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Court has sustained nothing less than the desire of
respondent ETCI to set-up a profitable business catering to an affluent clientele through the use of billions of
pesos worth of another company's properties. No issues of public welfare, breaking up of monopolies, or other
high sounding principles are involved. The core question is purely and simply whether or not to grant ETCI's
desire for economic gains through riding on another firm's investments.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Court has permitted respondent ETCI to operate a
telephone system without a valid legislative franchise. It strains the imagination too much to interpret a
legislative franchise authorizing "radio stations" as including the provisional permit for a sophisticated
telephone system which has absolutely nothing to do with radio broadcasts and transmissions. The Court
subverts the legislative will when it validates a provisional permit on the basis of authority which never
envisioned much less intended its use for a regular telephone system catering to thousands of individual
receiver units. There is nothing in Rep. Act No. 2090 which remotely suggests a cellular mobile telephone
system.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The authority given by Rep. Act No. 2090 has expired.
ETCI is not only riding on another company's investments and using legislative authority for a purpose never
dreamed of by the legislators but is also trying to extract life from and resurrect an unused and dead franchise.

My principal objection to the disputed NTC order arises from the fact that respondent Express
Telecommunications Co. Inc. (ETCI) cannot exist without using the facilities of Philippine Long Distance
Telephone Co. (PLDT). Practically all of its business will be conducted through another company's property.

While pretending to set up a separate phone company, ETCI's cellular phones would be useless most of the
time, if not all the time, unless they use PLDT lines. It would be different if ETCI phone owners would primarily
communicate with one another and tap into PLDT lines only rarely or occasionally.

To compare ETCI with the Government Telephone System (GTS) or with an independent phone company
serving a province or city is misleading. The defunct GTS was set up to connect government offices and
personnel with one another. It could exist independently and was not primarily or wholly dependent on PLDT
connections. A provincial or city system serves the residents of a province or city. It primarily relies on its own
investments and infrastructure. It asks for PLDT services only when long distance calls to another country, city,
or province have to be made.

I can, therefore, understand PLDT's reluctance since it has its own franchise to operate exactly the same
services which ETCI is endeavoring to establish. PLDT would be using its own existing lines. Under the Court's
decision, it would be compelled to allow another company to use those same lines in direct competition with
the lines' owner. The cellular system is actually only an adjunct to a regular telephone system, not a separate
and independent system. As an adjunct and component unit or as a parasite (if a foreign body) it must be fed
by the mother organism or unit if it is to survive.

Under the disputed order, ETCI will be completely dependent upon its use of the P16 billions worth of
infrastructure which PLDT has built over several decades. The vaunted payment of compensation everytime
an ETCI phone taps into a PLDT line, is illusory. There can be no adequate payment for the use of billions of
pesos of investments built up over 60 years. Moreover, it is actually the phone owner or consumer who pays
86
the fee. The rate will be fixed by Government and will be based on the consumer's best interests and capacity,
ignoring or subordinating the petitioner's investments. Payment will depend on how much the phone user
should be charged for making a single phone call and will disregard the millions of pesos that ETCI will earn
through its use of billions of pesos worth of another company's investments and properties.

The "hated monopoly" and "improved services" argument are not only misleading but also illusory.

To sustain the questioned NTC order will not in any way improve telephone services nor would any monopoly
be dismantled. The answer to inadequate telephone facilities is better administrative supervision. The NTC
should pay attention to its work and compel PLDT to improve its services instead of saddling with the burden of
carrying another company's system.

For better services, what the country needs is to improve the existing system and provide enough telephone
lines for all who really need them. The proposed ETCI cellular phones will serve mostly those who can afford to
ride in expensive cars and who already have two or three telephones in their offices and residences. Cellular
phones should legally and fairly be provided by PLDT as just another facet of its expansion program.

The mass of applicants for new telephones will not benefit from cellular phones. In fact, if PLDT is required by
NTC to open up new exchanges or interconnections for the rich ETCI consumers, this will mean an equivalent
number of low income or middle income applicants who will have to wait longer for their own PLDT lines. The
Court's resolution favors the conveniences of the rich at the expense of the necessities of the poor. **

I agree with the petitioner that what NTC granted is not merely provisional authority but what is in effect a
regular certificate of public convenience and necessity or "CPCN"

Starting with seven cell sites for 3,000 subscribers in Metro Manila, the cellular mobile system will establish 67
cell sites beginning October 1991. The initial expenses alone will amount to P130 million. At page 8 of its
Comment, ETCI admits that "the provisional authority to operate will be useless to ETCI if it does not put up
the system and interconnect said system with the existing PLDT network." (Emphasis supplied) The
completion of interconnection arrangements, the setting up of expensive installations, the requirements as to
maintenance and operation, and other conditions found in the NTC order are anything but provisional.

The authority given to ETCI is entirely different from the provisional authority given to MERALCO or oil
companies to increase the price of oil or electricity or to bus and jeepney operators to raise fares a few
centavos. In these cases, the need for increases is not only urgent but is usually a foregone conclusion
dictated by pressing circumstances. Further hearings are needed only to fix the amount which will be finally
authorized. The NTC orders can also be easily revoked. Increased prices of oil or rates of transportation
services can be lowered or struck down if the preliminary determinations are wrong. In the instant case, NTC
has authorized a new company to start operations even if the issues have not been thoroughly threshed out.
There is no urgent need which warrants operations before a final permit is granted. Once in operation, there
can be no cancelling or revocation of the authority to operate, no dismantling of thousands of cellular phones
and throwing to waste of over P100 million worth of investments in fixed facilities. Theoretically, it can be done
but it is clear from the records that what was granted is really a CPCN.

There is no dispute that a legislative franchise is necessary for the operation of a telephone system. The NTC
has no jurisdiction to grant the authority. The fact that ETCI has to rely on a 1958 legislative franchise shows
that only Congress can give the franchise which will empower NTC to issue the certificate or CPCN.

Rep. Act No. 2090 is a franchise for the construction and operation of radio stations. Felix Alberto and Co. Inc.
(FACI) was authorized in the operation of those radio stations to acquire and handle transmitters, receivers,
electrical machinery and other related devises. The use of radio telephony was never intended or envisioned
for a regular telephone company. "Radio telephony" is governed and circumscribed by the basic purpose of
operating radio stations. Telephony may be used only to enable communications between the stations, to
transmit a radio message to a station where it would be transcribed into a form suitable for delivery to the
intended recipient. FACI was authorized to communicate to, between, and among its radio stations. There is
no authority for thousands of customers to be talking to PLDT subscribers directly. FACI was never given
authority by Rep. Act 2090 to operate switching facilities, wire-line transmissions, and telecommunication
stations of a telephone company. The entire records can be scrutinized and they will show that ETCI has all
but ignored and kept silent about the purpose of its alleged franchise — which is for the real operation of radio
stations. There can be no equating of "radio stations" with a complete cellular mobile telephone system. The
two are poles apart.
87
The most liberal interpretation can not possibly read in a 1958 franchise for radio stations, the authority for a
mobile cellular system vintage 1990. No amount of liberal interpretation can supply the missing requirement.
And besides, we are not interpreting a Constitution which is intended to cover changing situations and must be
read liberally. Legislative franchises are always construed strictly against the franchise.

The remedy is for ETCI to go to Congress. I regret that in dismissing this petition, we may be withholding from
Congress the courtesy we owe to it as a co-equal body and denigrating its power to examine whether or not
ETCI really deserves a legislative franchise.

My third point has to do with the sudden resurrection of a dead franchise and its coming to life in an entirely
different form — no longer a radio station but a modern telephone company.

I have searched the records in vain for any plan of ETCI to operate radio stations. It has not operated and does
not plan to operate radio stations. Its sole objective is to set up a telephone company. For that purpose, it
should go to Congress and get a franchise for a telephone company. NTC cannot give it such a franchise.

Section 10 of Rep. Act No. 2090 prohibits the transfer of the franchise and the rights and privileges under that
franchise without the express approval of Congress. No amount of legal niceties can cloak the fact that ETCI is
not FACI, that the franchise was sold by FACI to ETCI, and that the permit given by NTC to ETCI is based on a
purchased franchise.

When the owners of FACI sold out their stocks, the 3,900 shares were on paper worth only 35 centavos each.
The company had no assets and physical properties. All it had was the franchise, for whatever it was worth.
The buyers paid P4,618,185.00 for the company's stocks, almost all of the amount intended for the franchise. It
was, therefore, a sale or transfer of the franchise in violation of the express terms of Rep. Act No. 2090 which
call for approval by Congress.

ETCI tried to show a series of transactions involving the sales of almost all of its stocks. Not only are the
circumstances surrounding the transfers quite suspicious, but they were effected without the approval and
authorization of the Commission as required by law.

Sec. 4 of Rep. Act No. 2090 also provides that the franchise shall be void unless the construction of radio
stations is begun within two years or June 22, 1960 and completed within ten years or June 22, 1968.

As of April 14, 1987, ETCI formally admitted that it was still in the pre-operating stage. Almost 30 years later, it
had not even started the business authorized by the franchise. It is only now that it proposes to construct, not
radio stations, but a telephone system.

During the oral arguments and in its memorandum, ETCI presented proof of several radio station construction
permits. A construction permit authorizes a construction but does not prove it. There is no proof that the entire
construct}on of all stations was completed within ten years. In fact, there is not the slightest intimation that
ETCI, today, is operating radio stations. What it wants is to set up a telephone system.

In addition to the franchise being void under its own charter, P.D. 36 on November 2, 1972, cancelled all
unused or dormant legislative franchises. Rep. Act No. 2090, having been voided by its own Section 4,
suffered a second death if that is at all possible.

The violations of law — (1) the giving of life to an already dead franchise, (2) the transfer of ownership against
an express statutory provision, and (3) the use of a franchise for radio stations to justify the setting up of a
cellular mobile telephone system — are too glaring for us to ignore on the basis of "respect" for a questionable
NTC order and other purely technical considerations. We should not force PLDT to open its lines to enable a
competitor to operate a system which cannot survive unless it uses PLDT properties.

The NTC bases its order on alleged grounds of public need, public interest, and the common good. There is no
showing that these considerations will be satisfied, at least sufficient to warrant a strained interpretation of legal
provisions. Any slight improvement which the expensive ETCI project will accomplish cannot offset its violation
of law and fair dealing.

I, THEREFORE, VOTE to GRANT the petition.

Fernan, C.J., Narvasa, Gancayco, Bidin and Medialdea, JJ., concur.

CRUZ, J ., concurring and dissenting:

88
As one of the many dissatisfied customers of PLDT, I should have no objection to the grant of the provisional
authority to ETCI. I have none. Its admission will improve communication facilities in the country conformably
to the constitutional objective. It will also keep PLDT on its toes and encourage it to correct its deficient service
in view of the competition.

I fully agree with all the rulings in the ponencia except the approval of the requirement for PLDT to interconnect
with ETCI. I think it violates due process. It reminds me of the story of the little red hen who found some rice
and asked who would help her plant it. None of the animals in the farm was willing and neither did they help in
watering, harvesting and finally cooking it. But when she asked, "Who will help me eat the rice?" everyone
wanted to join in. The little red hen is like PLDT.

If ETCI wants to operate its own telephone system, it should rely on its own resources instead of riding piggy-
back on PLDT. It seems to me rather unfair for the Government to require PLDT to share with a newcomer and
potential rival what it took PLDT tremendous effort and long years and billions of pesos to build.

The case of Republic of the Philippines v. PLDT, 26 SCRA 620, is not applicable because it was the
Government itself that was there seeking interconnection of its own telephone system with PLDT. The Court
recognized the obvious public purpose that justified the special exercise (by the Government) of the power of
eminent domain. But in the case before us, the intended beneficiary is a private enterprise primarily organized
for profit and, indeed, to compete with PLDT. In effect, the Government is forcing PLDT to surrender its
competitive advantage and share its resources with ETCI, which may not only supplement but, possibly, even
ultimately supplant PLDT. I do not think government authority extends that far.

The majority disposes of the question of due process by simply saying that PLDT will have full opportunity to
be heard in the ascertainment of the just compensation ETCI will have to pay for the interconnection. That is
not the issue. What PLDT is objecting to is not the amount of the just compensation but the interconnection
itself that is being forced upon it.

I feel there is no due process where private property is taken by the Government from one private person and
given to another private person for the latter's direct benefit. The fact that compensation is paid is immaterial;
the flaw lies in the taking itself (Davidson v. New Orleans, 90 U.S. 97). The circumstance that PLDT is a public
utility is no warrant for taking undue liberties with its property, which is protected by the Bill of Rights. "Public
need" cannot be a blanket justification for favoring one investor against another in contravention of the system
of free enterprise. If PLDT has misused its franchise, I should think the solution is to revoke its authority, not to
force it to share its resources with its private competitors.

The rule is that where it is the legislature itself that directly calls for the expropriation of private property, its
determination of the thing to be condemned and the purpose of the taking is conclusive on the courts (City of
Manila v. Chinese Community, 40 Phil. 349). But where the power of eminent domain is exercised only by a
delegate of the legislature, like ETCI, the courts may inquire into the necessity or propriety of the expropriation
and, when warranted, pronounce its invalidity (Republic of the Philippines v. La Orden de PO Benedictinos de
Filipinas, 1 SCRA 649). I think this is what the Court should do in the case at bar.

A final point. It is argued that requiring ETCI to start from scratch (as PLDT did) and import its own equipment
would entail a tremendous outflow of foreign currency we can ill afford at this time. Perhaps so. But we must
remember that the Bill of Rights is not a marketable commodity, like a piece of machinery. Due process is an
indispensable requirement that cannot be assessed in dollar and cents.

Fernan, C.J. and Narvasa, J., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Philippine Long Distance Telephone Co. v. National

Telecommunications Commission, G.R. No. 88404, [October 18, 1990], 268 PHIL 784-815)

National Power Corp. v. Court of Appeals, G.R. No. 106804, [August 12, 2004], 479 PHIL 850-870

FIRST DIVISION

[G.R. No. 106804. August 12, 2004.]

89
 NATIONAL POWER CORPORATION, petitioner, vs. COURT OF APPEALS and
ANTONINO POBRE, respondents.

DECISION

CARPIO, J p:

The Case

Before us is a petition for review 1 of the 30 March 1992 Decision 2 and 14 August 1992 Resolution of the
Court of Appeals in CA-G.R. CV No. 16930. The Court of Appeals affirmed the Decision 3 of the Regional Trial
Court, Branch 17, Tabaco, Albay in Civil Case No. T-552.

The Antecedents

Petitioner National Power Corporation ("NPC") is a public corporation created to generate geothermal,
hydroelectric, nuclear and other power and to transmit electric power nationwide. 4 NPC is authorized by law to
acquire property and exercise the right of eminent domain.

Private respondent Antonino Pobre ("Pobre") is the owner of a 68,969 square-meter land ("Property") located
in Barangay Bano, Municipality of Tiwi, Albay. The Property is covered by TCT No. 4067 and Subdivision Plan
11-9709. SATDEI

In 1963, Pobre began developing the Property as a resort-subdivision, which he named as "Tiwi Hot Springs
Resort Subdivision." On 12 January 1966, the then Court of First Instance of Albay approved the subdivision
plan of the Property. The Register of Deeds thus cancelled TCT No. 4067 and issued independent titles for
the approved lots. In 1969, Pobre started advertising and selling the lots.

On 4 August 1965, the Commission on Volcanology certified that thermal mineral water and steam were
present beneath the Property. The Commission on Volcanology found the thermal mineral water and steam
suitable for domestic use and potentially for commercial or industrial use.

NPC then became involved with Pobre’s Property in three instances.

First was on 18 February 1972 when Pobre leased to NPC for one year eleven lots from the
approved subdivision plan.

Second was sometime in 1977, the first time that NPC filed its expropriation case against Pobre to acquire an
8,311.60 square-meter portion of the Property. 5 On 23 October 1979, the trial court ordered the expropriation
of the lots upon NPC’s payment of P25 per square meter or a total amount of P207,790. NPC began drilling
operations and construction of steam wells. While this first expropriation case was pending, NPC dumped
waste materials beyond the site agreed upon by NPC with Pobre. The dumping of waste materials altered the
topography of some portions of the Property. NPC did not act on Pobre’s complaints and NPC continued with
its dumping. IAEcCa

Third was on 1 September 1979, when NPC filed its second expropriation case against Pobre to acquire an
additional 5,554 square meters of the Property. This is the subject of this petition. NPC needed the lot for the
construction and maintenance of Naglagbong Well Site F-20, pursuant to Proclamation No. 739 6 and Republic
Act No. 5092. 7 NPC immediately deposited P5,546.36 with the Philippine National Bank. The deposit
represented 10% of the total market value of the lots covered by the second expropriation. On 6 September
1979, NPC entered the 5,554 square-meter lot upon the trial court’s issuance of a writ of possession to NPC.

On 10 December 1984, Pobre filed a motion to dismiss the second complaint for expropriation. Pobre
claimed that NPC damaged his Property. Pobre prayed for just compensation of all the lots affected by NPC’s
actions and for the payment of damages.

On 2 January 1985, NPC filed a motion to dismiss the second expropriation case on the ground that NPC
had found an alternative site and that NPC had already abandoned in 1981 the project within the Property
due to Pobre’s opposition.
90
On 8 January 1985, the trial court granted NPC’s motion to dismiss but the trial court allowed Pobre to
adduce evidence on his claim for damages. The trial court admitted Pobre’s exhibits on the damages because
NPC failed to object. HCacTI

On 30 August 1985, the trial court ordered the case submitted for decision since NPC failed to appear to
present its evidence. The trial court denied NPC’s motion to reconsider the submission of the case for decision.

NPC filed a petition for certiorari 8 with the then Intermediate Appellate Court, questioning the 30 August 1985
Order of the trial court. On 12 February 1987, the Intermediate Appellate Court dismissed NPC’s petition but
directed the lower court to rule on NPC’s objections to Pobre’s documentary exhibits.

On 27 March 1987, the trial court admitted all of Pobre’s exhibits and upheld its Order dated 30 August 1985.

The trial court considered the case submitted for decision.

On 29 April 1987, the trial court issued its Decision in favor of Pobre. The dispositive portion of the
decision reads: EDIHSC

WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendant

and against the plaintiff, ordering the plaintiff to pay unto the defendant:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The sum of THREE

MILLION FOUR HUNDRED FORTY EIGHT THOUSAND FOUR
HUNDRED FIFTY (P3,448,450.00) PESOS which is the fair market
value of the subdivision of defendant with an area of sixty eight
thousand nine hundred sixty nine (68,969) square meters, plus legal
rate of interest per annum from September 6, 1979 until the whole
amount is paid, and upon payment thereof by the plaintiff the
defendant is hereby ordered to execute the necessary Deed of
Conveyance or Absolute Sale of the property in favor of the plaintiff;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The sum of ONE

HUNDRED FIFTY THOUSAND (P150,000.00) PESOS for and as
attorney’s fees.

Costs against the plaintiff.

SO ORDERED. 9

On 13 July 1987, NPC filed its motion for reconsideration of the decision. On 30 October 1987, the trial
court issued its Order denying NPC’s motion for reconsideration.EHIcaT

NPC appealed to the Court of Appeals. On 30 March 1992, the Court of Appeals upheld the decision of the trial
court but deleted the award of attorney’s fees. The dispositive portion of the decision reads:

WHEREFORE, by reason of the foregoing, the Decision appealed from is AFFIRMED with the
modification that the award of attorney’s fees is deleted. No pronouncement as to costs.

SO ORDERED. 10

The Court of Appeals denied NPC’s motion for reconsideration in a Resolution dated 14 August 1992.

The Ruling of the Trial Court

In its 69-page decision, the trial court recounted in great detail the scale and scope of the damage NPC
inflicted on the Property that Pobre had developed into a resort-subdivision. Pobre’s Property suffered
"permanent injury" because of the noise, water, air and land pollution generated by NPC’s geothermal
plants. The construction and operation of the geothermal plants drastically changed the topography of the
Property making it no longer viable as a resort-subdivision. The chemicals emitted by the geothermal plants
damaged the natural resources in the Property and endangered the lives of the residents. TCaEAD

NPC did not only take the 8,311.60 square-meter portion of the Property, but also the remaining area of the
68,969 square-meter Property. NPC had rendered Pobre’s entire Property useless as a resort-subdivision. The
Property has become useful only to NPC. NPC must therefore take Pobre’s entire Property and pay for it.
The trial court found the following badges of NPC’s bad faith: (1) NPC allowed five years to pass before it
moved for the dismissal of the second expropriation case; (2) NPC did not act on Pobre’s plea for NPC
to eliminate or at least reduce the damage to the Property; and (3) NPC singled out Pobre’s Property for

91
piecemeal expropriation when NPC could have expropriated other properties which were not affected in their
entirety by NPC’s operation.

The trial court found the just compensation to be P50 per square meter or a total of P3,448,450 for Pobre’s
68,969 square-meter Property. NPC failed to contest this valuation. Since NPC was in bad faith and it
employed dilatory tactics to prolong this case, the trial court imposed legal interest on the P3,448,450 from 6
September 1979 until full payment. The trial court awarded Pobre attorney’s fees of P150,000.

The Ruling of the Court of Appeals

The Court of Appeals affirmed the decision of the trial court. However, the appellate court deleted the award
of attorney’s fees because Pobre did not properly plead for it. AEIHCS

The Issues

NPC claims that the Court of Appeals committed the following errors that warrant reversal of the
appellate court’s decision:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In not annulling the

appealed Decision for having been rendered by the trial court with grave
abuse of discretion and without jurisdiction;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In holding that NPC had "taken" the

entire Property of Pobre;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Assuming arguendo that

there was "taking" of the entire Property, in not excluding from the Property
the 8,311.60 square-meter portion NPC had previously expropriated and
paid for;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In holding that the amount

of just compensation fixed by the trial court at P3,448,450.00 with interest
from September 6, 1979 until fully paid, is just and fair;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In not holding that the just

compensation should be fixed at P25.00 per square meter only as what NPC
and Pobre had previously mutually agreed upon; and

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In not totally setting aside the

appealed Decision of the trial court. 11

Procedural Issues

NPC, represented by the Office of the Solicitor General, insists that at the time that it moved for the dismissal
of its complaint, Pobre had yet to serve an answer or a motion for summary judgment on NPC. Thus, NPC as
plaintiff had the right to move for the automatic dismissal of its complaint. NPC relies on Section 1, Rule 17 of
the 1964 Rules of Court, the Rules then in effect. NPC argues that the dismissal of the complaint should have
carried with it the dismissal of the entire case including Pobre’s counterclaim. TcIAHS

NPC’s belated attack on Pobre’s claim for damages must fail. The trial court’s reservation of Pobre’s right to
recover damages in the same case is already beyond review. The 8 January 1985 Order of the trial court
attained finality when NPC failed to move for its reconsideration within the 15-day reglementary period.
NPC opposed the order only on 27 May 1985 or more than four months from the issuance of the order.

We cannot fault the Court of Appeals for not considering NPC’s objections against the subsistence of Pobre’s
claim for damages. NPC neither included this issue in its assignment of errors nor discussed it in its appellant’s
brief. NPC also failed to question the trial court’s 8 January 1985 Order in the petition for certiorari 12 it had
earlier filed with the Court of Appeals. It is only before this Court that NPC now vigorously assails the
preservation of Pobre’s claim for damages. Clearly, NPC’s opposition to the existence of Pobre’s claim for
damages is a mere afterthought. Rules of fair play, justice and due process dictate that parties cannot raise an
issue for the first time on appeal. 13
We must correct NPC’s claim that it filed the notice of dismissal just "shortly" after it had filed the complaint for
expropriation. While NPC had intimated several times to the trial court its desire to dismiss the expropriation
case it filed on 5 September 1979, 14 it was only on 2 January 1985 that NPC filed its notice of dismissal. 15
It took NPC more than five years to actually file the notice of dismissal. Five years is definitely not a short
period of time. NPC obviously dilly-dallied in filing its notice of dismissal while NPC meanwhile burdened
Pobre’s property rights.

92
Even a timely opposition against Pobre’s claim for damages would not yield a favorable ruling for NPC. It is not
Section 1, Rule 17 of the 1964 Rules of Court that is applicable to this case but Rule 67 of the same Rules, as
well as jurisprudence on expropriation cases. Rule 17 referred to dismissal of civil actions in general while
Rule 67 specifically governed eminent domain cases.

Eminent domain is the authority and right of the state, as sovereign, to take private property for public use
upon observance of due process of law and payment of just compensation. 16 The power of eminent domain
may be validly delegated to the local governments, other public entities and public utilities 17 such as NPC.
Expropriation is the procedure for enforcing the right of eminent domain. 18 "Eminent Domain" was the former
title of Rule 67 of the 1964 Rules of Court. In the 1997 Rules of Civil Procedure, which took effect on 1 July
1997, the prescribed method of expropriation is still found in Rule 67, but its title is now "Expropriation."
DaScAI

Section 1, Rule 17 of the 1964 Rules of Court provided the exception to the general rule that the dismissal of
the complaint is addressed to the sound discretion of the court. 19 For as long as all of the elements of
Section 1, Rule 17 were present the dismissal of the complaint rested exclusively on the plaintiff’s will. 20 The
defending party and even the courts were powerless to prevent the dismissal. 21 The courts could only accept
and record the dismissal. 22

A plain reading of Section 1, Rule 17 of the 1964 Rules of Court makes it obvious that this rule was not
intended to supplement Rule 67 of the same Rules. Section 1, Rule 17 of the 1964 Rules of Court, provided
that:

SECTION 1. Dismissal by the plaintiff. — An action may be dismissed by the plaintiff without
order of court by filing a notice of dismissal at any time before service of the answer or of a
motion for summary judgment. Unless otherwise stated in the notice, the dismissal is without
prejudice, except that a notice operates as an adjudication upon the merits when filed by a
plaintiff who has once dismissed in a competent court an action based on or including the
same claim. A class suit shall not be dismissed or compromised without approval of the court.

While Section 1, Rule 17 spoke of the "service of answer or summary judgment," the Rules then did not require
the filing of an answer or summary judgment in eminent domain cases. 23 In lieu of an answer, Section 3 of
Rule 67 required the defendant to file a single motion to dismiss where he should present all of his objections
and defenses to the taking of his property for the purpose specified in the complaint. 24 In short, in
expropriation cases under Section 3 of Rule 67, the motion to dismiss took the place of the answer.

The records show that Pobre had already filed and served on NPC his "motion to dismiss/answer" 25 even
before NPC filed its own motion to dismiss. NPC filed its notice of dismissal of the complaint on 2 January
1985. However, as early as 10 December 1984, Pobre had already filed with the trial court and served on NPC
his "motion to dismiss/answer." A certain Divina Cerela received Pobre’s pleading on behalf of NPC. 26
Unfortunately for NPC, even Section 1, Rule 17 of the 1964 Rules of Court could not save its cause. SCHIcT

NPC is in no position to invoke Section 1, Rule 17 of the 1964 Rules of Court. A plaintiff loses his right
under this rule to move for the immediate dismissal of the complaint once the defendant had served on the
plaintiff the answer or a motion for summary judgment before the plaintiff could file his notice of dismissal of
the complaint. 27 Pobre’s "motion to dismiss/answer," filed and served way ahead of NPC’s motion to
dismiss, takes the case out of Section 1, Rule 17 assuming the same applies.

In expropriation cases, there is no such thing as the plaintiff’s matter of right to dismiss the complaint precisely
because the landowner may have already suffered damages at the start of the taking. The plaintiff’s right in
expropriation cases to dismiss the complaint has always been subject to court approval and to certain
conditions. 28 The exceptional right that Section 1, Rule 17 of the 1964 Rules of Court conferred on the plaintiff
must be understood to have applied only to other civil actions. The 1997 Rules of Civil Procedure abrogated
this exceptional right. 29

The power of eminent domain is subject to limitations. A landowner cannot be deprived of his right over his
land until expropriation proceedings are instituted in court.30 The court must then see to it that the taking is for
public use, there is payment of just compensation and there is due process of law. 31

If the propriety of the taking of private property through eminent domain is subject to judicial scrutiny, the dismissal
of the complaint must also pass judicial inquiry because private rights may have suffered in the meantime. The
dismissal, withdrawal or abandonment of the expropriation case cannot be made arbitrarily. If it appears to the court
that the expropriation is not for some public use, 32 then it becomes the duty of the court
93
to dismiss the action. 33 However, when the defendant claims that his land suffered damage because of the
expropriation, the dismissal of the action should not foreclose the defendant’s right to have his damages
ascertained either in the same case or in a separate action. 34

Thus, NPC’s theory that the dismissal of its complaint carried with it the dismissal of Pobre’s claim for damages
is baseless. There is nothing in Rule 67 of the 1964 Rules of Court that provided for the dismissal of the
defendant’s claim for damages, upon the dismissal of the expropriation case. Case law holds that in the event
of dismissal of the expropriation case, the claim for damages may be made either in a separate or in the same
action, for all damages occasioned by the institution of the expropriation case. 35 The dismissal of the
complaint can be made under certain conditions, such as the reservation of the defendant’s right to recover
damages either in the same or in another action. 36 The trial court in this case reserved Pobre’s right to prove
his claim in the same case, a reservation that has become final due to NPC’s own fault.

Factual Findings of the Trial and Appellate Courts Bind the Court

The trial and appellate courts held that even before the first expropriation case, Pobre had already
established his Property as a resort-subdivision. NPC had wrought so much damage to the Property that NPC
had made the Property uninhabitable as a resort-subdivision. NPC’s facilities such as steam wells, nag wells,
power plants, power lines, and canals had hemmed in Pobre’s Property. NPC’s operations of its geothermal
project also posed a risk to lives and properties.

We uphold the factual findings of the trial and appellate courts. Questions of facts are beyond the pale of Rule
45 of the Rules of Court as a petition for review may only raise questions of law. 37 Moreover, factual findings
of the trial court, particularly when affirmed by the Court of Appeals, are generally binding on this Court. 38 We
thus find no reason to set aside the two courts’ factual findings. ACTEHI

NPC points out that it did not take Pobre’s 68,969 square-meter Property. NPC argues that assuming that it is
liable for damages, the 8,311.60 square-meter portion that it had successfully expropriated and fully paid for
should have been excluded from the 68,969 square-meter Property that Pobre claims NPC had damaged.

We are not persuaded.

In its 30 October 1987 Order denying NPC’s motion for reconsideration, the trial court pointed out that the
Property originally had a total area of 141,300 square meters. 39 Pobre converted the Property into a resort-
subdivision and sold lots to the public. What remained of the lots are the 68,969 square meters of land. 40
Pobre no longer claimed damages for the other lots that he had before the expropriation.

Pobre identified in court the lots forming the 68,969 square-meter Property. NPC had the opportunity to object
to the identification of the lots. 41 NPC, however, failed to do so. Thus, we do not disturb the trial and
appellate courts’ finding on the total land area NPC had damaged.

NPC must Pay Just Compensation for the Entire Property

Ordinarily, the dismissal of the expropriation case restores possession of the expropriated land to the
landowner. 42 However, when possession of the land cannot be turned over to the landowner because it is
neither convenient nor feasible anymore to do so, the only remedy available to the aggrieved landowner is to
demand payment of just compensation. 43

In this case, we agree with the trial and appellate courts that it is no longer possible and practical to restore
possession of the Property to Pobre. The Property is no longer habitable as a resort-subdivision. The
Property is worthless to Pobre and is now useful only to NPC. Pobre has completely lost the Property as if
NPC had physically taken over the entire 68,969 square-meter Property. TDCaSE

In United States v. Causby, 44 the U.S. Supreme Court ruled that when private property is rendered
uninhabitable by an entity with the power to exercise eminent domain, the taking is deemed complete. Such
taking is thus compensable.

In this jurisdiction, the Court has ruled that if the government takes property without expropriation and devotes
the property to public use, after many years the property owner may demand payment of just compensation.
45 This principle is in accord with the constitutional mandate that private property shall not be taken for public
use without just compensation. 46
94
In the recent case of National Housing Authority v. Heirs of Isidro Guivelondo, 47 the Court compelled the
National Housing Authority ("NHA") to pay just compensation to the landowners even after the NHA had
already abandoned the expropriation case. The Court pointed out that a government agency could not initiate
expropriation proceedings, seize a person’s property, and then just decide not to proceed with the
expropriation. Such a complete turn-around is arbitrary and capricious and was condemned by the Court in the
strongest possible terms. NHA was held liable to the landowners for the prejudice that they had suffered.

In this case, NPC appropriated Pobre’s Property without resort to expropriation proceedings. NPC dismissed
its own complaint for the second expropriation. At no point did NPC institute expropriation proceedings for
the lots outside the 5,554 square-meter portion subject of the second expropriation. The only issues that the
trial court had to settle were the amount of just compensation and damages that NPC had to pay Pobre.

This case ceased to be an action for expropriation when NPC dismissed its complaint for expropriation. Since
this case has been reduced to a simple case of recovery of damages, the provisions of the Rules of Court on
the ascertainment of the just compensation to be paid were no longer applicable. A trial before
commissioners, for instance, was dispensable. TcSaHC

We have held that the usual procedure in the determination of just compensation is waived when the
government itself initially violates procedural requirements. 48NPC’s taking of Pobre’s property without filing
the appropriate expropriation proceedings and paying him just compensation is a transgression of
procedural due process.

From the beginning, NPC should have initiated expropriation proceedings for Pobre’s entire 68,969 square-
meter Property. NPC did not. Instead, NPC embarked on a piecemeal expropriation of the Property. Even as
the second expropriation case was still pending, NPC was well aware of the damage that it had unleashed
on the entire Property. NPC, however, remained impervious to Pobre’s repeated demands for NPC to abate
the damage that it had wrought on his Property.

NPC moved for the dismissal of the complaint for the second expropriation on the ground that it had found
an alternative site and there was stiff opposition from Pobre. 49 NPC abandoned the second expropriation
case five years after it had already deprived the Property virtually of all its value. NPC has demonstrated its
utter disregard for Pobre’s property rights.

Thus, it would now be futile to compel NPC to institute expropriation proceedings to determine the just
compensation for Pobre’s 68,969 square-meter Property. Pobre must be spared any further delay in his pursuit
to receive just compensation from NPC.

Just compensation is the fair and full equivalent of the loss. 50 The trial and appellate courts endeavored to
meet this standard. The P50 per square meter valuation of the 68,969 square-meter Property is reasonable
considering that the Property was already an established resort-subdivision. NPC has itself to blame for not
contesting the valuation before the trial court. Based on the P50 per square meter valuation, the total amount
of just compensation that NPC must pay Pobre is P3,448,450. cEHSTC

The landowner is entitled to legal interest on the price of the land from the time of the taking up to the time of
full payment by the government. 51 In accord with jurisprudence, we fix the legal interest at six per cent (6%)
per annum. 52 The legal interest should accrue from 6 September 1979, the date when the trial court issued
the writ of possession to NPC, up to the time that NPC fully pays Pobre. 53

NPC’s abuse of its eminent domain authority is appalling. However, we cannot award moral damages
because Pobre did not assert his right to it. 54 We also cannot award attorney’s fees in Pobre’s favor since he
did not appeal from the decision of the Court of Appeals denying recovery of attorney’s fees. 55

Nonetheless, we find it proper to award P50,000 in temperate damages to Pobre. The court may award
temperate or moderate damages, which are more than nominal but less than compensatory damages, if the
court finds that a party has suffered some pecuniary loss but its amount cannot be proved with certainty from
the nature of the case. 56 As the trial and appellate courts noted, Pobre’s resort-subdivision was no longer just
a dream because Pobre had already established the resort-subdivision and the prospect for it was initially
encouraging. That is, until NPC permanently damaged Pobre’s Property. NPC did not just destroy the
property. NPC dashed Pobre’s hope of seeing his Property achieve its full potential as a resort-subdivision.

The lesson in this case must not be lost on entities with eminent domain authority. Such entities cannot trifle
with a citizen’s property rights. The power of eminent domain is an extraordinary power they must wield with
circumspection and utmost regard for procedural requirements. Thus, we hold NPC liable for exemplary
95
damages of P100,000. Exemplary damages or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. 57

WHEREFORE, we DENY the petition for lack of merit. The appealed Decision of the Court of Appeals dated
30 March 1992 in CA-G.R. CV No. 16930 is AFFIRMED with MODIFICATION. National Power Corporation is
ordered to pay Antonino Pobre P3,448,450 as just compensation for the 68,969 square-meter Property at P50
per square meter. National Power Corporation is directed to pay legal interest at 6% per annum on the amount
adjudged from 6 September 1979 until fully paid. Upon National Power Corporation’s payment of the full
amount, Antonino Pobre is ordered to execute a Deed of Conveyance of the Property in National Power
Corporation’s favor. National Power Corporation is further ordered to pay temperate and exemplary damages
of P50,000 and P100,000, respectively. No costs. IaESCH

SO ORDERED.

Davide, Jr., C .J ., Quisumbing, Ynares-Santiago and Azcuna, JJ ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (National Power Corp. v. Court of Appeals, G.R. No.
106804, [August 12, 2004], 479 PHIL 850-870)

Lagcao v. Labra, G.R. No. 155746, [October 13, 2004], 483 PHIL 303-315

EN BANC

[G.R. No. 155746. October 13, 2004.]

DIOSDADO LAGCAO, DOROTEO LAGCAO and URSULA LAGCAO, petitioners, vs.

JUDGE GENEROSA G. LABRA, Branch 23, Regional Trial Court, Cebu, and the CITY OF
CEBU, respondent.

DECISION

CORONA, J p:

Before us is a petition for review of the decision dated July 1, 2002 of the Regional Trial Court, Branch 23,
Cebu City 1 upholding the validity of the City of Cebu's Ordinance No. 1843, as well as the lower court's
order dated August 26, 2002 denying petitioner's motion for reconsideration.

In 1964, the Province of Cebu donated 210 lots to the City of Cebu. One of these lots was Lot 1029, situated
in Capitol Hills, Cebu City, with an area of 4,048 square meters. In 1965, petitioners purchased Lot 1029 on
installment basis. But then, in late 1965, the 210 lots, including Lot 1029, reverted to the Province of Cebu.

2Consequently, the province tried to annul the sale of Lot 1029 by the City of Cebu to the petitioners. This
prompted the latter to sue the province for specific performance and damages in the then Court of First
Instance.

On July 9, 1986, the court a quo ruled in favor of petitioners and ordered the Province of Cebu to execute the
final deed of sale in favor of petitioners. On June 11, 1992, the Court of Appeals affirmed the decision of the
trial court. Pursuant to the ruling of the appellate court, the Province of Cebu executed on June 17, 1994 a
deed of absolute sale over Lot 1029 in favor of petitioners. Thereafter, Transfer Certificate of Title (TCT) No.
129306 was issued in the name of petitioners and Crispina Lagcao. 3

After acquiring title, petitioners tried to take possession of the lot only to discover that it was already occupied
by squatters. Thus, on June 15, 1997, petitioners instituted ejectment proceedings against the squatters. The
Municipal Trial Court in Cities (MTCC), Branch 1, Cebu City, rendered a decision on April 1, 1998, ordering
the squatters to vacate the lot. On appeal, the RTC affirmed the MTCC's decision and issued a writ of
execution and order of demolition. CDaSAE

However, when the demolition order was about to be implemented, Cebu City Mayor Alvin Garcia wrote two
letters 4 to the MTCC, requesting the deferment of the demolition on the ground that the City was still looking
96
for a relocation site for the squatters. Acting on the mayor's request, the MTCC issued two orders suspending
the demolition for a period of 120 days from February 22, 1999. Unfortunately for petitioners, during the
suspension period, the Sangguniang Panlungsod (SP) of Cebu City passed a resolution which identified Lot
1029 as a socialized housing site pursuant to RA 7279. 5 Then, on June 30, 1999, the SP of Cebu City
passed Ordinance No. 1772 6 which included Lot 1029 among the identified sites for socialized housing. On
July, 19, 2000, Ordinance No. 1843 7 was enacted by the SP of Cebu City authorizing the mayor of Cebu City
to initiate expropriation proceedings for the acquisition of Lot 1029 which was registered in the name of
petitioners. The intended acquisition was to be used for the benefit of the homeless after its subdivision and
sale to the actual occupants thereof. For this purpose, the ordinance appropriated the amount of P6,881,600
for the payment of the subject lot. This ordinance was approved by Mayor Garcia on August 2, 2000.

On August 29, 2000, petitioners filed with the RTC an action for declaration of nullity of Ordinance No. 1843
for being unconstitutional. The trial court rendered its decision on July 1, 2002 dismissing the complaint filed
by petitioners whose subsequent motion for reconsideration was likewise denied on August 26, 2002.

In this appeal, petitioners argue that Ordinance No. 1843 is unconstitutional as it sanctions the expropriation of
their property for the purpose of selling it to the squatters, an endeavor contrary to the concept of "public use"
contemplated in the Constitution. 8 They allege that it will benefit only a handful of people. The ordinance,
according to petitioners, was obviously passed for politicking, the squatters undeniably being a big source of
votes.

In sum, this Court is being asked to resolve whether or not the intended expropriation by the City of Cebu of a
4,048-square-meter parcel of land owned by petitioners contravenes the Constitution and applicable laws.

Under Section 48 of RA 7160, 9 otherwise known as the Local Government Code of 1991, 10 local legislative
power shall be exercised by the Sangguniang Panlungsod of the city. The legislative acts of the Sangguniang
Panlungsod in the exercise of its lawmaking authority are denominated ordinances. cEAHSC

Local government units have no inherent power of eminent domain and can exercise it only when expressly
authorized by the legislature. 11 By virtue of RA 7160, Congress conferred upon local government units the
power to expropriate. Ordinance No. 1843 was enacted pursuant to Section 19 of RA 7160:

SEC. 19. Eminent Domain. — A local government unit may, through its chief executive
and acting pursuant to an ordinance, exercise the power of eminent domain for public use,
or purpose, or welfare for the benefit of the poor and the landless, upon payment of just
compensation, pursuant to the provisions of the Constitutionand pertinent laws . . .. (italics
supplied).

Ordinance No. 1843 which authorized the expropriation of petitioners' lot was enacted by the SP of Cebu
City to provide socialized housing for the homeless and low-income residents of the City.

However, while we recognize that housing is one of the most serious social problems of the country, local
government units do not possess unbridled authority to exercise their power of eminent domain in seeking
solutions to this problem.

There are two legal provisions which limit the exercise of this power: (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; 12 and (2)
private property shall not be taken for public use without just compensation. 13 Thus, the exercise by local
government units of the power of eminent domain is not absolute. In fact, Section 19 of RA 7160 itself explicitly
states that such exercise must comply with the provisions of the Constitution and pertinent laws.

The exercise of the power of eminent domain drastically affects a landowner's right to private property, which
is as much a constitutionally-protected right necessary for the preservation and enhancement of personal
dignity and intimately connected with the rights to life and liberty. 14 Whether directly exercised by the State or
by its authorized agents, the exercise of eminent domain is necessarily in derogation of private rights. 15 For
this reason, the need for a painstaking scrutiny cannot be overemphasized.

The due process clause cannot be trampled upon each time an ordinance orders the expropriation of a private
individual's property. The courts cannot even adopt hands-off policy simply because public use or public
purpose is invoked by an ordinance, or just compensation has been fixed and determined. In De Knecht vs.
Bautista, 16 we said:
97
 It is obvious then that a land-owner is covered by the mantle of protection due process
affords. It is a mandate of reason. It frowns on arbitrariness, it is the antithesis of any
governmental act that smacks of whim or caprice. It negates state power to act in an
oppressive manner. It is, as had been stressed so often, the embodiment of the sporting idea
of fair play. In that sense, it stands as a guaranty of justice. That is the standard that must be
met by any governmental agency in the exercise of whatever competence is entrusted to it. As
was so emphatically stressed by the present Chief Justice, "Acts of Congress, as well as
those of the Executive, can deny due process only under pain of nullity. . . ..

The foundation of the right to exercise eminent domain is genuine necessity and that necessity must be of
public character. 17 Government may not capriciously or arbitrarily choose which private property should be
expropriated. In this case, there was no showing at all why petitioners' property was singled out for
expropriation by the city ordinance or what necessity impelled the particular choice or selection. Ordinance
No. 1843 stated no reason for the choice of petitioners' property as the site of a socialized housing project.
HTDAac

Condemnation of private lands in an irrational or piecemeal fashion or the random expropriation of small lots
to accommodate no more than a few tenants or squatters is certainly not the condemnation for public use
contemplated by the Constitution. This is depriving a citizen of his property for the convenience of a few
without perceptible benefit to the public. 18

RA 7279 is the law that governs the local expropriation of property for purposes of. urban land reform
and housing. Sections 9 and 10 thereof provide:

SEC 9. Priorities in the Acquisition of Land. — Lands for socialized housing shall be acquired
in the following order:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Those

owned by the Government or any of its subdivisions,
instrumentalities, or agencies, including government-owned
or controlled corporations and their subsidiaries;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Alienable lands of the public

domain;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Unregistered or abandoned

and idle lands;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Those within the

declared Areas or Priority Development, Zonal Improvement Program
sites, and Slum Improvement and Resettlement Program sites which
have not yet been acquired;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Bagong Lipunan

Improvement of Sites and Services or BLISS which have not yet
been acquired; and

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Privately-owned lands.

Where on-site development is found more practicable and advantageous to the beneficiaries,
the priorities mentioned in this section shall not apply. The local government units shall give
budgetary priority to on-site development of government lands. (Emphasis supplied).

SEC. 10. Modes of Land Acquisition. — The modes of acquiring lands for purposes of this
Act shall include, among others, community mortgage, land swapping, land assembly or
consolidation, land banking, donation to the Government, joint venture agreement, negotiated
purchase, and expropriation: Provided, however, That expropriation shall be resorted to only
when other modes of acquisition have been exhausted: Provided further, That where
expropriation is resorted to, parcels of land owned by small property owners shall be
exempted for purposes of this Act: . . . (Emphasis supplied).
In the recent case of Estate or Heirs of the Late Ex-Justice Jose B.L. Reyes et al. vs. City of Manila, 19 we
ruled that the above-quoted provisions are strict limitations on the exercise of the power of eminent domain by
local government units, especially with respect to (1) the order of priority in acquiring land for socialized
housing and (2) the resort to expropriation proceedings as a means to acquiring it. Private lands rank last in
the order of priority for purposes of socialized housing. In the same vein, expropriation proceedings may be
resorted to only after the other modes of acquisition are exhausted. Compliance with these conditions is

98
mandatory because these are the only safeguards of oftentimes helpless owners of private property against
what may be a tyrannical violation of due process when their property is forcibly taken from them allegedly
for public use. SacTCA

We have found nothing in the records indicating that the City of Cebu complied strictly with Sections 9 and 10
of RA 7279. Ordinance No. 1843 sought to expropriate petitioners' property without any attempt to first acquire
the lands listed in (a) to (e) of Section 9 of RA 7279. Likewise, Cebu City failed to establish that the other
modes of acquisition in Section 10 of RA 7279 were first exhausted. Moreover, prior to the passage of
Ordinance No. 1843, there was no evidence of a valid and definite offer to buy petitioners' property as
required by Section 19 of RA 7160. 20 We therefore find Ordinance No. 1843 to be constitutionally infirm for
being violative of the petitioners' right to due process.

It should also be noted that, as early as 1998, petitioners had already obtained a favorable judgment of eviction
against the illegal occupants of their property. The judgment in this ejectment case had, in fact, already
attained finality, with a writ of execution and an order of demolition. But Mayor Garcia requested the trial court
to suspend the demolition on the pretext that the City was still searching for a relocation site for the squatters.
However, instead of looking for a relocation site during the suspension period, the city council suddenly
enacted Ordinance No. 1843 for the expropriation of petitioners' lot. It was trickery and bad faith, pure and
simple. The unconscionable manner in which the questioned ordinance was passed clearly indicated that
respondent City transgressed the Constitution, RA 7160 and RA 7279.

For an ordinance to be valid, it must not only be within the corporate powers of the city or municipality to enact
but must also be passed according to the procedure prescribed by law. It must be in accordance with certain
well-established basic principles of a substantive nature. These principles require that an ordinance (1) must
not contravene the Constitution or any statute (2) must not be unfair or oppressive (3) must not be partial or
discriminatory (4) must not prohibit but may regulate trade (5) must be general and consistent with public
policy, and (6) must not be unreasonable. 21

Ordinance No. 1843 failed to comply with the foregoing substantive requirements. A clear case of constitutional
infirmity having been thus established, this Court is constrained to nullify the subject ordinance. We
recapitulate:

first, as earlier discussed, the questioned ordinance is repugnant to the pertinent provisions
of the Constitution, RA 7279 and RA 7160;

second, the precipitate manner in which it was enacted was plain oppression masquerading
as a pro-poor ordinance;

third, the fact that petitioners' small property was singled out for expropriation for the purpose
of awarding it to no more than a few squatters indicated manifest partiality against
petitioners, and

fourth, the ordinance failed to show that there was a reasonable relation between the end
sought and the means adopted. While the objective of the City of Cebu was to provide
adequate housing to slum dwellers, the means it employed in pursuit of such objective fell
short of what was legal, sensible and called for by the circumstances.

Indeed, experience has shown that the disregard of basic liberties and the use of short-sighted methods in
expropriation proceedings have not achieved the desired results. Over the years, the government, has tried to
remedy the worsening squatter problem. Far from solving it, however, government's kid-glove approach has
only resulted in the multiplication and proliferation of squatter colonies and blighted areas. A pro-poor program
that is well-studied, adequately funded, genuinely sincere and truly respectful of everyone's basic rights is what
this problem calls for, not the improvident enactment of politics-based ordinances targeting small private lots in
no rational fashion. ATCaDE

WHEREFORE, the petition is hereby GRANTED. The July 1, 2002 decision of Branch 23 of the Regional Trial
Court of Cebu City is RESERVED and SET ASIDE.

SO ORDERED.

Davide, Jr., C. J. , Puno, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-

Martinez, Callejo, Sr. and Tinga, JJ., concur.

Carpio Morales, Azcuna and Chico-Nazario, JJ., on leave.

99
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Lagcao v. Labra, G.R. No. 155746, [October 13, 2004],
483 PHIL 303-315)

Republic v. Vda. de Castellvi, G.R. No. L-20620, [August 15, 1974], 157 PHIL 329-364

EN BANC

[G.R. No. L-20620. August 15, 1974.]

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. CARMEN M. VDA.

DE CASTELLVI, ET AL., defendants-appellees.

Office of the Solicitor General for plaintiff-appellant.

C .A. Mendoza & A.V . Raquiza and Alberto Cacnio & Associates for defendant-appellees.

DECISION

ZALDIVAR, J p:

Appeal from the decision of the Court of First Instance of Pampanga in its Civil Case No. 1623, an
expropriation proceeding.

Plaintiff-appellant, the Republic of the Philippines, (hereinafter referred to as the Republic) filed, on June 26,
1959, a complaint for eminent domain against defendant-appellee, Carmen M. vda. de Castellvi, judicial
administratrix of the estate of the late Alfonso de Castellvi hereinafter referred to as Castellvi), over a parcel
of land situated in the barrio of San Jose, Floridablanca, Pampanga, described as follows:

"A parcel of land, Lot No. 199-B Bureau of Lands Plan Swo-23666. Bounded on the NE by
Maria Nieves Toledo-Gozun; on the SE by national road; on the SW by AFP reservation, and
on the NW by AFP reservation. Containing an area of 759,299 square meters, more or less,
and registered in the name of Alfonso Castellvi under TCT No. 13631 of the Register of Deeds
of Pampanga . . .";

and against defendant-appellee Maria Nieves Toledo Gozun (hereinafter referred to as Toledo-Gozun),
over two parcels of land described as follows:

"A parcel of land (Portion of Lot 1-B, Blk-1, Bureau of Lands Plan Psd, 26254. Bounded on
the NE by Lot 3, on the SE by Lot 3; on the SW by Lot 1-B, Blk. 2 (equivalent to Lot 199-B
Swo 23666; on the NW by AFP military reservation. Containing an area of 450,273 square
meters, more or less, and registered in the name of Maria Nieves Toledo-Gozun under TCT
No. 8708 of the Register of Deeds of Pampanga. . . .", and

"A parcel of land (Portion of Lot 3, Blk-1, Bureau of Lands Plan Psd 26254. Bounded on
the NE by Lot No. 3, on the SE by school lot and national road, on the SW by Lot 1-B Blk 2
(equivalent to Lot 199-B Swo 23666), on the NW by Lot 1-B, Blk-1. Containing an area of
88,772 square meters, more or less, and registered in the name of Maria Nieves Toledo
Gozun under TCT No. 8708 of the Register of Deeds of Pampanga, . . ."

In its complaint, the Republic alleged, among other things, that the fair market value of the above-mentioned
lands, according to the Committee on Appraisal for the Province of Pampanga, was not more than P2,000
per hectare, or a total market value of P259,669.10; and prayed, that the provisional value of the lands be
fixed at P259,669.10, that the court authorizes plaintiff to take immediate possession of the lands upon
deposit of that amount with the Provincial Treasurer of Pampanga; that the court appoints three
commissioners to ascertain and report to the court the just compensation for the property sought to be
expropriated, and that the court issues thereafter a final order of condemnation.

On June 29, 1959 the trial court issued an order fixing the provisional value of the lands at P259,669.10.
100
In her "motion to dismiss" filed on July 14, 1959, Castellvi alleged, among other things, that the land under her
administration, being a residential land, had a fair market value of P15.00 per square meter, so it had a total
market value of P11,389,485.00; that the Republic, through the Armed Forces of the Philippines, particularly the
Philippine Air Force, had been, despite repeated demands, illegally occupying her property since July 1, 1956,
thereby preventing her from using and disposing of it, thus causing her damages by way of unrealized profits. This
defendant prayed that the complaint be dismissed, or that the Republic be ordered to pay her P15.00 per square
meter, or a total of P11,389,485.00, plus interest thereon at 6% per annum from July 1, 1956; that the Republic be
ordered to pay her P5,000,000.00 as unrealized profits, and the costs of the suit.

By order of the trial court, dated August, 1959, Amparo C. Diaz, Dolores G. viuda de Gil, Paloma Castellvi,
Carmen Castellvi, Rafael Castellvi, Luis Castellvi, Natividad Castellvi de Raquiza, Jose Castellvi and
Consuelo Castellvi were allowed to intervene as parties defendants. Subsequently, Joaquin V. Gozun, Jr.,
husband of defendant Nieves Toledo Gozun, was also allowed by the court to intervene as a party defendant.

After the Republic had deposited with the Provincial Treasurer of Pampanga the amount of P259,669.10, the
trial court ordered that the Republic be placed in possession of the lands. The Republic was actually placed
in possession of the lands on August 10, 1959. 1

In her "motion to dismiss", dated October 22, 1959, Toledo-Gozun alleged, among other things, that her two
parcels of land were residential lands, in fact a portion with an area of 343,303 square meters had already
been subdivided into different lots for sale to the general public, and the remaining portion had already been
set aside for expansion sites of the already completed subdivisions; that the fair market value of said lands was
P15.00 per square meter, so they had a total market value of P8,085,675.00; and she prayed that the
complaint be dismissed, or that she be paid the amount of P8,085,675.00, plus interest thereon at the rate of
6% per annum from October 13, 1959, and attorney's fees in the amount of P50,000.00.

Intervenors Jose Castellvi and Consuelo Castellvi in their answer, filed on February 11, 1960, and also
intervenor Joaquin Gozun, Jr., husband of defendant Maria Nieves Toledo-Gozun, in his motion to dismiss,
dated May 27, 1960, all alleged that the value of the lands sought to be expropriated was at the rate of
P15.00 per square meter.

On November 4, 1959, the trial court authorized the Provincial Treasurer of Pampanga to pay defendant
Toledo-Gozun the sum of P107,609.00 as provisional value of her lands. 2 On May 16, 1960 the trial Court
authorized the Provincial Treasurer of Pampanga to pay defendant Castellvi the amount of P151,859.80 as
provisional value of the land under her administration, and ordered said defendant to deposit the amount
with the Philippine National Bank under the supervision of the Deputy Clerk of Court. In another order of May
16, 1960 the trial Court entered an order of condemnation. 3

The trial Court appointed three commissioners: Atty. Amadeo Yuzon, Clerk of Court, as commissioner for the
court; Atty. Felicisimo G. Pamandanan, counsel of the Philippine National Bank Branch at Floridablanca, for
the plaintiff; and Atty. Leonardo F. Lansangan, Filipino legal counsel at Clark Air Base, for the defendants.
The Commissioners, after having qualified themselves, proceeded to the performance of their duties.

On March 15, 1961 the Commissioners submitted their report and recommendation, wherein, after having
determined that the lands sought to be expropriated were residential lands, they recommended unanimously
that the lowest price that should be paid was P10.00 per square meter, for both the lands of Castellvi and
Toledo-Gozun; that an additional P5,000.00 be paid to Toledo-Gozun for improvements found on her land; that
legal interest on the compensation, computed from August 10, 1959, be paid after deducting the amounts
already paid to the owners, and that no consequential damages be awarded. 4 The Commissioners' report was
objected to by all the parties in the case — by defendants Castellvi and Toledo-Gozun, who insisted that the
fair market value of their lands should be fixed at P15.00 per square meter; and by the Republic, which insisted
that the price to be paid for the lands should be fixed at P0.20 per square meter. 5

After the parties-defendants and intervenors had filed their respective memoranda, and the Republic, after
several extensions of time, had adopted as its memorandum its objections to the report of the Commissioners,
the trial court, on May 26, 1961, rendered its decision 6 the dispositive portion of which reads as follows:

"WHEREFORE, taking into account all the foregoing circumstances, and that the lands are
titled, . . . the rising trend of land values,. . . and the lowered purchasing power of the
Philippine peso, the court finds that the unanimous recommendation of the commissioners of
ten (P10.00) pesos per square meter for the three lots of the defendants subject of this
action is fair and just."
101
 xxx xxx xxx

"The plaintiff will pay 6% interest per annum on the total value of the lands of defendant
Toledo-Gozun since (sic) the amount deposited as provisional value from August 10,
1959 until full payment is made to said defendant or deposit therefor is made in court.

"In respect to the defendant Castellvi, interest at 6% per annum will also be paid by the plaintiff to
defendant Castellvi from July 1, 1956 when plaintiff commenced its illegal possession of the
Castellvi land when the instant action had not yet been commenced to July 10, 1959 when the
provisional value thereof was actually deposited in court, on the total value of the said (Castellvi)
land as herein adjudged. The same rate of interest shall be paid from July 11, 1959 on the total
value of the land herein adjudged minus the amount deposited as provisional value, or
P151,859.80, such interest to run until full payment is made to said defendant or deposit therefor
is made in court. All the Intervenors having failed to produce evidence in support of their
respective interventions, said interventions are ordered dismissed.

"The costs shall be charged to the plaintiff."

On June 21, 1961 the Republic filed a motion for a new trial and/or reconsideration, upon the grounds of
newly-discovered evidence, that the decision was not supported by the evidence, and that the decision was
against the law, against which motion defendants Castellvi and Toledo-Gozun filed their respective
oppositions. On July 8, 1961 when the motion of the Republic for new trial and/or reconsideration was called
for hearing, the Republic filed a supplemental motion for new trial upon the ground of additional newly-
discovered evidence. This motion for new trial and/or reconsideration was denied by the court on July 12,
1961.

On July 17, 1961 the Republic gave notice of its intention to appeal from the decision of May 26, 1961 and the
order of July 12, 1961. Defendant Castellvi also filed, on July 17, 1961, her notice of appeal from the decision
of the trial court.

The Republic filed various ex-parte motions for extension of time within which to file its record on appeal.
The Republic's record on appeal was finally submitted on December 6, 1961.

Defendants Castellvi and Toledo-Gozun filed not only a joint opposition to the approval of the Republic's record
on appeal, but also a joint memorandum in support of their opposition. The Republic also filed a memorandum
in support of its prayer for the approval of its record on appeal. On December 27, 1961 the trial court issued an
order declaring both the record on appeal filed by the Republic, and the record on appeal filed by defendant
Castellvi as having been filed out of time, thereby dismissing both appeals.

On January 11, 1962 the Republic filed a "motion to strike out the order of December 27, 1961 and for
reconsideration", and subsequently an amended record oil appeal, against which motion the defendants
Castellvi and Toledo-Gozun filed their opposition. On July 26, 1962 the trial court issued an order, stating that
"in the interest of expediency, the questions raised may be properly and finally determined by the Supreme
Court," and at the same time it ordered the Solicitor General to submit a record on appeal containing copies of
orders and pleadings specified therein. In an order dated November 19, 1962, the trial court approved the
Republic's record on appeal as amended.

Defendant Castellvi did not insist on her appeal. Defendant Toledo-Gozun did not appeal.

The motion to dismiss the Republic's appeal was reiterated by appellees Castellvi and Toledo-Gozun before
this Court, but this Court denied the motion.

In her motion of August 11, 1964, appellee Castellvi sought to increase the provisional value of her land.
The Republic, in its comment on Castellvi's motion, opposed the same. This Court denied Castellvi's motion
in a resolution dated October 2, 1964.

The motion of appellees, Castellvi and Toledo-Gozun, dated October 6, 1969, praying that they be authorized
to mortgage the lands subject of expropriation, was denied by this Court or October 14, 1969.

On February 14, 1972, Attys. Alberto Cacnio, and Associates, counsel for the estate of the late Don Alfonso de
Castellvi in the expropriation proceedings, filed a notice of attorney's lien, stating that as per agreement with the
administrator of the estate of Don Alfonso de Castellvi they shall receive by way of attorney's fees, "the
102
sum equivalent to ten per centum of whatever the court may finally decide as the expropriated price of the
property subject matter of the case."

Before this Court, the Republic contends that the lower court erred:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In finding the price of P10 per

square meter of the lands subject of the instant proceedings as just compensation;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In holding that the "taking" of the

properties under expropriation commenced with the filing of this action;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In ordering plaintiff-appellant

to pay 6% interest on the adjudged value of the Castellvi property to start from July of
1956;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In denying plaintiff-appellant's motion for

new trial based on newly discovered evidence.

In its brief, the Republic discusses the second error assigned as the first issue to be considered. We shall
follow the sequence of the Republic's discussion.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In support of the assigned error that the lower court erred
in holding that the "taking" of the properties under expropriation commenced with the filing of the complaint in
this case, the Republic argues that the "taking" should be reckoned from the year 1947 when by virtue of a
special lease agreement between the Republic and appellee Castellvi, the former was granted the "right and
privilege" to buy the property should the lessor wish to terminate the lease, and that in the event of such sale, it
was stipulated that the fair market value should be as of the time of occupancy; and that the permanent
improvements amounting to more than half a million pesos constructed during a period of twelve years on the
land, subject of expropriation, were indicative of an agreed pattern of permanency and stability of occupancy
by the Philippine Air Force in the interest of national security.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿

Appellee Castellvi, on the other hand, maintains that the "taking" of property under the power of eminent
domain requires two essential elements, to wit: (1) entrance and occupation by condemnor upon the private
property for more than a momentary or limited period, and (2) devoting it to a public use in such a way as to
oust the owner and deprive him of all beneficial enjoyment of the property. This appellee argues that in the
instant case the first element is wanting, for the contract of lease relied upon provides for a lease from year to
year; that the second element is also wanting, because the Republic was paying the lessor Castellvi a monthly
rental of P445.58; and that the contract of lease does not grant the Republic the "right and privilege" to buy the
premises "at the value at the time of occupancy." 8

Appellee Toledo-Gozun did not comment on the Republic's argument in support of the second error
assigned, because as far as she was concerned the Republic had not taken possession of her lands prior to
August 10, 1959. 9

In order to better comprehend the issues raised in the appeal, in so far as the Castellvi property is concerned,
it should be noted that the Castellvi property had been occupied by the Philippine Air Force since 1947 under a
contract of lease, typified by the contract marked Exh. 4-Castellvi, the pertinent portions of which read:

"CONTRACT OF LEASE

"This AGREEMENT OF LEASE MADE AND ENTERED into by and between INTESTATE
ESTATE OF ALFONSO DE CASTELLVI, represented by CARMEN M. DE CASTELLVI
Judicial Administratrix x x x hereinafter called the LESSOR and THE REPUBLIC OF THE
PHILIPPINES represented by MAJ. GEN. CALIXTO DUQUE, Chief of Staff of the
ARMED FORCES OF THE PHILIPPINES, hereinafter called the LESSEE,

"WITNESSETH:

"1. For and in consideration of the rentals hereinafter reserved and the mutual terms,
covenants and conditions of the parties, the LESSOR has, and by these presents does, lease
and let unto the LESSEE the following described land together with the improvements
thereon and appurtenances thereof, viz:

'Un Terreno, Lote No. 27 del Plano de subdivision Psu 34752, parte de la hacienda de
Campauit, situado en el Barrio de San Jose, Municipio de Floridablanca, Pampanga . .

. midiendo una extension superficial de cuatro milliones once mil cuatro cientos trienta
y cinco (4,001,435) [sic] metros cuadrados, mas o menos.

103
 'Out of the above described property, 75.93 hectares thereof are actually occupied and
covered by this contract.

'Above lot is more particularly described in TCT No. 1016, province of Pampanga . . .

of which premises, the LESSOR warrants that he/she/they/is/are the registered owner(s)
and with full authority to execute a contract of this nature.

"2. The term of this lease shall be for the period beginning July 1, 1952 the date the premises
were occupied by the PHILIPPINE AIR FORCE, AFP until June 30, 1953, subject to renewal
for another year at the option of the LESSEE or unless sooner terminated by the LESSEE as
hereinafter provided.

"3. The LESSOR hereby warrants that the LESSEE shall have quiet, peaceful and
undisturbed possession of the demised premises throughout the full term or period of this
lease and the LESSOR undertakes without cost to the LESSEE to eject all trespassers, but
should the LESSOR fail to do so, the LESSEE at its option may proceed to do so at the
expense of the LESSOR. The LESSOR further agrees that should he/she/they sell or
encumber all or any part of the herein described premises during the period of this lease,
any conveyance will be conditioned on the right of the LESSEE hereunder.

"4. The LESSEE shall pay to the LESSOR as monthly rentals under this lease the sum
of FOUR HUNDRED FIFTY-FIVE PESOS & 58/100(P455.58) . . .

"5. The LESSEE may, at anytime prior to the termination of this lease, use the property for any
purpose or purposes and, at its own costs and expense make alteration, install facilities and
fixtures and erect additions . . . which facilities or fixtures . . . so placed in, upon or attached to
the said premises shall be and remain property of the LESSEE and may be removed
therefrom by the LESSEE prior to the termination of this lease. The LESSEE shall surrender
possession of the premises upon the expiration or termination of this lease and if so required
by the LESSOR, shall return the premises in substantially the same condition as that existing
at the time same were first occupied by the AFP, reasonable and ordinary wear and tear and
damages by the elements or by circumstances over which the LESSEE has no control
excepted: PROVIDED, that if the LESSOR so requires the return of the premises in such
condition, the LESSOR shall give written notice thereof to the LESSEE at least twenty (20)
days before the termination of the lease and provided, further, that should the LESSOR give
notice within the time specified above, the LESSEE shall have the right and privilege to
compensate the LESSOR at the fair value or the equivalent, in lieu of performance of its
obligation, if any, to restore the premises. Fair value is to be determined as the value at the
time of occupancy less fair wear and tear and depreciation during the period of this lease.

"6. The LESSEE may terminate this lease at any time during the term hereof by giving
written notice to the LESSOR at least thirty (30) days in advance . . ."

"7. The LESSEE should not be responsible, except under special legislation for any damages
to the premises by reason of combat operations, acts of GOD, the elements or other acts and
deeds not due to the negligence on the part of the LESSEE.

"8. This LEASE AGREEMENT supersedes and voids any and all agreements and
undertakings, oral or written, previously entered into between the parties covering the property
herein leased, the same having been merged herein. This AGREEMENT may not be modified
or altered except by instrument in writing only duly signed by the parties." 10

It was stipulated by the parties, that "the foregoing contract of lease (Exh. 4, Castellvi) is 'similar in terms and
conditions, including the date', with the annual contracts entered into from year to year between defendant
Castellvi and the Republic of the Philippines (p. 17, t.s.n., Vol. III)". 11 It is undisputed, therefore, that the
Republic occupied Castellvi's land from July 1, 1947, by virtue of the above-mentioned contract, on a year to
year basis (from July 1 of each year to June 30 of the succeeding year) under the terms and conditions therein
stated.

104
Before the expiration of the contract of lease on June 30, 1956 the Republic sought to renew the same but
Castellvi refused. When the AFP refused to vacate the leased premises after the termination of the contract, on
July 11, 1956, Castellvi wrote to the Chief of Staff, AFP, informing the latter that the heirs of the property had
decided not to continue leasing the property in question because they had decided to subdivide the land for
sale to the general public, demanding that the property be vacated within 30 days from receipt of the letter, and
that the premises be returned in substantially the same condition as before occupancy (Exh. 5 — Castellvi). A
follow-up letter was sent on January 12, 1957, demanding the delivery and return of the property within one
month from said date (Exh. 6 — Castellvi). On January 30, 1957, Lieutenant General Alfonso Arellano, Chief of
Staff, answered the letter of Castellvi, saying that it was difficult for the army to vacate the premises in view of
the permanent installations and other facilities worth almost P500,000.00 that were erected and already
established on the property, and that, there being no other recourse, the acquisition of the property by means
of expropriation proceedings would be recommended to the President (Exhibit "7" — Castellvi).

Defendant Castellvi then brought suit in the Court of First Instance of Pampanga, in Civil Case No. 1458, to
eject the Philippine Air Force from the land. While this ejectment case was pending, the Republic instituted
these expropriation proceedings, and, as stated earlier in this opinion, the Republic was placed in possession
of the lands on August 10, 1959. On November 21, 1959, the Court of First Instance of Pampanga, dismissed
Civil Case No. 1458, upon petition of the parties, in an order which, in part, reads as follows:

"1. Plaintiff has agreed, as a matter of fact has already signed an agreement with defendants,
whereby she has agreed to receive the rent of the lands, subject matter of the instant case
from June 30, 1966 up to 1959 when the Philippine Air Force was placed in possession by
virtue of an order of the Court upon depositing the provisional amount as fixed by the
Provincial Appraisal Committee with the Provincial Treasurer of Pampanga;

"2. That because of the above-cited agreement wherein the administratrix decided to get the rent
corresponding to the rent from 1956 up to 1959 and considering that this action is one of illegal
detainer and/or to recover the possession of said land by virtue of nonpayment of rents, the
instant case now has become moot and academic and/or by virtue of the agreement signed by
plaintiff, she has waived her cause of action in the above-entitled case." 12

The Republic urges that the "taking " of Castellvi's property should be deemed as of the year
1947 by virtue of afore-quoted lease agreement. In American Jurisprudence, Vol. 26, 2nd
edition, Section 157, on the subject of "Eminent Domain, we read the definition of "taking"
(in eminent domain) as follows:

"'Taking' under the power of eminent domain may be defined generally as entering upon
private property for more than a momentary period, and, under the warrant or color of legal
authority, devoting it to a public use, or otherwise informally appropriating or injuriously
affecting it in such a way as substantially to oust the owner and deprive him of all beneficial
enjoyment thereof." 13

Pursuant to the aforecited authority, a number of circumstances must be present in the "taking" of property
for purposes of eminent domain.

First, the expropriator must enter a private property. This circumstance is present in the instant case, when
by virtue of the lease agreement the Republic, through the AFP, took possession of the property of Castellvi.

Second, the entrance into private property must be for more than a momentary period. "Momentary" means,
"lasting but a moment; of but a moment's duration" (The Oxford English Dictionary, Volume VI, page 596);
"lasting a very short time; transitory; having a very brief life; operative or recurring at every moment" (Webster's
Third International Dictionary, 1963 edition.) The word "momentary" when applied to possession or occupancy
of (real) property should be construed to mean "a limited period" — not indefinite or permanent. The aforecited
lease contract was for a period of one year, renewable from year to year. The entry on the property, under the
lease, is temporary, and considered transitory. The fact that the Republic, through the AFP, constructed some
installations of a permanent nature does not alter the fact that the entry into the land was transitory, or intended
to last a year, although renewable from year to year by consent of the owner of the land. By express provision
of the lease agreement the Republic, as lessee, undertook to return the premises in substantially the same
condition as at the time the property was first occupied by the AFP. It is claimed that the intention of the lessee
was to occupy the land permanently, as may be inferred from the construction of permanent improvements.
But this "intention" cannot prevail over the clear and express terms of the lease contract. Intent is to be
deduced from the language employed by the parties, and the terms of the contract, when unambiguous, as in
105
the instant case, are conclusive in the absence of averment and proof of mistake or fraud — the question being
not what the intention was, but what is expressed in the language used. (City of Manila v. Rizal Park Co., Inc.,
53 Phil. 515, 525); Magdalena Estate, Inc. v. Myrick, 71 Phil. 344, 348). Moreover, in order to judge the
intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered
(Art. 1371, Civil Code). If the intention of the lessee (Republic) in 1947 was really to occupy permanently
Castellvi's property, why was the contract of lease entered into on year to year basis? Why was the lease
agreement renewed from year to year? Why did not the Republic expropriate this land of Castellvi in 1949
when, according to the Republic itself, it expropriated the other parcels of land that it occupied at the same
time as the Castellvi land, for the purpose of converting them into a jet air base?" 14 It might really have been
the intention of the Republic to expropriate the lands in question at some future time, but certainly mere notice

— much less an implied notice — of such intention on the part of the Republic to expropriate the lands in the
future did not, and could not, bind the landowner, nor bind the land itself. The expropriation must be actually
commenced in court (Republic vs. Baylosis, et al., 96 Phil. 461, 484).

Third, the entry into the property should be under warrant or color of legal authority. This circumstance in the
"taking" may be considered as present in the instant case, because the Republic entered the Castellvi property
as lessee.

Fourth, the property must be devoted to a public use or otherwise informally appropriated or injuriously
affected. It may be conceded that the circumstance of the property being devoted to public use is present
because the property was used by the air force of the AFP.

Fifth, the utilization of the property for public use must be in such a way as to oust the owner and deprive him
of all beneficial enjoyment of the property. In the instant case, the entry of the Republic into the property and
its utilization of the same for public use did not oust Castellvi and deprive her of all beneficial enjoyment of the
property. Castellvi remained as owner, and was continuously recognized as owner by the Republic, as shown
by the renewal of the lease contract from year to year, and by the provision in the lease contract whereby the
Republic undertook to return the property to Castellvi when the lease was terminated. Neither was Castellvi
deprived of all the beneficial enjoyment of the property, because the Republic was bound to pay, and had been
paying, Castellvi the agreed monthly rentals until the time when it filed the complaint for eminent domain on
June 26, 1959.

It is clear, therefore, that the "taking" of Castellvi's property for purposes of eminent domain cannot be
considered to have taken place in 1947 when the Republic commenced to occupy the property as lessee
thereof. We find merit in the contention of Castellvi that two essential elements in the "taking" of property under
the power of eminent domain, namely: (1) that the entrance and occupation by the condemnor must be for a
permanent, or indefinite period, and (2) that in devoting the property to public use the owner was ousted from
the property and deprived of its beneficial use, were not present when the Republic entered and occupied the
Castellvi property in 1947.

Untenable also is the Republic's contention that although the contract between the parties was one of lease on
a year to year basis, it was "in reality a more or less permanent right to occupy the premises under the guise of
lease with the 'right and privilege' to buy the property should the lessor wish to terminate the lease," and "the
right to buy the property is merged as an integral part of the lease relationship . . . so much so that the fair
market value has been agreed upon, not as of the time of purchase, but as of the time of occupancy". 15 We
cannot accept the Republic's contention that a lease on a year to year basis can give rise to a permanent right
to occupy, since by express legal provision a lease made for a determinate time, as was the lease of
Castellvi's land in the instant case, ceases upon the day fixed, without need of a demand (Article 1669, Civil
Code). Neither can it be said that the right of eminent domain may be exercised by simply leasing the
premises to be expropriated (Rule 67, Section 1, Rules of Court). Nor can it be accepted that the Republic
would enter into a contract of lease where its real intention was to buy, or why the Republic should enter into a
simulated contract of lease ("under the guise of lease", as expressed by counsel for the Republic) when all the
time the Republic had the right of eminent domain, and could expropriate Castellvi's land if it wanted to without
resorting to any guise whatsoever. Neither can we see how a right to buy could be merged in a contract of
lease in the absence of any agreement between the parties to that effect. To sustain the contention of the
Republic is to sanction a practice whereby in order to secure a low price for a land which the government
intends to expropriate (or would eventually expropriate) it would first negotiate with the owner of the land to
lease the land (for say ten or twenty years) then expropriate the same when the lease is about to terminate,
then claim that the "taking" of the property for the purposes of the expropriation be reckoned as of the date
when the Government started to occupy the property under the lease, and then assert that the value of the

106
property being expropriated be reckoned as of the start of the lease, in spite of the fact that the value of the
property, for many good reasons, had in the meantime increased during the period of the lease. This would be
sanctioning what obviously is a deceptive scheme, which would have the effect of depriving the owner of the
property of its true and fair market value at the time when the expropriation proceedings were actually
instituted in court. The Republic's claim that it had the "right and privilege" to buy the property at the value that
it had at the time when it first occupied the property as lessee nowhere appears in the lease contract. What
was agreed expressly in paragraph No. 5 of the lease agreement was that, should the lessor require the lessee
to return the premises in the same condition as at the time the same was first occupied by the AFP, the lessee
would have the "right and privilege" (or option) of paying the lessor what it would fairly cost to put the premises
in the same condition as it was at the commencement of the lease, in lieu of the lessee's performance of the
undertaking to put the land in said condition. The "fair value" at the time of occupancy, mentioned in the lease
agreement, does not refer to the value of the property if bought by the lessee, but refers to the cost of restoring
the property in the same condition as of the time when the lessee took possession of the property. Such fair
value cannot refer to the purchase price, for purchase was never intended by the parties to the lease contract.
It is a rule in the interpretation of contracts that "However general the terms of a contract may be, they shall not
be understood to comprehend things that are distinct and cases that are different from those upon which the
parties intended to agree" (Art. 1372, Civil Code)

We hold, therefore, that the "taking' of the Castellvi property should not be reckoned as of the year 1947
when the Republic first occupied the same pursuant to the contract of lease, and that the just compensation
to be paid for the Castellvi property should not be determined on the basis of the value of the property as of
that year. The lower court did not commit an error when it held that the "taking" of the property under
expropriation commenced with the filing of the complaint in this case.

Under Section 4 of Rule 67 of the Rules of Court, 16 the "just compensation" is to be determined as of the date
of the filing of the complaint. This Court has ruled that when the taking of the property sought to be
expropriated coincides with the commencement of the expropriation proceedings, or takes place subsequent
to the filing of the complaint for eminent domain, the just compensation should be determined as of the date of
the filing of the complaint. (Republic vs. Philippine National Bank, L-14158, April 12, 1961, 1 SCRA 957, 961-
962). In the instant case, it is undisputed that the Republic was placed in possession of the Castellvi property,
by authority of the court, on August 10, 1959. The "taking" of the Castellvi property for the purposes of
determining the just compensation to be paid must, therefore, be reckoned as of June 26, 1959 when the
complaint for eminent domain was filed.

Regarding the two parcels of land of Toledo-Gozun, also sought to be expropriated, which had never been
under lease to the Republic, the Republic was placed in possession of said lands, also by authority of the
court, on August 10, 1959. The taking of those lands, therefore, must also be reckoned as of June 26, 1959,
the date of the filing of the complaint for eminent domain.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Regarding the first assigned error — discussed as the
second issue — the Republic maintains that, even assuming that the value of the expropriated lands is to be
determined as of June 26, 1959, the price of P10.00 per square meter fixed by the lower court "is not only
exorbitant but also unconscionable, and almost fantastic". On the other hand, both Castellvi and Toledo-Gozun
maintain that their lands are residential lands with a fair market value of not less than P15.00 per square meter.

The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun are residential lands. The
finding of the lower court is in consonance with the unanimous opinion of the three commissioners who, in their
report to the court, declared that the lands are residential lands.

The Republic assails the finding that the lands are residential, contending that the plans of the appellees to
convert the lands into subdivision for residential purposes were only on paper, there being no overt acts on the
part of the appellees which indicated that the subdivision project had been commenced, so that any
compensation to be awarded on the basis of the plans would be speculative. The Republic's contention is not
well taken. We find evidence showing that the lands in question had ceased to be devoted to the production of
agricultural crops, that they had become adaptable for residential purposes, and that the appellees had
actually taken steps to convert their lands into residential subdivisions even before the Republic filed the
complaint for eminent domain.

In the case of City of Manila vs. Corrales (Phil. 82, 98) this Court laid down basic guidelines in determining
the value of the property expropriated for public purposes. This Court said:
107
 "In determining the value of land appropriated for public purposes, the same consideration are
to be regarded as in a sale of property between private parties. The inquiry, in such cases,
must be what is the property worth in the market, viewed not merely with reference to the uses
to which it is at the time applied, but with reference to the uses to which it is plainly adapted,
that is to say, What is it worth from its availability for valuable uses?

"So many and varied are the circumstances to be taken into account in determining the
value of property condemned for public purposes, that it is practically impossible to formulate
a rule to govern its appraisement in all cases. Exceptional circumstances will modify the
most carefully guarded rule, but, as a general thing, we should say that the compensation of
the owner is to be estimated by reference to the use for which the property is suitable,
having regard to the existing business or wants of the community, or such as may be
reasonably expected in the immediate future. (Miss. and Rum River Boom Co. vs. Patterson,
98 U.S., 403)."

In expropriation proceedings, therefore, the owner of the land has the right to its value for the use for which it
would bring the most in the market. 17 The owner may thus show every advantage that his property
possesses, present and prospective, in order that the price it could be sold for in the market may be
satisfactorily determined. 18 The owner may also show that the property is suitable for division into village or
town lots. 19

The trial court, therefore, correctly considered, among other circumstances, the proposed subdivision plans of
the lands sought to be expropriated in finding that those lands are residential lots. This finding of the lower
court is supported not only by the unanimous opinion of the commissioners, as embodied in their report, but
also by the Provincial Appraisal Committee of the province of Pampanga composed of the Provincial
Treasurer, the Provincial Auditor and the District Engineer. In the minutes of the meeting of the Provincial
Appraisal Committee, held on May 14, 1959 (Exh. 13-Castellvi) We read in its Resolution No. 10 the following:

"3. Since 1957 the land has been classified as residential in view of its proximity to the air
base and due to the fact that it was not being devoted to agriculture. In fact, there is a plan to
convert it into a subdivision for residential purposes. The taxes due on the property have been
paid based on its classification as residential land;"

The evidence shows that Castellvi broached the idea of subdividing her land into residential lots as early as
July 11, 1956 in her letter to the Chief of Staff of the Armed Forces of the Philippines. (Exh. 5-Castellvi) As a
matter of fact, the layout of the subdivision plan was tentatively approved by the National Planning Commission
on September 7, 1956. (Exh. 8-Castellvi). The land of Castellvi had not been devoted to agriculture since 1947
when it was leased to the Philippine Army. In 1957 said land was classified as residential, and taxes based on
its classification as residential had been paid since then (Exh. 13-Castellvi). The location of the Castellvi land
justifies its suitability for a residential subdivision. As found by the trial court, "It is at the left side of the
entrance of the Basa Air Base and bounded on two sides by roads (Exh. 13-Castellvi), paragraphs 1 and 2,
Exh. 12-Castellvi), the poblacion, (of Floridablanca) the municipal building, and the Pampanga Sugar Mills are
closed by. The barrio schoolhouse and chapel are also near (T.S.N. November 23, 1960, p. 68)". 20

The lands of Toledo-Gozun (Lot 1-B and Lot 3) are practically of the same condition as the land of Castellvi.
The lands of Toledo-Gozun adjoin the land of Castellvi. They are also contiguous to the Basa Air Base, and
are along the road. These lands are near the barrio schoolhouse, the barrio chapel, the Pampanga Sugar Mills,
and the poblacion of Floridablanca (Exhs. 1, 3 and 4-Toledo-Gozun). As a matter of fact, regarding lot 1-B it
had already been surveyed and subdivided, and its conversion into a residential subdivision was tentatively
approved by the National Planning Commission on July 8, 1959 (Exhs. 5 and 6 Toledo-Gozun). As early as
June, 1958, no less than 32 man connected with the Philippine Air Force among them commissioned officers,
non-commission officers, and enlisted men had requested Mr. and Mrs. Joaquin D. Gozun to open a
subdivision on their lands in question (Exhs. 8, 8-A to 8-ZZ-Toledo-Gozun). 21

We agree with the findings, and the conclusions, of the lower court that the lands that are the subject of
expropriation in the present case, as of August 10, 1959 when the same were taken possession of by the
Republic, were residential lands and were adaptable for use as residential subdivisions. Indeed, the owners
of these lands have the right to their value for the use for which they would bring the most in the market at the
time the same were taken from them. The most important issue to be resolved in the present case relates to
the question of what is the just compensation that should be paid to the appellees.
108
The Republic asserts that the fair market value of the lands of the appellees is P.20 per square meter. The
Republic cites the case of Republic vs. Narciso, et al., L-6594, which this Court decided on May 18, 1956. The
Narciso case involved lands that belonged to Castellvi and Toledo-Gozun, and to one Donata Montemayor,
which were expropriated by the Republic in 1949 and which are now the site of the Basa Air Base. In the
Narciso case this Court fixed the fair market value at P.20 per square meter. The lands that are sought to be
expropriated in the present case being contiguous to the lands involved in the Narciso case, it is the stand of
the Republic that the price that should be fixed for the lands now in question should also be at P.20 per square
meter.

We can not sustain the stand of the Republic. We find that the price of P.20 per square meter, as fixed by this
Court in the Narciso case, was based on the allegation of the defendants (owners) in their answer to the
complaint for eminent domain in that case that the price of their lands was P2,000.00 per hectare and that
was the price that they asked the court to pay them. This Court said, then, that the owners of the land could
not be given more than what they had asked, notwithstanding the recommendation of the majority of the
Commission on Appraisal — which was adopted by the trial court — that the fair market value of the lands
was P3,000.00 per hectare. We also find that the price of P.20 per square meter in the Narciso case was
considered the fair market value of the lands as of the year 1949 when the expropriation proceedings were
instituted, and at that time the lands were classified as sugar lands, and assessed for taxation purposes at
around P400.00 per hectare, or P.04 per square meter. 22 While the lands involved in the present case, like
the lands involved in the Narciso case, might have a fair market value of P.20 per square meter in 1949, it can
not be denied that ten years later, in 1959, when the present proceedings were instituted, the value of those
lands had increased considerably. The evidence shows that since 1949 those lands were no longer cultivated
as sugar lands, and in 1959 those lands were already classified, and assessed for taxation purposes, as
residential lands. In 1959 the land of Castellvi was assessed at P1.00 per square meter. 23

The Republic also points out that the Provincial Appraisal Committee of Pampanga, in its resolution No. 5 of
February 15, 1957 (Exhibit D), recommended the sum of P.20 per square meter as the fair valuation of the
Castellvi property. We find that this resolution was made by the Republic the basis in asking the court to fix the
provisional value of the lands sought to be expropriated at P259,669.10, which was approved by the court. 24
It must be considered, however, that the amount fixed as the provisional value of the lands that are being
expropriated does not necessarily represent the true and correct value of the land. The value is only
"provisional" or "tentative", to serve as the basis for the immediate occupancy of the property being
expropriated by the condemnor. The records show that this resolution No. 5 was repealed by the same
Provincial Committee on Appraisal in its resolution No. 10 of May 14, 1959 (Exhibit 13-Castellvi). In that
resolution No. 10, the appraisal committee stated that "The Committee has observed that the value of the land
in this locality has increased since 1957 . . .", and recommended the price of P1.50 per square meter. It
follows, therefore, that, contrary to the stand of the Republic, that resolution No. 5 of the Provincial Appraisal
Committee can not be made the basis for fixing the fair market value of the lands of Castellvi and Toledo-
Gozun.

The Republic further relied on the certification of the Acting Assistant Provincial Assessor of Pampanga, dated
February 8, 1961 (Exhibit K), to the effect that in 1950 the lands of Toledo-Gozun were classified partly as
sugar land and partly as urban land, and that the sugar land was assessed at P.40 per square meter, while
part of the urban land was assessed at P.40 per square meter and part at P.20 per square meter; and that in
1956 the Castellvi land was classified as sugar land and was assessed at P450.00 per hectare, or P.045 per
square meter. We can not also consider this certification of the Acting Assistant Provincial Assessor as a basis
for fixing the fair market value of the lands of Castellvi and Toledo-Gozun because, as the evidence shows, the
lands in question, in 1957, were already classified and assessed for taxation purposes as residential lands.
The certification of the assessor refers to the year 1950 as far as the lands of Toledo-Gozun are concerned,
and to the year 1956 as far as the land of Castellvi is concerned. Moreover, this Court has held that the
valuation fixed for the purposes of the assessment of the land for taxation purposes can not bind the
landowner where the latter did not intervene in fixing it. 25

On the other hand, the Commissioners, appointed by the court to appraise the lands that were being
expropriated, recommended to the court that the price of P10.00 per square meter would be the fair market
value of the lands. The commissioners made their recommendation on the basis of their observation after
several ocular inspections of the lands, of their own personal knowledge of land values in the province of
Pampanga, of the testimonies of the owners of the land, and other witnesses, and of documentary evidence

109
presented by the appellees. Both Castellvi and Toledo-Gozun testified that the fair market value of their
respective land was at P15.00 per square meter. The documentary evidence considered by the commissioners
consisted of deeds of sale of residential lands in the town of San Fernando and in Angeles City, in the province
of Pampanga, which were sold at prices ranging from P8.00 to P20.00 per square meter (Exhibits 15, 16, 17,
18, 19, 20, 21, 22, 23-Castellvi). The commissioners also considered the decision in Civil Case No. 1531 of the
Court of First Instance of Pampanga, entitled Republic vs. Sabina Tablante, which was an expropriation case
filed on January 13, 1959, involving a parcel of land adjacent to the Clark Air Base in Angeles City, where the
court fixed the price at P18.00 per square meter (Exhibit 14-Castellvi). In their report, the commissioners,
among other things, said:

". . . This expropriation case is specially pointed out, because the circumstances and factors
involved therein are similar in many respects to the defendants' lands in this case. The land
in Civil Case No. 1531 of this Court and the lands in the present case (Civil Case No. 1623)
are both near the air bases, the Clark Air Base and the Basa Air Base respectively. There is a
national road fronting them and are situated in a first-class municipality. As added advantage
it may be said that the Basa Air Base land is very near the sugar mill at Del Carmen,
Floridablanca, Pampanga, owned by the Pampanga Sugar Mills. Also just stone's throw away
from the same lands is a beautiful vacation spot at Palacol, a sitio of the town of
Floridablanca, which counts with a natural swimming pool for vacationists on weekends.
These advantages are not found in the case of the Clark Air Base. The defendants' lands are
nearer to the poblacion of Floridablanca then Clark Air Base is nearer (sic) to the poblacion of
Angeles, Pampanga.

"The deeds of absolute sale, according to the undersigned commissioners, as well as the land
in Civil Case No. 1531 are competent evidence, because they were executed during the year
1959 and before August 10 of the same year. More specifically so the land at Clark Air Base
which coincidentally is the subject matter in the complaint in said Civil Case No. 1531, it
having been filed on January 13, 1959 and the taking of the land involved therein was ordered
by the Court of First Instance of Pampanga on January 15, 1959, several months before the
lands in this case were taken by the plaintiffs. . .

"From the above and considering further that the lowest as well as the highest price per
square meter obtainable in the market of Pampanga relative to subdivision lots within its
jurisdiction in the year 1959 is very well known by the Commissioners, the Commission finds
that the lowest price that can be awarded to the lands in question is P10.00 per square
meter." 26

The lower court did not altogether accept the findings of the Commissioners based on the documentary
evidence, but it considered the documentary evidence as basis for comparison in determining land values.
The lower court arrived at the conclusion that "the unanimous recommendation of the commissioners of ten

(P10.00) pesos per square meter for the three lots of the defendants subject of this action is fair and just". 27 In
arriving at its conclusion, the lower court took into consideration, among other circumstances, that the lands are
titled, that there is a rising trend of land values, and the lowered purchasing power of the Philippine peso.

In the case of Manila Railroad Co. vs. Caligsihan, 40 Phil. 326, 328, this Court said:

"A court of first instance or, on appeal, the Supreme Court, may change or modify the report of
the commissioners by increasing or reducing the amount of the award if the facts of the case
so justify. While great weight is attached to the report of the commissioners, yet a court may
substitute therefor its estimate of the value of the property as gathered from the record in
certain cases, as, where the commissioners have applied illegal principles to the evidence
submitted to them, or where they have disregarded a clear preponderance of evidence, or
where the amount allowed is either palpably inadequate or excessive." 28

The report of the commissioners of appraisal in condemnation proceedings are not binding, but merely
advisory in character, as far as the court is concerned. 29 In our analysis of the report of the commissioners,
We find points that merit serious consideration in the determination of the just compensation that should be
paid to Castellvi and Toledo-Gozun for their lands. It should be noted that the commissioners had made
ocular inspections of the lands and had considered the nature and similarities of said lands in relation to the
lands in other places in the province of Pampanga, like San Fernando and Angeles City. We cannot disregard
the observations of the commissioners regarding the circumstances that make the lands in question suited for
110
residential purposes — their location near the Basa Air Base, just like the lands in Angeles City that are near
the Clark Air Base, and the facilities that obtain because of their nearness to the big sugar central of the
Pampanga Sugar mills, and to the flourishing first class town of Floridablanca. It is true that the lands in
question are not in the territory of San Fernando and Angeles City, but, considering the facilities of modern
communications, the town of Floridablanca may be considered practically adjacent to San Fernando and
Angeles City. It is not out of place, therefore, to compare the land values in Floridablanca to the land values
in San Fernando and Angeles City, and form an idea of the value of the lands in Floridablanca with reference
to the land values in those two other communities.

The important factor in expropriation proceeding is that the owner is awarded the just compensation for his
property. We have carefully studied the record, and the evidence, in this case, and after considering the
circumstances attending the lands in question. We have arrived at the conclusion that the price of P10.00 per
square meter, as recommended by the commissioners and adopted by the lower court, is quite high. It is Our
considered view that the price of P5.00 per square meter would be a fair valuation of the lands in question and
would constitute a just compensation to the owners thereof. In arriving at this conclusion We have particularly
taken into consideration the resolution of the Provincial Committee on Appraisal of the province of Pampanga
informing, among others, that in the year 1959 the land of Castellvi could he sold for from P3.00 to P4.00 per
square meter, while the land of Toledo-Gozun could be sold for from P2.50 to P3.00 per square meter. The
Court has weighed all the circumstances relating to this expropriations proceedings, and in fixing the price of
the lands that are being expropriated the Court arrived at a happy medium between the price as recommended
by the commissioners and approved by the court, and the price advocated by the Republic. This Court has
also taken judicial notice of the fact that the value of the Philippine peso has considerably gone down since the
year 1959. 30 Considering that the lands of Castellvi and Toledo-Gozun are adjoining each other, and are of
the same nature, the Court has deemed it proper to fix the same price for all these lands.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The third issue raised by the Republic relates to the
payment of interest. The Republic maintains that the lower court erred when it ordered the Republic to pay
Castellvi interest at the rate of 6% per annum on the total amount adjudged as the value of the land of
Castellvi, from July 1, 1956 to July 10, 1959. We find merit in this assignment of error.

In ordering the Republic to pay 6% interest on the total value of the land of Castellvi from July 1, 1956 to July
10, 1959, the lower court held that the Republic had illegally possessed the land of Castellvi from July 1, 1956,
after its lease of the land had expired on June 30, 1956, until August 10, 1959 when the Republic was placed
in possession of the land pursuant to the writ of possession issued by the court. What really happened was
that the Republic continued to occupy the land of Castellvi after the expiration of its lease on June 30, 1956,
so much so that Castellvi filed an ejectment case against the Republic in the Court of First Instance of
Pampanga. 31However, while that ejectment case was pending, the Republic filed the complaint for eminent
domain in the present case and was placed in possession of the land on August 10, 1959, and because of the
institution of the expropriation proceedings the ejectment case was later dismissed. In the order dismissing the
ejectment case, the Court of First Instance of Pampanga said:

"Plaintiff has agreed, as a matter of fact has already signed an agreement with defendants,
whereby she had agreed to receive the rent of the lands, subject matter of the instant case
from June 30, 1956 up to 1959 when the Philippine Air Force was placed in possession by
virtue of an order of the Court upon depositing the provisional amount as fixed by the
Provincial Appraisal Committee with the Provincial Treasurer of Pampanga; . . ."

If Castellvi had agreed to receive the rentals from June 30, 1956 to August 10, 1959, she should be
considered as having allowed her land to be leased to the Republic until August 10, 1959, and she could not at
the same time be entitled to the payment of interest during the same period on the amount awarded her as the
just compensation of her land. The Republic, therefore, should pay Castellvi interest at the rate of 6% per
annum on the value of her land, minus the provisional value that was deposited, only from July 10, 1959 when
it deposited in court the provisional value of the land.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The fourth error assigned by the Republic relates to the
denial by the lower court of its motion for a new trial based on nearly discovered evidence. We do not find
merit in this assignment of error.
After the lower court had decided this case on May 26, 1961, the Republic filed a motion for a new trial,
supplemented by another motion, both based upon the ground of newly discovered evidence. The alleged
newly discovered evidence in the motion filed on June 21, 1961 was a deed of absolute sale — executed on

111
January 25, 1961, showing that a certain Serafin Francisco had sold to Pablo L. Narciso a parcel of sugar
land having an area of 100,000 square meters with a sugar quota of 100 piculs, covered by P.A. No. 1701,
situated in Barrio Fortuna, Floridablanca, for P14,000, or P.14 per square meter.

In the supplemental motion, the alleged newly discovered evidence were: (1) a deed of sale of some 35,000
square meters of land situated at Floridablanca for P7,500.00 (or about P.21 per square meter) executed in
July, 1959, by the spouses Evelyn D. Laird and Cornelio G. Laird in favor of spouses Bienvenido S. Aguas and
Josefina Q. Aguas; and (2) a deed of absolute sale of a parcel of land having an area of 4,120,101 square
meters, including the sugar quota covered by Plantation Audit No. 16-1345, situated at Floridablanca,
Pampanga, for P860.00 per hectare (a little less than P.09 per square meter) executed on October 22, 1957 by
Jesus Toledo y Mendoza in favor of the Land Tenure Administration.

We find that the lower court acted correctly when it denied the motions for a new trial.

To warrant the granting of a new trial based on the ground of newly discovered evidence, it must appear that
the evidence was discovered after the trial; that even with the exercise of due diligence, the evidence could
not have been discovered and produced at the trial; and that the evidence is of such a nature as to alter the
result of the case if admitted. 32 The lower court correctly ruled that these requisites were not complied with.

The lower court, in a well-reasoned order, found that the sales made by Serafin Francisco to Pablo Narciso
and that made by Jesus Toledo to the Land Tenure Administration were immaterial and irrelevant,
because those sales covered sugarlands with sugar quotas, while the lands sought to be expropriated in
the instant case are residential lands. The lower court also concluded that the land sold by the spouses
Laird to the spouses Aguas was a sugar land.

We agree with the trial court. In eminent domain proceedings, in order that evidence as to the sale price of
other lands may be admitted in evidence to prove the fair market value of the land sought to be
expropriated, the lands must, among other things, be shown to be similar.

But even assuming, gratia argumenti, that the lands mentioned in those deeds of sale were residential, the
evidence would still not warrant the grant of a new trial, for said evidence could have been discovered and
produced at the trial, and they cannot be considered newly discovered evidence as contemplated in Section
1(b) of Rule 37 of the Rules of Court. Regarding this point, the trial court said:

"The Court will now show that there was no reasonable diligence employed.

"The land described in the deed of sale executed by Serafin Francisco, copy of which is
attached to the original motion, is covered by a Certificate of Title issued by the Office of the
Register of Deeds of Pampanga. There is no question in the mind of the court but this
document passed through the Office of the Register of Deeds for the purpose of transferring
the title or annotating the sale on the certificate of title. It is true that Fiscal Lagman went to the
Office of the Register of Deeds to check conveyances which may be presented in the
evidence in this case as it is now sought to be done by virtue of the motions at bar, Fiscal
Lagman, one of the lawyers of the plaintiff, did not exercise reasonable diligence as required
by the rules. The assertion that he only went to the office of the Register of Deeds 'now and
then' to check the records in that office only shows the half-hazard [sic] manner by which the
plaintiff looked for evidence to be presented during the hearing before the Commissioners, if it
is at all true that Fiscal Lagman did what he is supposed to have done according to Solicitor
Padua. It would have been the easiest matter for plaintiff to move for the issuance of a
subpoena duces tecum directing the Register of Deeds of Pampanga to come to testify and to
bring with him all documents found in his office pertaining to sales of land in Floridablanca
adjacent to or near the lands in question executed or recorded from 1958 to the present. Even
this elementary precaution was not done by plaintiff's numerous attorneys.

"The same can be said of the deeds of sale attached to the supplementary motion. They refer
to lands covered by certificate of title issued by the Register of Deeds of Pampanga. For the
same reason they could have been easily discovered if reasonable diligence has been
exerted by the numerous lawyers of the plaintiff in this case. It is noteworthy that all these
deeds of sale could be found in several government offices, namely, in the Office of the
Register of Deeds of Pampanga, the Office of the Provincial Assessor of Pampanga, the
Office of the Clerk of Court as a part of notarial reports of notaries public that acknowledged
these documents, or in the archives of the National Library. In respect to Annex 'B' of the

112
 supplementary motion copy of the document could also be found in the Office of the Land
Tenure Administration, another government entity. Any lawyer with a modicum of ability
handling this expropriation case would have right away though [sic] of digging up documents
diligently showing conveyances of lands near or around the parcels of land sought to be
expropriated in this case in the offices that would have naturally come to his mind such as
the offices mentioned above, and had counsel for the movant really exercised the reasonable
diligence required by the Rule' undoubtedly they would have been able to find these
documents and/or caused the issuance of subpoena duces tecum. . . .

"It is also recalled that during the hearing before the Court of the Report and Recommendation
of the Commissioners and objection thereto, Solicitor Padua made the observation:

'I understand, Your Honor, that there was a sale that took place in this place of land recently
where the land was sold for P0.20 which is contiguous to this land.'

"The Court gave him permission to submit said document subject to the approval of the Court.
. . This was before the decision was rendered, and later promulgated on May 26, 1961 or
more than one month after Solicitor Padua made the above observation. He could have,
therefore, checked up the alleged sale and moved for a reopening to adduce further evidence.
He did not do so. He forgot to present the evidence at a more propitious time. Now, he seeks
to introduce said evidence under the guise of newly-discovered evidence. Unfortunately, the
Court cannot classify it as newly-discovered evidence, because under the circumstances, the
correct qualification that can be given is 'forgotten evidence'. Forgotten evidence, however, is
not newly-discovered evidence." 33

The granting or denial of a motion for new trial is, as a general rule, discretionary with the trial court, whose
judgment should not be disturbed unless there is a clear showing of abuse of discretion. 34 We do not see any
abuse of discretion on the part of the lower court when it denied the motions for a new trial.

WHEREFORE, the decision appealed from is modified, as follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the lands of appellees Carmen

vda. de Castellvi and Maria Nieves Toledo-Gozun, as described in the complaint, are
declared expropriated for public use;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the fair market value of the lands of the
appellees is fixed at P5.00 per square meter;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the Republic must pay appellee

Castellvi the sum of P3,796,495.00 as just compensation for her one parcel of land that has
an area of 759,299 square meters, minus the sum of P151,859.80 that she withdrew out of
the amount that was deposited in court as the provisional value of the land, with interest at the
rate of 6% per annum from July 10, 1959 until the day full payment is made or deposited in
court;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the Republic must pay appellee

Toledo-Gozun the sum of P2,695,225.00 as the just compensation for her two parcels of land
that have a total area of 539,045 square meters, minus the sum of P107,809.00 that she
withdrew out of the amount that was deposited in court as the provisional value of her lands,
with interest at the rate of 6%, per annum from July 10, 1959 until the day full payment is
made or deposited in court;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the attorney's lien of Atty. Alberto Cacnio is

enforced; and

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the costs should be paid by

appellant Republic of the Philippines, as provided in Section 12, Rule 67, and in Section
13 Rule 141, of the Rules of Court.

IT IS SO ORDERED.
Makalintal, C . J ., Barredo, Antonio, Esguerra, Fernandez, Muñoz Palma and Aquino, JJ ., concur.

Castro, Fernando, Teehankee and Makasiar, J J ., did not take part.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Republic v. Vda. de Castellvi, G.R. No. L-20620, [August
15, 1974], 157 PHIL 329-364)

113
De los Santos v. Intermediate Appellate Court, G.R. Nos. 71998-99, [June 2, 1993]

THIRD DIVISION

[G.R. Nos. 71998-99. June 2, 1993.]

EMILIANO R. DE LOS SANTOS, SPOUSES NORMA A. PADILLA and ISIDORO L.

PADILLA and the HEIRS OF FRANCISCO DAYRIT, petitioners, vs. THE HONORABLE

INTERMEDIATE APPELLATE COURT, HON. JUDGE CICERO C. JURADO,

NESTOR AGUSTIN and EDILBERTO CADIENTE, respondents.

Isidoro L. Padilla for petitioners.

Joaquin G. Mendoza for E. Cadiente.

DECISION

ROMERO, J p:

Questioned in the instant petition for review on certiorari is the Decision of the then Intermediate Appellate
Court 1 affirming the December 1, 1982 Order of the then Court of First Instance of Rizal, Branch XXII at
Pasig 2 in Civil Case Nos. 46800 and 46801 which states in toto: Cdpr

"It appearing that the construction of the road and creek in question was a project undertaken
under the authority of the Minister of Public Works, the funding of which was the responsibility
of the National Government and that the defendants impleaded herein are Edilberto Cadiente
and Nestor Agustin and not the Republic of the Philippines which cannot be sued without its
consent, this Court hereby resolves to dismiss these two (2) cases without pronouncement as
to costs.

SO ORDERED."

Civil Case Nos. 46800 and 46801 were both filed on July 13, 1982 by petitioners who are co-owners under
TCT No. 329945 of a parcel of land located in Barrio Wawa, Binangonan, Rizal with an area of nineteen
thousand sixty-one (19,061) square meters. In Civil Case No. 46800, petitioners alleged in the petition for
prohibition that in October 1981, without their knowledge or consent, Lorenzo Cadiente, a private contractor
and the Provincial Engineer of Rizal constructed a road nine (9) meters wide and one hundred twenty-eight
meters and seventy centimeters (128.70) long occupying a total area of one thousand one hundred sixty-
five (1,165) square meters of their land. prcd

Petitioners added that aside from the road, the said respondents also constructed, without their knowledge and
consent, an artificial creek twenty-three meters and twenty centimeters (23.20) wide and one hundred twenty-
eight meters and sixty-nine centimeters long (128.69) occupying an area of two thousand nine hundred six
(2,906) square meters of their property. Constructed in a zigzag manner, the creek meandered through their
property.

Alleging that if completed, the road and the creek would "serve no public profitable and practicable purpose but
for respondents' personal profit, to the great damage and prejudice of the taxpayers and the petitioners," the
same petitioners invoked their rights under Art. IV, Secs. 1 and 2, of the Bill of Rights of the 1973
Constitutionand prayed for the issuance of a restraining order or a writ of preliminary injunction to stop the
construction. They also prayed that after hearing on the merits, judgment be rendered: (1) declaring illegal the
construction of the road and artificial creek which was made without their knowledge and consent, "without due
process and without just compensation and in violation of the provision of statute law and of the Philippine
Constitution;" (2) issuing a permanent prohibition; (3) ordering respondents to pay petitioners "jointly and
collectively" P15,000.00 as attorney's fees and P600.00 for each appearance, and (4) ordering the
respondents to pay the costs of the suit. 3

114
An action for damages, Civil Case No. 46801, on the other hand, was founded on Art. 32, paragraphs 6 and 7
of the Civil Code and the constitutional provisions on the right against deprivation of property without due
process of law and without just compensation.

Thereafter, the two cases were consolidated. On November 11, 1982, the Solicitor General filed a motion to
dismiss both cases on the following grounds: (a) with respect to Civil Case No. 46800, the pendency of Civil
Case No. 46801 which involved the same parties and cause of action; (b) both cases were in reality suits against
the state which could not be maintained without the State's consent; and (c) lack of cause of action.

Consequently, the lower court issued the aforequoted Order of December 1, 1982. Their motion for the
reconsideration of said Order having been denied, petitioners elevated (to) the cases to this Court through an
"appeal by certiorari" which was docketed as G.R. No. 63610. The Second Division of this Court, however,
referred the cases to the then Intermediate Appellate Court pursuant to Sec. 16 of the Interim Rules. 4 In due
course, the appellate court rendered a Decision on May 22, 1985 which disposed of the cases thus:

"Accordingly, the two actions cannot be maintained. They are in reality suits against the state
which has not given its consent to be sued (Minister [sic] vs. CFI, 40 SCRA 464; Isberto vs.
Raquiza, 67 SCRA 116; Begosa v. Chairman, PVA, 32 SCRA 466). Appellants' remedy lies
elsewhere.

Appellants assert that the taking of their property in the manner alleged in these two cases was
without due process of law. This is not correct. The appealed order has not closed the door to
appellants' right, if any, to just compensation for the alleged area of their land which was
expropriated. The court below dismissed the cases for lack of consent on the part of the state to
be sued herein. We repeat, appellants' remedy for just compensation lies elsewhere.

WHEREFORE, the order appealed from is in full accord with the evidence and the law and is
hereby therefore affirmed in all its parts. Costs against appellants.

SO ORDERED." 5

Consequently, petitioners elevated the cases to this Court through a petition for review on certiorari.
The petition is anchored on the ruling of the Court in Amigable v. Cuenca 6 which states: ". . . where the
government takes away property from a private landowner for public use without going through the legal
process of expropriation or negotiated sale," a suit may properly be maintained against the government.

We hold for the petitioners.

That the principle of state immunity from suit cannot be invoked to defeat petitioners' claim has long been
settled. In Ministerio v. Court of First Instance of Cebu, 7 the Court held:

". . . The doctrine of governmental immunity from suit cannot serve as an instrument for
perpetrating an injustice on a citizen. Had the government followed the procedure indicated
by the governing law at the time, a complaint would have been filed by it, and only upon
payment of the compensation fixed by the judgment, or after tender to the party entitled to
such payment of the amount fixed, may it 'have the right to enter in and upon the land so
condemned' to appropriate the same to the public use defined in the judgment. If there were
an observance of procedural regularity, petitioners would not be in the sad plaint they are
now. It is unthinkable then that precisely because there was a failure to abide by what the law
requires, the government would stand to benefit. It is just as important, if not more so, that
there be fidelity to legal norms on the part of the officialdom if the rule of law were to be
maintained. It is not too much to say that when the government takes any property for public
use, which is conditioned upon the payment of just compensation, to be judicially ascertained,
it makes manifest that it submits to the jurisdiction of a court. There is no thought then that the
doctrine of immunity from suit could still be appropriately invoked."

We find the facts of the Ministerio case on all fours with the instant cases insofar as the fact that the
respondent government officials executed a shortcut in appropriating petitioners' property for public use is
concerned. As in the Amigable case, no expropriation proceedings were initiated before construction of the
projects began. In like manner, nowhere in his pleadings in the cases at bar does the Solicitor General
mention the fact that expropriation proceedings had in fact been undertaken before the road and artificial creek
were constructed. Thus, quoting the answer of the defendants in Civil Case No. 46801, the Solicitor General
summarized the facts which defendants considered as constituting justification for the construction as follows:
115
 "10. The construction of the road and creek in question on the property which at the time
was said to be public property, was initiated, and construction effected, through the usual
and ordinary course, as shown by the following:

a. November 5, 1979 — Engr. Data who was the incumbent District Engineer
submitted (thru channels) plans, program of works and detailed estimates for approval
of higher authorities, thru the initiation of Mayor Ynares and Assemblyman Gilberto
Duavit;

b. February 18, 1980 — Regional Director Eduardo L. Lagunilla, MPW Region IV,
EDSA, Quezon City endorsed said request to the Minister of Public Works;

February 13, 1981 — Assemblyman Gilberto Duavit sent a hand-

written follow-up note regarding the project;

June 17, 1981 — The undersigned defendant Nestor Agustin was

designated Chief Civil Engineer of the Rizal Engineering District, Vice Engr. Cresencio
Data who reached his compulsory retirement age;

September 23, 1981 — Funds in the amount of P588,000.00 was released

for partial implementation of the project. The total amount requested was
P1,200,000.00;

October 19, 1981 — The undersigned submitted a request to the

MPWH Central Office seeking authority to effect implementation of the project;

October 29, 1981 — The Regional Director approved the plans and
program of works for the project in the amount of P588,000.00;

November 11, 1981 — The Honorable Minister Jesus S. Hipolito granted

the request to undertake the implementation of the project;

November 25, 1981 — Project implementation was started;

March 3, 1982 — Construction of rock bulkhead was completed;

November 23, 1981 — P249,000.00 was released for improvement

(deepening and diverting of flow) of Binangonan River which was a complimentary
structure of Binangonan port system;

April 19, 1982 — Implementation was started. Contract for this project was
approved by the Regional Director in favor of EDILBERTO CADIENTE
CONSTRUCTION;

May 21, 1982 — Deepening slightly of the adjacent portion of the

rock bulkhead was completed.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The construction of the structures was done

in good faith;

The construction of the roadway and deepening of the creek was designed to generate for the
municipality of Binangonan, Rizal more benefits in the form of substantial revenue from
fishing industry, parking area, market rentals, development site, and road system
improvements. The area covered by said public improvements is part of the Laguna Lake
area which is submerged in water even during dry season. The municipal mayor of
Binangonan, Rizal stated that said area is public property." 8

Public respondents' belief that the property involved is public, even if buttressed by statements of other public
officials, is no reason for the unjust taking of petitioners' property. As TCT No. 329945 shows, the property
was registered under the Torrens system in the names of "Emiliano R. de los Santos, married to Corazon
Dayrit; and Norma Alabastro, married to Isidoro L. Padilla" as early as March 29, 1971. Had the public
respondents, including the other officials involved in the construction, performed their functions by exercising
even the ordinary diligence expected of them as public officials, they would not have failed to note that the
property is a private one. A public infrastructure losses its laudability if, in the process of undertaking it, private
rights are disregarded. In this connection, the Court said in Republic v. Sandiganbayan: 9

116
 "It can hardly be doubted that in exercising the right of eminent domain, the State exercises its
jus imperii, as distinguished from its proprietary rights or jus gestionis. Yet, even in that area, it
has been held that where private property has been taken in expropriation without just
compensation being paid, the defense of immunity from suit cannot be set up by the State
against an action for payment by the owner."

Public respondents' assertion that the project had been completed on May 21, 1982 meets strong opposition
from the petitioners who insist that the project "until now is not yet finished." 10 This factual issue needs
determination which only the trial court can undertake. Thus, the need for a full blown trial on the merits. We
do not subscribe to the appellate court's suggestion that the remedy of the petitioners "lies elsewhere."

The filing of another case to determine just compensation is superfluous. The issue may be threshed out below
for practical reasons in the event that it is shown later that it is no longer possible to prohibit the public
respondents from continuing with the public work. As held in the Amigable case, damages may be awarded the
petitioners in the form of legal interest on the price of the land to be reckoned from the time of the unlawful
taking.

WHEREFORE, the petition is hereby GRANTED and Civil Cases Nos. 46800 and 46801 shall be REMANDED
to the lower court for trial on the merits after the Republic of the Philippines shall have been impleaded as
defendant in both cases.

SO ORDERED.

Feliciano, Davide, Jr. and Melo, JJ ., concur.

Bidin, J ., is on leave.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (De los Santos v. Intermediate Appellate Court, G.R. Nos.
71998-99, [June 2, 1993])

Moday v. Court of Appeals, G.R. No. 107916, [February 20, 1997], 335 PHIL 1057-1066

SECOND DIVISION

[G.R. No. 107916. February 20, 1997.]

PERCIVAL MODAY, ZOTICO MODAY (deceased) and LEONORA MODAY, petitioners, vs.

COURT OF APPEALS, JUDGE EVANGELINE S. YUIPCO OF BRANCH 6, REGIONAL

TRIAL COURT, AGUSAN DEL SUR AND MUNICIPALITY OF BUNAWAN, respondents.

Roldan L. Torralba, for petitioners.

Estanislao G. Ebarle, Jr. for public respondent Municipality of Bunawan.

SYLLABUS

POLITICAL LAW; LOCAL GOVERNMENT CODE (B.P. 337); POWER OF THE SANGGUNIANG
PANLALAWIGAN TO REVIEW ORDINANCES, RESOLUTIONS AND EXECUTIVE ORDERS
PROMULGATED BY THE MUNICIPAL MAYOR; DECLARATION OF INVALIDITY MUST BE ON THE SOLE
GROUND THAT IT IS BEYOND THE POWER OF THE SANGGUNIAN BAYAN OR MAYOR TO ISSUE THE
RESOLUTION, ORDINANCE OR ORDER UNDER REVIEW. — The Sangguniang Panlalawigan's disapproval
of Municipal Resolution No. 43-89 is an infirm action which does not render said resolution null and void. The
law, as expressed in Section 153 of B.P. BLG. 337, grants the Sangguniang Panlalawigan the power to
declare a municipal resolution invalid on the sole ground that it is beyond the power of the Sangguniang
Bayan or the Mayor to issue. Although pertaining to a similar provision of law but different factual milieu then
obtaining, the Court's pronouncements in Velazco vs. Blas, where we cited significant early jurisprudence, are
applicable to the case at bar. "The only ground upon which a provincial board may declare any municipal
resolution, ordinance, or order invalid is when such resolution, ordinance, or order is 'beyond the powers
conferred upon the council or president making the same.' Absolutely no other ground is recognized by the
117
law. A strictly legal question is before the provincial board in its consideration of a municipal resolution,
ordinance, or order. The provincial (board's) disapproval of any resolution, ordinance, or order must be
premised specifically upon the fact that such resolution, ordinance, or order is outside the scope of the legal
powers conferred by law. If a provincial board passes these limits, it usurps the legislative functions of the
municipal council or president. Such has been the consistent course of executive authority." Thus, the
Sangguniang Panlalawigan was without the authority to disapprove Municipal Resolution No. 43-89 for the
Municipality of Bunawan clearly has the power to exercise the right of eminent domain and its Sangguniang
Bayan the capacity to promulgate said resolution, pursuant to the earlier-quoted Section 9 of B.P. Blg. 337.
Perforce, it follows that Resolution No. 43-89 is valid and binding and could be used as lawful authority to
petition for the condemnation of petitioners' property.

DECISION

ROMERO, J p:

The main issue presented in this case is whether a municipality may expropriate private property by virtue of a
municipal resolution which was disapproved by the Sangguniang Panlalawigan. Petitioner seeks the reversal
of the Court of Appeals decision and resolution, promulgated on July 15, 1992 and October 22, 1992
respectively, 1 and a declaration that Municipal Resolution No. 43-89 of the Bunawan Sangguniang Bayan is
null and void.

On July 23, 1989, the Sangguniang Bayan of the Municipality of Bunawan in Agusan del Sur passed
Resolution No. 43-89, "Authorizing the Municipal Mayor to Initiate the Petition for Expropriation of a One
(1) Hectare Portion of Lot No. 6138-Pls-4 Along the National Highway Owned by Percival Moday for the
Site of Bunawan Farmers Center and Other Government Sports Facilities." 2

In due time, Resolution No. 43-89 was approved by then Municipal Mayor Anuncio C. Bustillo and transmitted
to the Sangguniang Panlalawigan for its approval On September 11, 1989, the Sangguniang Panlalawigan
disapproved said Resolution and returned it with the comment that "expropriation is unnecessary considering
that there are still available lots in Bunawan for the establishment of the government center." 3

The Municipality of Bunawan, herein public respondent, subsequently filed a Petition for Eminent Domain
against petitioner Percival Moday before the Regional Trial Court at Prosperidad, Agusan del Sur. 4 The
complaint was later amended to include the registered owners, Percival Moday's parents, Zotico and Leonora
Moday, as party defendants.

On March 6, 1991, public respondent municipality filed a Motion to Take or Enter Upon the Possession of
Subject Matter of This Case stating that it had already deposited with the municipal treasurer the necessary
amount in accordance with Section 2, Rule 67 of the Revised Rules of Court and that it would be in the
government's best interest for public respondent to be allowed to take possession of the property.

Despite petitioners' opposition and after a hearing on the merits, the Regional Trial Court granted respondent
municipality's motion to take possession of the land. The lower court held that the Sangguniang Panlalawigan's
failure to declare the resolution invalid leaves it effective. It added that the duty of the Sangguniang Panlalawigan is
merely to review the ordinances and resolutions passed by the Sangguniang Bayan under Section 208 (1) of B.P.
Blg. 337, old Local Government Code and that the exercise of eminent domain is not one of the two acts
enumerated in Section 19 thereof requiring the approval of the Sangguniang Panlalawigan.
5 The dispositive portion of the lower court's Order dated July 2, 1991 reads:

"WHEREFORE, it appearing that the amount of P632.39 had been deposited as per Official
Receipt No. 5379647 on December 12, 1989 which this Court now determines as the
provisional value of the land, the Motion to Take or Enter Upon the Possession of the Property
filed by petitioner through counsel is hereby GRANTED. The Sheriff of this Court is ordered to
forthwith place the plaintiff in possession of the property involved.

Let the hearing be set on August 9, 1991 at 8:30 o'clock in the morning for the purpose of
ascertaining the just compensation or fair market value of the property sought to be
taken, with notice to all the parties concerned.

118
 SO ORDERED." 6

Petitioners' motion for reconsideration was denied by the trial court on October 31, 1991.

Petitioners elevated the case in a petition for certiorari alleging grave abuse of discretion on the part of the
trial court but the same was dismissed by respondent appellate court on July 15, 1992. 7 The Court of
Appeals held that the public purpose for the expropriation is clear from Resolution No. 43-89 and that since
the Sangguniang Panlalawigan of Agusan del Sur did not declare Resolution No. 43-89 invalid, expropriation
of petitioners' property could proceed. cdasia

Respondent appellate court also denied petitioners' motion for reconsideration on October 22, 1992. 8

Meanwhile, the Municipality of Bunawan had erected three buildings on the subject property: the Association
of Barangay Councils (ABC) Hall, the Municipal Motorpool, both wooden structures, and the Bunawan
Municipal Gymnasium, which is made of concrete.

In the instant petition for review filed on November 23, 1992, petitioner seeks the reversal of the decision and
resolution of the Court of Appeals and a declaration that Resolution No. 43-89 of the Municipality of Bunawan
is null and void.

On December 8, 1993, the Court issued a temporary restraining order enjoining and restraining public
respondent Judge Evangeline Yuipco from enforcing her July 2, 1991 Order and respondent municipality from
using and occupying all the buildings constructed and from further constructing any building on the land subject
of this petition. 9

Acting on petitioners' Omnibus Motion for Enforcement of Restraining Order and for Contempt, the Court
issued a Resolution on March 15, 1995, citing incumbent municipal mayor Anuncio C. Bustillo for contempt,
ordering him to pay the fine and to demolish the "blocktiendas" which were built in violation of the restraining
order.10

Former Mayor Anuncio C. Bustillo paid the fine and manifested that he lost in the May 8, 1995 election. 11 The
incumbent Mayor Leonardo Barrios, filed a Manifestation, Motion to Resolve "Urgent Motion for Immediate
Dissolution of the Temporary Restraining Order" and Memorandum on June 11, 1996 for the Municipality of
Bunawan.12

Petitioners contend that the Court of Appeals erred in upholding the legality of the condemnation proceedings
initiated by the municipality. According to petitioners, the expropriation was politically motivated and Resolution
No. 43-89 was correctly disapproved by the Sangguniang Panlalawigan, there being other municipal properties
available for the purpose. Petitioners also pray that the former Mayor Anuncio C. Bustillo be ordered to pay
damages for insisting on the enforcement of a void municipal resolution.

The Court of Appeals declared that the Sangguniang Panlalawigan's reason for disapproving the resolution
"could be baseless, because it failed to point out which and where are 'those available lots."' Respondent
court also concluded that since the Sangguniang Panlalawigan did not declare the municipal board's
resolution as invalid, expropriation of petitioners' property could proceed. 13

The Court finds no merit in the petition and affirms the decision of the Court of Appeals.

Eminent domain, the power which the Municipality of Bunawan exercised in the instant case, is a fundamental
State power that is inseparable from sovereignty. 14 It is government's right to appropriate, in the nature of a
compulsory sale to the State, private property for public use or purpose. 15 Inherently possessed by the
national legislature the power of eminent domain may be validly delegated to local governments, other public
entities and public utilities. 16 For the taking of private property by the government to be valid, the taking must
be for public use and there must be just compensation. 17

The Municipality of Bunawan's power to exercise the right of eminent domain is not disputed as it is expressly
provided for in Batas Pambansa Blg. 337, the Local Government Code 18 in force at the time expropriation
proceedings were initiated. Section 9 of said law states:

"Section 9. Eminent Domain. — A local government unit may, through its head and acting
pursuant to a resolution of its sanggunian, exercise the right of eminent domain and institute
condemnation proceedings for public use or purpose."
119
What petitioners question is the lack of authority of the municipality to exercise this right since the
Sangguniang Panlalawigan disapproved Resolution No. 43-89.

Section 153 of B.P. Blg. 337 provides:

"Sec. 153. Sangguniang Panlalawigan Review. — (1) Within thirty days after receiving
copies of approved ordinances, resolutions and executive orders promulgated by the
municipal mayor, the sangguniang panlalawigan shall examine the documents or transmit
them to the provincial attorney, or if there be none, to the .provincial fiscal, who shall
examine them promptly and inform the sangguniang panlalawigan in writing of any defect or
impropriety which he may discover therein and make such comments or recommendations
as shall appear to him proper.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ If the sangguniang panlalawigan shall find

that any municipal ordinance, resolution or

executive order is beyond the power conferred upon the sangguniang bayan or the mayor, it
shall declare such ordinance, resolution or executive order invalid in whole or in part,
entering its actions upon the minutes and advising the proper municipal authorities thereof.
The effect of such an action shall be to annul the ordinance, resolution or executive order in
question in whole or in part. The action of the sangguniang panlalawigan shall be final.

xxx xxx xxx." (Emphasis supplied.)

The Sangguniang Panlalawigan's disapproval of Municipal Resolution No. 43-89 is an infirm action which
does not render said resolution null and void. The law, as expressed in Section 153 of B.P. Blg. 337, grants
the Sangguniang Panlalawigan the power to declare a municipal resolution invalid on the sole ground that it is
beyond the power of the Sangguniang Bayan or the Mayor to issue. Although pertaining to a similar provision
of law but different factual milieu then obtaining, the Court's pronouncements in Velazco v. Blas, 19 where we
cited significant early jurisprudence, are applicable to the case at bar.

"The only ground upon which a provincial board may declare any municipal resolution,
ordinance, or order invalid is when such resolution, ordinance, or order is 'beyond the powers
conferred upon the council or president making the same.' Absolutely no other ground is
recognized by the law. A strictly legal question is before the provincial board in its
consideration of a municipal resolution, ordinance, or order. The provincial (board's)
disapproval of any resolution, ordinance, or order must be premised specifically upon the fact
that such resolution, ordinance, or order is outside the scope of the legal powers conferred
by law. If a provincial board passes these limits, it usurps the legislative functions of the
municipal council or president. Such has been the consistent course of executive authority."

20

Thus, the Sangguniang Panlalawigan was without the authority to disapprove Municipal Resolution No. 43-89
for the Municipality of Bunawan clearly has the power to exercise the right of eminent domain and its
Sangguniang Bayan the capacity to promulgate said resolution, pursuant to the earlier-quoted Section 9 of
B.P. Blg. 337. Perforce; it follows that Resolution No. 43-89 is valid and binding and could be used. as lawful
authority to petition for the condemnation of petitioners' property.

As regards the accusation of political oppression, it is alleged that Percival Moday incurred the ire of then
Mayor Anuncio C. Bustillo when he refused to support the latter's candidacy for mayor in previous elections.
Petitioners claim that then incumbent Mayor C. Bustillo used the expropriation to retaliate by expropriating
their land even if there were other properties belonging to the municipality and available for the purpose.
Specifically, they allege that the municipality owns a vacant seven-hectare property adjacent to petitioners'
land, evidenced by a sketch plan. 21

The limitations on the power of eminent domain are that the use must be public, compensation must be made
and due process of law must be observed. 22 The Supreme Court, taking cognizance of such issues as the
adequacy of compensation, necessity of the taking and the public use character or the purpose of the taking,
23has ruled that the necessity of exercising eminent domain must be genuine and of a public character. 24
Government may not capriciously choose what private property should be taken.

After a careful study of the records of the case, however, we find no evidentiary support for petitioners'
allegations. The uncertified photocopy of the sketch plan does not conclusively prove that the municipality does
own vacant land adjacent to petitioners' property suited to the purpose of the expropriation. In the questioned
decision, respondent appellate court similarly held that the pleadings and documents on record have not

120
pointed out any of respondent municipality's "other available properties available for the same purpose." 25
The accusations of political reprisal are likewise unsupported by competent evidence. Consequently, the Court
holds that petitioners' demand that the former municipal mayor be personally liable for damages is without
basis.

WHEREFORE, the instant petition is hereby DENIED. The questioned Decision and Resolution of the Court
of Appeals in the case of "Percival Moday, et al. v. Municipality of Bunawan, et al." (CA G.R. SP No. 26712)
are AFFIRMED. The Temporary Restraining Order issued by the Court on December 8, 1993 is LIFTED.

SO ORDERED.

Regalado, Puno, Mendoza and Torres, Jr., JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Moday v. Court of Appeals, G.R. No. 107916, [February
20, 1997], 335 PHIL 1057-1066)

National Power Corp. v. Spouses dela Cruz, G.R. No. 156093, [February 2, 2007], 543 PHIL 53-72

SECOND DIVISION

[G.R. No. 156093. February 2, 2007.]

NATIONAL POWER CORP., petitioner, vs. SPOUSES NORBERTO AND JOSEFINA DELA

CRUZ, METROBANK, Dasmariñas, Cavite Branch, REYNALDO FERRER, and S.K.

DYNAMICS MANUFACTURER CORP., respondents.

DECISION

VELASCO, JR., J p:

The Case

In this petition for review under Rule 45 of the Rules of Court, petitioner National Power Corporation
(NAPOCOR) seeks to annul and set aside the November 18, 2002 Decision 1 of the Court of Appeals (CA) in
CA-G.R. CV No. 67446, which affirmed the December 28, 1999 Order 2 of the Imus, Cavite Regional Trial
Court (RTC), Branch XX in Civil Case No. 1816-98, which fixed the fair market value of the expropriated lots at
PhP10,000.00 per square meter.

The Facts

Petitioner NAPOCOR is a government-owned and controlled corporation created under Republic Act No.
6395, as amended, with the mandate of developing hydroelectric power, producing transmission lines, and
developing hydroelectric power throughout the Philippines. NAPOCOR decided to acquire an easement of
right-of-way over portions of land within the areas of Dasmariñas and Imus, Cavite for the construction and
maintenance of the proposed Dasmariñas-Zapote 230 kV Transmission Line Project. 3

On November 27, 1998, petitioner filed a Complaint 4 for eminent domain and expropriation of an easement
of right-of-way against respondents as registered owners of the parcels of land sought to be expropriated,
which were covered by Transfer Certificates of Title (TCT) Nos. T-313327, T-671864, and T-454278. The
affected areas were 51.55, 18.25, and 14.625 square meters, respectively, or a total of 84.425 square meters.

After respondents filed their respective answers to petitioner's Complaint, petitioner deposited PhP5,788.50 to
cover the provisional value of the land in accordance with Section 2, Rule 67 of the Rules of Court. 5 Then, on
February 25, 1999, petitioner filed an Urgent Ex-Parte Motion for the Issuance of a Writ of Possession, which
the trial court granted in its March 9, 1999 Order. The trial court issued a Writ of Possession over the lots
owned by respondents spouses de la Cruz and respondent Ferrer on March 10, 1999 and April 12, 1999,
respectively.
121
However, the trial court dropped the Dela Cruz spouses and their mortgagee, Metrobank, as parties-
defendants in its May 11, 1999 Order, 6 in view of the Motion to Intervene filed by respondent/intervenor
Virgilio M. Saulog, who claimed ownership of the land sought to be expropriated from respondents spouses
Dela Cruz. HEDSIc

On June 24, 1999, the trial court terminated the pre-trial in so far as respondent Ferrer was concerned,
considering that the sole issue was the amount of just compensation, and issued an Order directing the
constitution of a Board of Commissioners with respect to the property of respondent S.K. Dynamics. The trial
court designated Mr. Lamberto C. Parra, Cavite Provincial Assessor, as chairman, while petitioner nominated
the Municipal Assessor of Dasmariñas, Mr. Regalado T. Andaya, as member. Respondent S.K. Dynamics did
not nominate any commissioner.

As to the just compensation for the property of Saulog, successor-in-interest of the Dela Cruz spouses, the trial
court ordered the latter and petitioner to submit their compromise agreement.

The commissioners conducted an ocular inspection of S.K. Dynamics' property, and on October 8, 1999, they
submitted a report to the trial court, with the following pertinent findings:

In arriving our [sic] estimate of values our studies and analysis include the following:

I. PROPERTY LOCATION

As shown to us on-site during our ocular inspection, the appraised property is land only,
identified as the area affected by the construction of the National Power Corporation (NPC)
Dasmariñas-Zapote 230KV Transmission Lines Project, located within Barangay Salitran,
Dasmariñas, Cavite registered in the name of S.K. Dynamic[s] Manufacture[r], Corp.,
under Transfer Certificate of Title No. T-454278.

II. NEIGHBORHOOD DESCRIPTION

The neighborhood particularly in the immediate vicinity is within a mixed residential and
commercial area, situated in the northern section of the Municipality of Dasmariñas which
was transversed [sic] by Gen. Emilio Aguinaldo Highway [where] several residential
subdivisions and commercial establishment[s] are located.

Considered as some of the important improvements [on] the vicinity are (within 1.5 radius)

Orchard Golf and Country Club

Golden City Subdivision

Southfield Subdivisions

Arcontica Sports Complex

Max's Restaurant

Waltermart Shopping Mall

UMC Medical Center

Several savings and Commercial Banks as well as several Gasoline stations.

Community centers such as, [sic] churches, public markets, shopping malls, banks
and gasoline stations are easily accessible from the subject real properties.

Convenience facilities such as electricity, telephone service as well as pipe potable water
supply system are all available along Gen. Emilio Aguinaldo Highway. AaDSEC

Public transportation consisting of passenger jeepneys and buses as well taxicabs are
[sic] regularly available along Gen. E. Emilio Aguinaldo Highway [sic].

xxx xxx xxx

IV. HIGHEST AND MOST PROFITABLE USE

xxx xxx xxx

122
 The subject property is situated within the residential/commercial zone and considering the
area affected and taking into consideration, their location, shape, lot topography, accessibility
and the predominant uses of properties in the neighborhood, as well as the trend of land
developments in the vicinity, we are on the opinion that the highest and most profitable use of
the property is good for residential and commercial purposes.

V. VALUATION OF LAND MARKET DATA

xxx xxx xxx

Based on the analysis of data gathered and making the proper adjustments with respect to the
location, area, shape, accessibility, and the highest and best use of the subject properties, it is
the opinion of the herein commissioners that the fair market value of the subject real
properties is P10,000.00 per square meter, as of this date, October 05, 1999. 7

Thus, both commissioners recommended that the property of S.K. Dynamics to be expropriated by
petitioner be valued at PhP10,000.00 per square meter.

The records show that the commissioners did not afford the parties the opportunity to introduce evidence in
their favor, nor did they conduct hearings before them. In fact, the commissioners did not issue notices to the
parties to attend hearings nor provide the concerned parties the opportunity to argue their respective causes.

Upon the submission of the commissioners' report, petitioner was not notified of the completion or filing of it
nor given any opportunity to file its objections to it.

On December 1, 1999, respondent Ferrer filed a motion adopting in toto the commissioners' report with respect
to the valuation of his property. 8 On December 28, 1999, the trial court consequently issued the Order
approving the commissioners' report, and granted respondent Ferrer's motion to adopt the subject report.
Subsequently, the just compensation for the disparate properties to be expropriated by petitioner for its project
was uniformly pegged at PhP10,000.00 per square meter.

Incidentally, on February 11, 2000, respondent S.K. Dynamics filed a motion informing the trial court that in
addition to the portion of its property covered by TCT No. T-454278 sought to be expropriated by petitioner, the
latter also took possession of an 8.55-square meter portion of S.K. Dynamics' property covered by TCT No.
503484 for the same purpose — to acquire an easement of right-of-way for the construction and maintenance
of the proposed Dasmariñas-Zapote 230 kV Transmission Line Project. Respondent S.K. Dynamics prayed
that said portion be included in the computation of the just compensation to be paid by petitioner.

On the same date, the Imus, Cavite RTC granted S.K. Dynamics' motion to have the 8.55-square meter portion
of its property included in the computation of just compensation. HCEcaT

The Ruling of the Regional Trial Court

As previously stated, in its December 28, 1999 Order, the trial court fixed the just compensation to be paid
by petitioner at PhP10,000.00 per square meter. The relevant portion of the said Order reads as follows:

On October 8, 1999, a Commissioner's Valuation Report was submitted in Court by the

Provincial Assessor of Cavite and by the Municipal Assessor of Dasmariñas, Cavite.
Quoting from said Report, thus:

"Based on the analysis of data gathered and making the proper adjustments with
respect to location, area, shape, accessibility, and the highest and best use of the
subject properties, it is the opinion of herein commissioners that the fair market value
of the subject real properties is P10,000.00 per square meter, as of this date, October
05, 1999."

Finding the opinion of the Commissioners to be in order, this Court approves the same.
Accordingly, the Motion filed by [respondent] Reynaldo Ferrer adopting said valuation report
is granted.

SO ORDERED. 9

On January 20, 2000, petitioner filed a Motion for Reconsideration of the abovementioned Order, but said
motion was denied in the trial court's March 23, 2000 Order, which states that:
123
 The basis of [petitioner] in seeking to set aside the Order dated December 28, 1999 is its
claim that the Commissioners' Report fixing the just compensation at P10,000.00 per square
meter is exorbitant, unjust and unreasonable. To support its contention, [petitioner] invoked
Provincial Appraisal Committee Report No. 08-95 dated October 25, 1995 which set the just
compensation of lots along Gen. Aguinaldo Highway at P3,000.00 per sq.m. only.

By way of opposition, [respondent] Dynamics countered that the valuation of a lot under
expropriation is reckoned at the time of its taking by the government. And since in the case at
bar, the writ of possession was issued on March 10, 1999, the price or value for 1999 must
be the one to be considered.

We find for the defendant.

The PAR Resolution alluded to by [petitioner] was passed in 1995 or four (4) years [before]
the lot in question was taken over by the government. This explains why the price or cost of
the land has considerably increased. Besides, the valuation of P10,000.00 per sq.m. was the
one recommended by the commissioner designated by [petitioner] itself and concurred in by
the Provincial Assessor of Cavite.

Be that as it may, the Motion for Reconsideration is denied.

SO ORDERED. 10

The Ruling of the Court of Appeals

Unsatisfied with the amount of just compensation, petitioner filed an appeal before the CA. In resolving the
appeal, the CA made the following findings:

We find nothing on record which would warrant the reversal of the Order dated December 28,
1999 of the court a quo.

[Petitioner] submits that the order of the court a quo adopting the Commissioners [sic]
Valuation Report, fixing the just compensation for the subject lots in the amount of P10,000.00
per square meter is exhorbitant [sic], highly speculative and without any basis. In support
thereto, [petitioner] presented before the court a quo the Provincial Appraisal Committee of
Cavite Resolution No. 08-95 . . . which fixed the fair market value of lots located along Gen.
Aguinaldo Highway, Dasmariñas, Cavite, which incidentally includes the lots subject of this
proceedings [sic], in the amount of P3,000.00 per square meter. ISaCTE

We do not agree.

"The nature and character of the land at the time of its taking is the principal criterion to
determine just compensation to the land owner." (National Power Corporation vs.
Henson, 300 SCRA 751-756).

The CA then cited Section 4, Rule 67 of the 1997 Rules of Civil Procedure 11 to explain why Resolution No.
08-95 could not "be used as [a] basis for determining the just compensation of the subject lots, which by
reason of the changed commercial conditions in the vicinity, could have increased its value greater than its
value three (3) years ago." The said resolution, which fixed the fair market value of the lots, including that of
the disputed lots along Gen. Aguinaldo Highway, was approved on October 25, 1995, while petitioner filed
the Complaint for the expropriation of the disputed lots on November 27, 1998, or more than three (3) years
had elapsed after said resolution was approved. Reflecting on the commissioners' report, the CA noted that
since the property underwent important changes and improvements, "the highest and most profitable use of
the property is good for residential and commercial purposes."

As regards the commissioners' failure to conduct a hearing "to give the parties the opportunity to present their
respective evidence," as alleged by petitioner, the CA opined that "[t]he filing by [petitioner] of a motion for
reconsideration accorded it ample opportunity to dispute the findings of the commissioners, so that
[petitioner] was as fully heard as there might have been hearing actually taken place . . . ."

The CA ultimately rendered its judgment, as follows:

124
 WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of
merit. The Order dated December 28, 1999 and March 23, 2000 of the court a quo are
hereby AFFIRMED by this Court.

SO ORDERED. 12

Significantly, petitioner did not file a Motion for Reconsideration of the CA November 18, 2002 Decision, but it
directly filed a petition for review before us.

The Issues

In this petition for review, the issues are the following:

PETITIONER WAS DENIED DUE PROCESS WHEN IT WAS NOT ALLOWED TO PRESENT
EVIDENCE ON THE REASONABLE VALUE OF THE EXPROPRIATED PROPERTY
BEFORE THE BOARD OF COMMISSIONERS.

THE VALUATION OF JUST COMPENSATION HEREIN WAS NOT BASED FROM

THE EVIDENCE ON RECORD AND OTHER AUTHENTIC DOCUMENTS. 13

The Court's Ruling

We find this petition meritorious.

It is beyond question that petitions for review may only raise questions of law which must be distinctly set
forth; 14 thus, this Court is mandated to only consider purely legal questions in this petition, unless called for
by extraordinary circumstances.

In this case, petitioner raises the issue of denial of due process because it was allegedly deprived of the
opportunity to present its evidence on the just compensation of properties it wanted to expropriate, and
the sufficiency of the legal basis or bases for the trial court's Order on the matter of just compensation.
Unquestionably, a petition for review under Rule 45 of the Rules of Court is the proper vehicle to raise the
issues in question before this Court. ITEcAD

In view of the significance of the issues raised in this petition, because this case involves the expenditure of
public funds for a clear public purpose, this Court will overlook the fact that petitioner did not file a Motion for
Reconsideration of the CA November 18, 2002 Decision, and brush aside this technicality in favor of resolving
this case on the merits.

First Issue: Petitioner was deprived of due process when it was not given the opportunity to
present evidence before the commissioners

It is undisputed that the commissioners failed to afford the parties the opportunity to introduce evidence in their
favor, conduct hearings before them, issue notices to the parties to attend hearings, and provide the
opportunity for the parties to argue their respective causes. It is also undisputed that petitioner was not notified
of the completion or filing of the commissioners' report, and that petitioner was also not given any opportunity
to file its objections to the said report.

A re-examination of the pertinent provisions on expropriation, under Rule 67 of the Rules of Court, reveals
the following:

SEC. 6. Proceedings by commissioners. — Before entering upon the performance of their

duties, the commissioners shall take and subscribe an oath that they will faithfully perform
their duties as commissioners, which oath shall be filed in court with the other proceedings in
the case. Evidence may be introduced by either party before the commissioners who are
authorized to administer oaths on hearings before them, and the commissioners shall, unless
the parties consent to the contrary, after due notice to the parties to attend, view and examine
the property sought to be expropriated and its surroundings, and may measure the same,
after which either party may, by himself or counsel, argue the case. The commissioners shall
assess the consequential damages to the property not taken and deduct from such
consequential damages the consequential benefits to be derived by the owner from the public
use or purpose of the property taken, the operation of its franchise by the corporation or the
carrying on of the business of the corporation or person taking the property. But in no case
shall the consequential benefits assessed exceed the consequential damages assessed, or
the owner be deprived of the actual value of his property so taken.
125
 SEC. 7. Report by commissioners and judgment thereupon. — The court may order the
commissioners to report when any particular portion of the real estate shall have been passed
upon by them, and may render judgment upon such partial report, and direct the
commissioners to proceed with their work as to subsequent portions of the property sought to
be expropriated, and may from time to time so deal with such property. The commissioners
shall make a full and accurate report to the court of all their proceedings, and such
proceedings shall not be effectual until the court shall have accepted their report and
rendered judgment in accordance with their recommendations. Except as otherwise expressly
ordered by the court, such report shall be filed within sixty (60) days from the date the
commissioners were notified of their appointment, which time may be extended in the
discretion of the court. Upon the filing of such report, the clerk of the court shall serve copies
thereof on all interested parties, with notice that they are allowed ten (10) days within which to
file objections to the findings of the report, if they so desire.

SEC. 8. Action upon commissioners' report. — Upon the expiration of the period of ten (10)
days referred to in the preceding section, or even before the expiration of such period but after
all the interested parties have filed their objections to the report or their statement of
agreement therewith, the court may, after hearing, accept the report and render judgment in
accordance therewith; or, for cause shown, it may recommit the same to the commissioners
for further report of facts; or it may set aside the report and appoint new commissioners; or it
may accept the report in part and reject it in part; and it may make such order or render such
judgment as shall secure to the plaintiff the property essential to the exercise of his right of
expropriation, and to the defendant just compensation for the property so taken. STHAID

Based on these provisions, it is clear that in addition to the ocular inspection performed by the two (2)
appointed commissioners in this case, they are also required to conduct a hearing or hearings to determine
just compensation; and to provide the parties the following: (1) notice of the said hearings and the opportunity
to attend them; (2) the opportunity to introduce evidence in their favor during the said hearings; and (3) the
opportunity for the parties to argue their respective causes during the said hearings.

The appointment of commissioners to ascertain just compensation for the property sought to be taken is a
mandatory requirement in expropriation cases. In the instant expropriation case, where the principal issue is
the determination of just compensation, a hearing before the commissioners is indispensable to allow the
parties to present evidence on the issue of just compensation. While it is true that the findings of
commissioners may be disregarded and the trial court may substitute its own estimate of the value, the
latter may only do so for valid reasons, that is, where the commissioners have applied illegal principles to
the evidence submitted to them, where they have disregarded a clear preponderance of evidence, or where
the amount allowed is either grossly inadequate or excessive. Thus, "trial with the aid of the commissioners
is a substantial right that may not be done away with capriciously or for no reason at all." 15

In this case, the fact that no trial or hearing was conducted to afford the parties the opportunity to present
their own evidence should have impelled the trial court to disregard the commissioners' findings. The absence
of such trial or hearing constitutes reversible error on the part of the trial court because the parties' (in
particular, petitioner's) right to due process was violated.

The Court of Appeals erred in ruling that the petitioner was not deprived of due process when it
was able to file a motion for reconsideration

In ruling that petitioner was not deprived of due process because it was able to file a Motion for

Reconsideration, the CA had this to say:

[Petitioner], further, asserts that "the appointed commissioners failed to conduct a hearing to
give the parties the opportunity to present their respective evidence. According to [petitioner],
the Commissioners Valuation Report was submitted on October 8, 1999 in violation of the
appellant's right to due process as it was deprived of the opportunity to present evidence on
the determination of the just compensation."

We are not persuaded.

The filing by [petitioner] of a motion for reconsideration accorded it ample opportunity to

dispute the findings of the commissioners, so that [petitioner] was as fully heard as there
126
 might have been hearing actually taken place. "Denial of due process cannot be successfully
invoked by a party who has had the opportunity to be heard on his motion for reconsideration."
(Vda. De Chua vs. Court of Appeals, 287 SCRA 33, 50). 16

In this respect, we are constrained to disagree with the CA ruling, and therefore, set it aside.

While it is true that there is jurisprudence supporting the rule that the filing of a Motion for Reconsideration
negates allegations of denial of due process, it is equally true that there are very specific rules for expropriation
cases that require the strict observance of procedural and substantive due process, 17 because expropriation
cases involve the admittedly painful deprivation of private property for public purposes and the disbursement of
public funds as just compensation for the private property taken. Therefore, it is insufficient to hold that a
Motion for Reconsideration in an expropriation case cures the defect in due process.

As a corollary, the CA's ruling that "denial of due process cannot be successfully invoked by a party who has
had the opportunity to be heard on his motion for reconsideration," citing Vda. de Chua v. Court of Appeals, is
not applicable to the instant case considering that the cited case involved a lack of notice of the orders of the
trial court in granting letters of administration. It was essentially a private dispute and therefore, no public
funds were involved. It is distinct from this expropriation case where grave consequences attached to the
orders of the trial court when it determined the just compensation. DHcTaE

The Court takes this opportunity to elucidate the ruling that the opportunity to present evidence incidental to a
Motion for Reconsideration will suffice if there was no chance to do so during the trial. We find such situation to
be the exception and not the general rule. The opportunity to present evidence during the trial remains a vital
requirement in the observance of due process. The trial is materially and substantially different from a hearing
on a Motion for Reconsideration. At the trial stage, the party is usually allowed several hearing dates
depending on the number of witnesses who will be presented. At the hearing of said motion, the trial court may
not be more accommodating with the grant of hearing dates even if the movant has many available witnesses.
Before the decision is rendered, a trial court has an open mind on the merits of the parties' positions. After the
decision has been issued, the trial court's view of these positions might be inclined to the side of the winning
party and might treat the Motion for Reconsideration and the evidence adduced during the hearing of said
motion perfunctorily and in a cavalier fashion. The incident might not receive the evaluation and judgment of
an impartial or neutral judge. In sum, the constitutional guarantee of due process still requires that a party
should be given the fullest and widest opportunity to adduce evidence during trial, and the availment of a
motion for reconsideration will not satisfy a party's right to procedural due process, unless his/her inability to
adduce evidence during trial was due to his/her own fault or negligence.

Second Issue: The legal basis for the determination of just compensation was insufficient

In this case, it is not disputed that the commissioners recommended that the just compensation be pegged at
PhP10,000.00 per square meter. The commissioners arrived at the figure in question after their ocular
inspection of the property, wherein they considered the surrounding structures, the property's location and,
allegedly, the prices of the other, contiguous real properties in the area. Furthermore, based on the
commissioners' report, the recommended just compensation was determined as of the time of the preparation
of said report on October 5, 1999.

In B.H. Berkenkotter & Co. v. Court of Appeals, we held, thus:

Just compensation is defined as the full and fair equivalent of the property sought to be
expropriated. The measure is not the taker's gain but the owner's loss. The compensation, to
be just, must be fair not only to the owner but also to the taker. Even as undervaluation would
deprive the owner of his property without due process, so too would its overvaluation unduly
favor him to the prejudice of the public.

To determine just compensation, the trial court should first ascertain the market value of the
property, to which should be added the consequential damages after deducting therefrom
the consequential benefits which may arise from the expropriation. If the consequential
benefits exceed the consequential damages, these items should be disregarded altogether
as the basic value of the property should be paid in every case.

The market value of the property is the price that may be agreed upon by parties willing but
not compelled to enter into the contract of sale. Not unlikely, a buyer desperate to acquire a
piece of property would agree to pay more, and a seller in urgent need of funds would agree
to accept less, than what it is actually worth. . . .
127
 Among the factors to be considered in arriving at the fair market value of the property are the
cost of acquisition, the current value of like properties, its actual or potential uses, and in the
particular case of lands, their size, shape, location, and the tax declarations thereon. STECAc

It is settled that just compensation is to be ascertained as of the time of the taking,

which usually coincides with the commencement of the expropriation proceedings.
Where the institution of the action precedes entry into the property, the just
compensation is to be ascertained as of the time of the filing of the complaint. 18

We note that in this case, the filing of the complaint for expropriation preceded the petitioner's entry into the
property.

Therefore, it is clear that in this case, the sole basis for the determination of just compensation was the
commissioners' ocular inspection of the properties in question, as gleaned from the commissioners' October
5, 1999 report. The trial court's reliance on the said report is a serious error considering that the
recommended compensation was highly speculative and had no strong factual moorings. For one, the report
did not indicate the fair market value of the lots occupied by the Orchard Golf and Country Club, Golden City
Subdivision, Arcontica Sports Complex, and other business establishments cited. Also, the report did not
show how convenience facilities, public transportation, and the residential and commercial zoning could have
added value to the lots being expropriated.

Moreover, the trial court did not amply explain the nature and application of the "highest and best use" method
to determine the just compensation in expropriation cases. No attempt was made to justify the recommended
"just price" in the subject report through other sufficient and reliable means such as the holding of a trial or
hearing at which the parties could have had adequate opportunity to adduce their own evidence, the
testimony of realtors in the area concerned, the fair market value and tax declaration, actual sales of lots in
the vicinity of the lot being expropriated on or about the date of the filing of the complaint for expropriation, the
pertinent zonal valuation derived from the Bureau of Internal Revenue, among others.

More so, the commissioners did not take into account that the Asian financial crisis in the second semester of
1997 affected the fair market value of the subject lots. Judicial notice can be taken of the fact that after the
crisis hit the real estate market, there was a downward trend in the prices of real estate in the country.

Furthermore, the commissioners' report itself is flawed considering that its recommended just compensation
was pegged as of October 5, 1999, or the date when the said report was issued, and not the just compensation
as of the date of the filing of the complaint for expropriation, or as of November 27, 1998. The period between
the time of the filing of the complaint (when just compensation should have been determined), and the time
when the commissioners' report recommending the just compensation was issued (or almost one [1] year after
the filing of the complaint), may have distorted the correct amount of just compensation.

Clearly, the legal basis for the determination of just compensation in this case is insufficient as earlier
enunciated. This being so, the trial court's ruling in this respect should be set aside.

WHEREFORE, the petition is GRANTED. The December 28, 1999 and March 23, 2000 Orders of the Imus,
Cavite RTC and the November 18, 2002 Decision of the CA are hereby SET ASIDE. This case is remanded to
the said trial court for the proper determination of just compensation in conformity with this Decision. No costs.

SO ORDERED.

Quisumbing, Carpio, Carpio-Morales and Tinga, JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (National Power Corp. v. Spouses dela Cruz, G.R. No.
156093, [February 2, 2007], 543 PHIL 53-72)

Eslaban, Jr. v. Vda. de Onorio, G.R. No. 146062, [June 28, 2001], 412 PHIL 667-680

SECOND DIVISION

[G.R. No. 146062. June 28, 2001.]

128
 SANTIAGO ESLABAN, JR., in his capacity as Project Manager of the National Irrigation
Administration, petitioner, vs. CLARITA VDA. DE ONORIO,respondent.

The Solicitor General for petitioner.

Public Attorney's Office for respondent.

SYNOPSIS

Subject matter of this petition is a lot known as Lot 1210-A-Pad-11-000586, with an area of 39,512 square
meters covered by TCT No. T-22121 registered in the Registry Office of Koronadal, South Cotabato, in the
name of Clarita Vda. de Onorio, herein respondent, and her late husband. Respondent secured title over the
property by virtue of a homestead patent. The National Irrigation Authority (NIA) subsequently took 24,660
meters of the said lot for construction of an irrigation canal.

Petitioner, in his capacity as Project Manager of the NIA, through the Office of the Solicitor General, brought
this petition for review before the Supreme Court assailing the decision of the Court of Appeals which affirmed
the decision of the Regional Trial Court of Surallah, South Cotabato ordering the NIA to pay respondent the
amount of P107,517.60 as just compensation for the questioned portion of respondent's property taken by NIA
which it used it for its main canal. Among others, it was contended that an encumbrance was imposed on the
land in question in view of §39 of the Land Registration Act (now P.D. 1529, Sec. 44).

The only servitude which a private property owner is required to recognize in favor of the government is the
easement of a "public highway, way, private way established by law, or any government canal or lateral
thereof where the certificate of title does not state that the boundaries thereof have been pre-determined." This
implies that the same should have been pre-existing at the time of the registration of the land in order that the
registered owner may be compelled to respect it. Conversely, where the easement is not pre-existing and is
sought to be imposed only after the land has been registered under the Land Registration Act, proper
expropriation proceedings should be had, and just compensation paid to the registered owner thereof. In this
case, the irrigation canal constructed by the NIA on the contested property was built only on October 6, 1981,
several years after the property had been registered on May 13, 1976. Accordingly, the Court ruled that prior
expropriation proceedings should have been filed and just compensation paid to the owner thereof before it
could be taken for public use.

The Court, therefore, affirmed the decision of the Court of Appeals but modified it to the extent that the value of
the questioned property must be determined either as of the date of the taking of the property or the filing of
the complaint, "whichever came first."

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS;

CERTIFICATION AGAINST FORUM SHOPPING; REQUIREMENT APPLIES TO FILING OF PETITIONS
FOR REVIEW ONCERTIORARI. — By reason of Rule 45, §4 of the 1997 Revised Rules on Civil Procedure,
in relation to Rule 42, §2 thereof, the requirement of a certificate of non-forum shopping applies to the filing of
petitions for review on certiorari of the decisions of the Court of Appeals, such as the one filed by petitioner.
As provided in Rule 45, §5, "The failure of the petitioner to comply with any of the foregoing requirements
regarding . . . the contents of the document which should accompany the petition shall be sufficient ground for
the dismissal thereof." cSEaDA

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; ID.; MUST BE SIGNED BY THE PRINCIPAL;
PETITION IS DEFECTIVE WHERE CERTIFICATION WAS SIGNED BY COUNSEL ALONE; CASE AT BAR.
— The requirement in Rule 7, §5 that the certification should be executed by the plaintiff or the principal
means that counsel cannot sign the certificate against forum-shopping. The reason for this is that the plaintiff
or principal knows better than anyone else whether a petition has previously been filed involving the same
case or substantially the same issues. Hence, a certification signed by counsel alone is defective and
constitutes a valid cause for dismissal of the petition. In this case, the petition for review was filed by Santiago
Eslaban, Jr., in his capacity as Project Manager of the NIA. However, the verification and certification against
forum-shopping were signed by Cesar E. Gonzales, the administrator of the agency. The real party-in-interest
is the NIA, which is a body corporate.
129
Without being duly authorized by resolution of the board of the corporation, neither Santiago Eslaban, Jr. nor
Cesar E. Gonzales could sign the certificate against forum-shopping accompanying the petition for review.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CIVIL LAW; LAND REGISTRATION; CERTIFICATE OF

TITLE ISSUED TO A LAND PREVIOUSLY GRANTED BY VIRTUE OF HOMESTEAD PATENT AND
SUBSEQUENTLY REGISTERED UNDER THE TORRENS SYSTEM IS CONCLUSIVE AND INDEFEASIBLE.
— The land under litigation, as already stated, is covered by a transfer certificate of title registered in the
Registry Office of Koronadal, South Cotabato on May 13, 1976. This land was originally covered by Original
Certificate of Title No. (P-25592) P-9800 which was issued pursuant to a homestead patent granted on
February 18, 1960. We have held: Whenever public lands are alienated, granted or conveyed to applicants
thereof, and the deed grant or instrument of conveyance [sales patent] registered with the Register of Deeds
and the corresponding certificate and owner's duplicate of title issued, such lands are deemed registered lands
under the Torrens System and the certificate of title thus issued is as conclusive and indefeasible as any other
certificate of title issued to private lands in ordinary or cadastral registration proceedings.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; PROPERTY; EASEMENT; MUST BE PRE-EXISTING

AT TIME OF REGISTRATION OF LAND IN ORDER THAT OWNER THEREOF MAY BE COMPELLED TO
RESPECT IT; CASE AT BAR. — As §39 of the Land Registration Act says, however, the only servitude which
a private property owner is required to recognize in favor of the government is the easement of a "public
highway, way, private way established by law, or any government canal or lateral thereof where the certificate
of title does not state that the boundaries thereof have been pre-determined." This implies that the same
should have been pre-existing at the time of the registration of the land in order that the registered owner may
be compelled to respect it. Conversely, where the easement is not pre-existing and is sought to be imposed
only after the land has been registered under the Land Registration Act, proper expropriation proceedings
should be had, and just compensation paid to the registered owner thereof. In this case, the irrigation canal
constructed by the NIA on the contested property was built only on October 6, 1981, several years after the
property had been registered on May 13, 1976. Accordingly, prior expropriation proceedings should have been
filed and just compensation paid to the owner thereof before it could be taken for public use.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CONSTITUTIONAL LAW; POWER OF EMINENT

DOMAIN; ACQUISITION OF PRIVATE PROPERTY FOR PUBLIC USE IS SUBJECT TO PAYMENT OF
JUST COMPENSATION. — Indeed, the rule is that where private property is needed for conversion to some
public use, the first thing obviously that the government should do is to offer to buy it. If the owner is willing to
sell and the parties can agree on the price and the other conditions of the sale, a voluntary transaction can
then be concluded and the transfer effected without the necessity of a judicial action. Otherwise, the
government will use its power of eminent domain, subject to the payment of just compensation, to acquire
private property in order to devote it to public use.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; JUST COMPENSATION; EXPLAINED. — With

respect to the compensation which the owner of the condemned property is entitled to receive, it is likewise
settled that it is the market value which should be paid or "that sum of money which a person, desirous, but not
compelled to buy, and an owner, willing but not compelled to sell, would agree on as a price to be given and
received therefor." Further, just compensation means not only the correct amount to be paid to the owner of
the land but also the payment of the land within a reasonable time from its taking. Without prompt payment,
compensation cannot be considered "just" for then the property owner is made to suffer the consequence of
being immediately deprived of his land while being made to wait for a decade or more before actually receiving
the amount necessary to cope with his loss. Nevertheless, as noted in Ansaldo v. Tantuico, Jr., there are
instances where the expropriating agency takes over the property prior to the expropriation suit, in which case
just compensation shall be determined as of the time of taking, not as of the time of filing of the action of
eminent domain.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; HOW DETERMINED; CASE AT BAR. — The
value of the property must be determined either as of the date of the taking of the property or the filing of the
complaint, "whichever came first." Even before the new rule, however, it was already held in Commissioner of
Public Highways v. Burgos that the price of the land at the time of taking, not its value after the passage of
time, represents the true value to be paid as just compensation. It was, therefore, error for the Court of
Appeals to rule that the just compensation to be paid to respondent should be determined as of the filing of the
complaint in 1990, and not the time of its taking by the NIA in 1981, because petitioner was allegedly remiss in
its obligation to pay respondent, and it was respondent who filed the complaint. In the case of Burgos, it was
also the property owner who brought the action for compensation against the government after 25 years since
the taking of his property for the construction of a road. SATDEI

130
 DECISION

MENDOZA, J p:

This is a petition for review of the decision 1 of the Court of Appeals which affirmed the decision of the
Regional Trial Court, Branch 26, Surallah, South Cotabato, ordering the National Irrigation Administration (NIA
for brevity) to pay respondent the amount of P107,517.60 as just compensation for the taking of the latter's
property.

The facts are as follows:

Respondent Clarita Vda. de Enorio is the owner of a lot in Barangay M. Roxas, Sto. Nino, South Cotabato
with an area of 39,512 square meters. The lot, known as Lot 1210-A-Pad-11-000586, is covered by TCT No.
T-22121 of the Registry of Deeds, South Cotabato. On October 6, 1981, Santiago Eslaban, Jr., Project
Manager of the NIA, approved the construction of the main irrigation canal of the NIA on the said lot, affecting
a 24,660 square meter portion thereof. Respondent's husband agreed to the construction of the NIA canal
provided that they be paid by the government for the area taken after the processing of documents by the
Commission on Audit.

Sometime in 1983, a Right-of-Way agreement was executed between respondent and the NIA (Exh. 1). The
NIA then paid respondent the amount of P4,180.00 as Right-of-Way damages. Respondent subsequently
executed an Affidavit of Waiver of Rights and Fees whereby she waived any compensation for damages to
crops and improvements which she suffered as a result of the construction of a right-of-way on her property
(Exh. 2). The same year, petitioner offered respondent the sum of P35,000,00 by way of amicable settlement
pursuant to Executive Order No. 1035, §18, which provides in part that —

Financial assistance may also be given to owners of lands acquired under C.A. 141, as
amended, for the area or portion subject to the reservation under Section 12 thereof in such
amounts as may be determined by the implementing agency/instrumentality concerned in
consultation with the Commission on Audit and the assessor's office concerned.

Respondent demanded payment for the taking of her property, but petitioner refused to pay. Accordingly,
respondent filed on December 10, 1990 a complaint against petitioner before the Regional Trial Court,
praying that petitioner be ordered to pay the sum of P111,299.55 as compensation for the portion of her
property used in the construction of the canal constructed by the NIA, litigation expenses, and the costs.

Petitioner, through the Office of the Solicitor-General, filed an Answer, in which he admitted that NIA constructed an
irrigation canal over the property of the plaintiff and that NIA paid a certain landowner whose property had been
taken for irrigation purposes, but petitioner interposed the defense that: (1) the government had not consented to
be sued; (2) the total area used by the NIA for its irrigation canal was only 2.27 hectares, not 24,600 square
meters; and (3) respondent was not entitled to compensation for the taking of her property considering that she
secured title over the property by virtue of a homestead patent under C.A. No. 141.

At the pre-trial conference, the following facts were stipulated upon: (1) that the area taken was 24,660
square meters; (2) that it was a portion of the land covered by TCT No. T-22121 in the name of respondent
and her late husband (Exh. A); and (3) that this area had been taken by the NIA for the construction of an
irrigation canal. 2

On October 18, 1993, the trial court rendered a decision, the dispositive portion of which reads:

In view of the foregoing, decision is hereby rendered in favor of plaintiff and against the
defendant ordering the defendant, National Irrigation Administration, to pay to plaintiff the
sum of One Hundred Seven Thousand Five Hundred Seventeen Pesos and Sixty Centavos
(P107,517.60) as just compensation for the questioned area of 24,660 square meters of land
owned by plaintiff and taken by said defendant NIA which used it for its main canal plus costs.

On November 15, 1993, petitioner appealed to the Court of Appeals which, on October 31, 2000, affirmed the
decision of the Regional Trial Court. Hence this petition.
131
The issues in this case are:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ WHETHER OR NOT THE

PETITION IS DISMISSIBLE FOR FAILURE TO COMPLY WITH THE
PROVISIONS OF SECTION 5, RULE 7 OF THE REVISED RULES OF CIVIL
PROCEDURE.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ WHETHER OR NOT

LAND GRANTED BY VIRTUE OF A HOMESTEAD PATENT AND
SUBSEQUENTLY REGISTERED UNDER PRESIDENTIAL DECREE 1529
CEASES TO BE PART OF THE PUBLIC DOMAIN.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ WHETHER OR NOT THE

VALUE OF JUST COMPENSATION SHALL BE DETERMINED FROM THE
TIME OF THE TAKING OR FROM THE TIME OF THE FINALITY OF THE
DECISION.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ WHETHER THE AFFIDAVIT

OF WAIVER OF RIGHTS AND FEES EXECUTED BY RESPONDENT
EXEMPTS PETITIONER FROM MAKING PAYMENT TO THE FORMER.

We shall deal with these issues in the order they are stated.

First. Rule 7, §5 of the 1997 Revised Rules on Civil Procedure provides —

Certification against forum shopping. — The plaintiff or principal party shall certify under oath
in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn
certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore
commenced any action or filed any claim involving the same issues in any court, tribunal or
quasi-judicial agency and, to the best of his knowledge, no such other action or claim is
pending therein; (b) if there is such other pending action or claim, a complete statement of the
present status thereof; and (c) if he should thereafter learn that the same or similar action or
claim has been filed or is pending, he shall report the fact within five (5) days therefrom to the
court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment
of the complaint or other initiatory pleading but shall be cause for the dismissal of the case
without prejudice, unless otherwise provided, upon motion and after hearing . . .

By reason of Rule 45, §4 of the 1997 Revised Rules on Civil Procedure, in relation to Rule 42, §2 thereof, the
requirement of a certificate of non-forum shopping applies to the filing of petitions for review on certiorari of
the decisions of the Court of Appeals, such as the one filed by petitioner.

As provided in Rule 45, §5, "The failure of the petitioner to comply with any of the foregoing requirements
regarding . . . the contents of the document which should accompany the petition shall be sufficient ground
for the dismissal thereof."

The requirement in Rule 7, §5 that the certification should be executed by the plaintiff or the principal means
that counsel cannot sign the certificate against forum-shopping. The reason for this is that the plaintiff or
principal knows better than anyone else whether a petition has previously been filed involving the same case
or substantially the same issues. Hence, a certification signed by counsel alone is defective and constitutes
a valid cause for dismissal of the petition. 4

In this case, the petition for review was filed by Santiago Eslaban, Jr., in his capacity as Project Manager of the
NIA. However, the verification and certification against forum-shopping were signed by Cesar E. Gonzales, the
administrator of the agency. The real party-in-interest is the NIA, which is a body corporate. Without being duly
authorized by resolution of the board of the corporation, neither Santiago Eslaban, Jr. nor Cesar E. Gonzales
could sign the certificate against forum-shopping accompanying the petition for review. Hence, on this ground
alone, the petition should be dismissed.

Second. Coming to the merits of the case, the land under litigation, as already stated, is covered by a transfer
certificate of title registered in the Registry Office of Koronadal, South Cotabato on May 13, 1976. This land
was originally covered by Original Certificate of Title No. (P-25592) P-9800 which was issued pursuant to a
homestead patent granted on February 18, 1960. We have held:

Whenever public lands are alienated, granted or conveyed to applicants thereof, and the deed
grant or instrument of conveyance [sales patent] registered with the Register of Deeds and the

132
 corresponding certificate and owner's duplicate of title issued, such lands are deemed
registered lands under the Torrens System and the certificate of title thus issued is as
conclusive and indefeasible as any other certificate of title issued to private lands in ordinary
or cadastral registration proceedings. 5

The Solicitor-General contends, however, that an encumbrance is imposed on the land in question in view
of §39 of the Land Registration Act (now P.D. No. 1529, §44) which provides:

Every person receiving a certificate of title in pursuance of a decree of registration, and every
subsequent purchaser of registered land who takes a certificate of title for value in good faith
shall hold the same free from all encumbrances except those noted on said certificate, and
any of the following encumbrances which may be subsisting, namely:

xxx xxx xxx

Third. Any public highway, way, private way established by law, or any government irrigation
canal or lateral thereof, where the certificate of title does not state that the boundaries of
such highway, way, irrigation canal or lateral thereof, have been determined.

As this provision says, however, the only servitude which a private property owner is required to recognize in
favor of the government is the easement of a "public highway, way, private way established by law, or any
government canal or lateral thereof where the certificate of title does not state that the boundaries thereof have
been pre-determined." This implies that the same should have been pre-existing at the time of the registration
of the land in order that the registered owner may be compelled to respect it. Conversely, where the easement
is not pre-existing and is sought to be imposed only after the land has been registered under the Land
Registration Act, proper expropriation proceedings should be had, and just compensation paid to the registered
owner thereof. 6

In this case, the irrigation canal constructed by the NIA on the contested property was built only on October
6, 1981, several years after the property had been registered on May 13, 1976. Accordingly, prior
expropriation proceedings should have been filed and just compensation paid to the owner thereof before it
could be taken for public use. DHIcET

Indeed, the rule is that where private property is needed for conversion to some public use, the first thing
obviously that the government should do is to offer to buy it. 7If the owner is willing to sell and the parties can
agree on the price and the other conditions of the sale, a voluntary transaction can then be concluded and
the transfer effected without the necessity of a judicial action. Otherwise, the government will use its power of
eminent domain, subject to the payment of just compensation, to acquire private property in order to devote it
to public use.

Third. With respect to the compensation which the owner of the condemned property is entitled to receive, it is
likewise settled that it is the market value which should be paid or "that sum of money which a person,
desirous but not compelled to buy, and an owner, willing but not compelled to sell, would agree on as a price
to be given and received therefor." 8 Further, just compensation means not only the correct amount to be paid
to the owner of the land but also the payment of the land within a reasonable time from its taking. Without
prompt payment, compensation cannot be considered "just" for then the property owner is made to suffer the
consequence of being immediately deprived of his land while being made to wait for a decade or more before
actually receiving the amount necessary to cope with his loss. 9Nevertheless, as noted in Ansaldo v. Tantuico,
Jr., 10 there are instances where the expropriating agency takes over the property prior to the expropriation
suit, in which case just compensation shall be determined as of the time of taking, not as of the time of filing of
the action of eminent domain.

Before its amendment in 1997, Rule 67, §4 provided:

Order of condemnation. When such a motion is overruled or when any party fails to defend as
required by this rule, the court may enter an order of condemnation declaring that the plaintiff
has a lawful right to take the property sought to be condemned, for the public use or purpose
described in the complaint upon the payment of just compensation to be determined as of the
date of the filing of the complaint. . .

It is now provided that —

133
 SEC. 4. Order of expropriation. — If the objections to and the defense against the right of the
plaintiff to expropriate the property are overruled, or when no party appears to defend as
required by this Rule, the court may issue an order of expropriation declaring that the plaintiff
has a lawful right to take the property sought to be expropriated, for the public use or purpose
described in the complaint, upon the payment of just compensation to be determined as of the
date of the taking of the property or the filing of the complaint, whichever came first.

A final order sustaining the right to expropriate the property may be appealed by any party
aggrieved thereby. Such appeal, however, shall not prevent the court from determining the
just compensation to be paid.

After the rendition of such an order, the plaintiff shall not be permitted to dismiss or
discontinue the proceeding except on such terms as the court deems just and
equitable. (Italics added)

Thus, the value of the property must be determined either as of the date of the taking of the property or the
filing of the complaint, "whichever came first." Even before the new rule, however, it was already held in
Commissioner of Public Highways v. Burgos 11 that the price of the land at the time of taking, not its value
after the passage of time, represents the true value to be paid as just compensation. It was, therefore, error for
the Court of Appeals to rule that the just compensation to be paid to respondent should be determined as of
the filing of the complaint in 1990, and not the time of its taking by the NIA in 1981, because petitioner was
allegedly remiss in its obligation to pay respondent, and it was respondent who filed the complaint. In the case
of Burgos, 12 it was also the property owner who brought the action for compensation against the government
after 25 years since the taking of his property for the construction of a road. SEcITC

Indeed, the value of the land may be affected by many factors. It may be enhanced on account of its taking
for public use, just as it may depreciate. As observed inRepublic v. Lara: 13

[W]here property is taken ahead of the filing of the condemnation proceedings, the value
thereof may be enhanced by the public purpose for which it is taken; the entry by the plaintiff
upon the property may have depreciated its value thereby; or there may have been a natural
increase in the value of the property from the time it is taken to the time the complaint is filed,
due to general economic conditions. The owner of private property should be compensated
only for what he actually loses; it is not intended that his compensation shall extend beyond
his loss or injury. And what he loses is only the actual value of his property at the time it is
taken. This is the only way that compensation to be paid can be truly just, i.e., "just" not only
to the individual whose property is taken, "but to the public, which is to pay for it" . . .

In this case, the proper valuation for the property in question is P16,047.61 per hectare, the price level for
1982, based on the appraisal report submitted by the commission (composed of the provincial treasurer,
assessor, and auditor of South Cotabato) constituted by the trial court to make an assessment of the
expropriated land and fix the price thereof on a per hectare basis. 14

Fourth. Petitioner finally contends that it is exempt from paying any amount to respondent because the
latter executed an Affidavit of Waiver of Rights and Fees of any compensation due in favor of the Municipal
Treasurer of Barangay Sto. Nino, South Cotabato. However, as the Court of Appeals correctly held:

[I]f NIA intended to bind the appellee to said affidavit, it would not even have bothered to give
her any amount for damages caused on the improvements/crops within the appellee's
property. This, apparently was not the case, as can be gleaned from the disbursement
voucher in the amount of P4,180.00 (page 10 of the Folder of Exhibits in Civil Case 396)
issued on September 17, 1983 in favor of the appellee, and the letter from the Office of the
Solicitor General recommending the giving of "financial assistance in the amount of
P35,000.00" to the appellee.

Thus, We are inclined to give more credence to the appellee's explanation that the waiver
of rights and fees "pertains only to improvements and crops and not to the value of the land
utilized by NIA for its main canal." 15

WHEREFORE, premises considered, the assailed decision of the Court of Appeals is hereby AFFIRMED
with MODIFICATION to the extent that the just compensation for the contested property be paid to
respondent in the amount of P16,047.61 per hectare, with interest at the legal rate of six percent (6%) per
annum from the time of taking until full payment is made. Costs against petitioner.
134
SO ORDERED.

Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Eslaban, Jr. v. Vda. de Onorio, G.R. No. 146062, [June
28, 2001], 412 PHIL 667-680)

National Power Corp. v. Henson, G.R. No. 129998, [December 29, 1998], 360 PHIL 922-931

THIRD DIVISION

[G.R. No. 129998. December 29, 1998.]

NATIONAL POWER CORPORATION, petitioner, vs. LOURDES HENSON, married to

Eugenio Galvez; JOSEFINA HENSON, married to Petronio Katigbak, JESUSA HENSON;
CORAZON HENSON, married to Jose Ricafort; ALFREDO TANCHIATCO; BIENVENIDO
DAVID; MARIA BONDOC CAPILI, married to Romeo Capili; and MIGUEL MANOLOTO,
respondents.

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ POLITICAL LAW; INHERENT POWER OF THE STATE;

EMINENT DOMAIN; JUST COMPENSATION; CRITERION IN DETERMINATION THEREOF. — The parcels of
land sought to be expropriated are undeniably idle, undeveloped, raw agricultural land, bereft of any improvement.
Except for the Henson family, all the other respondents were admittedly farmer beneficiaries under operation land
transfer of the Department of Agrarian Reform. However, the land has been reclassified as residential. The nature
and character of the land at the time of its taking is the principal criterion to determine just compensation to the
landowner. cdasia

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; ID.; PRICE OF P375.00 PER SQUARE
METER CONSIDERED JUST COMPENSATION FOR UNDEVELOPED RAW LAND IN CASE AT BAR. —
Commissioner Atienza recommended a fair market value at P375.00 per square meter. This appears to be
the closest valuation to the market value of lots in the adjoining fully developed subdivision. Considering that
the subject parcels of land are undeveloped raw land, the price of P375.00 per square meter would appear to
the Court as the just compensation for the taking of such raw land. Consequently, we agree with
Commissioner Atienza's report that the fair market value of subject parcels of land be fixed at P375.00 per
square meter.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; ID.; PAYMENT OF LEGAL INTEREST ON
COMPENSATION AWARDED FROM DATE PETITIONER WAS PLACED IN POSSESSION OF THE LAND,
PROPER IN CASE AT BAR. — The trial court and the Court of Appeals correctly required petitioner to pay
legal interest on the compensation awarded from September 11, 1990, the date petitioner was placed in
possession of the subject land, less the amount respondents had withdrawn from the deposit that petitioner
made with the Provincial Treasurer's Office.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; DOUBLE PAYMENT FOR 3,611 SQUARE
METERS OF LOT 5 NOT PROPER IN CASE AT BAR. — The trial court erroneously ordered double
payment for 3,611 square meters of lot 5 (portion) in the dispositive part of its decision, and, hence, this
must be deleted.

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; AREA OF COMMUNAL IRRIGATION CANAL
MUST BE EXCLUDED FROM EXPROPRIATION IN CASE AT BAR. — We also agree with petitioner that the
area of the communal irrigation canal consisting of 4,809 square meters must be excluded from the land to be
expropriated. To begin with, it is excluded in the amended complaint. Hence, the trial court and the Court of
Appeals erred in including the same in the area to be taken.

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCY;

NATIONAL POWER CORPORATION; EXEMPT FROM PAYMENT OF COSTS OF PROCEEDINGS. —
We, however, rule that petitioner is under its charter exempt from payment of costs of the proceedings.
DcITaC

DECISION

135
PARDO, J p:

The case is an appeal via certiorari under Rule 45 of the Revised Rules of Court from the decision of the Court
of Appeals, which affirmed with modification the decision of the Regional Trial Court, San Fernando,
Pampanga, in a special civil action for eminent domain, ordering the National Power Corporation (NPC) to pay
respondents landowners/claimants just compensation for the taking of their five (5) parcels of land, with an
area of 63,220 square meters at P400.00, per square meter, with legal interest from September 11, 1990, plus
costs of the proceedings. Cdpr

On March 21, 1990, the National Power Corporation (NPC) originally instituted with the Regional Trial Court,
Third Judicial District, Branch 46, San Fernando, Pampanga a complaint 1 for eminent domain, later amended
on October 11, 1990, for the taking for public use of five (5) parcels of land, owned or claimed by respondents,
with a total aggregate area of 58,311 square meters, for the expansion of the NPC Mexico Sub-Station. 2

Respondents are the registered owners/claimants of the five (5) parcels of land sought to be expropriated,
situated in San Jose Matulid, Mexico Pampanga, more particularly described as follows:

"Parcel of rice land, being Lot 1, 2, 3, 4, and 5 of the subdivision plan Psd-03-017121 (OLT)
and being a portion of Lot 212 of Mexico Cadastre, situated in the Barangay of San Jose
Matulid, Municipality of Mexico, province of Pampanga, Island of Luzon. Bounded on the
North by Barangay Road Calle San Jose; on the East by Lot 6, Psd-03-017121 (OLT) owned
by the National Power Corporation; on the South by Lot 101, Psd-03-017121 (OLT) being an
irrigation ditch; on the West by Lot 100, Psd-03-0017121 (OLT) being an irrigation ditch and
Barrio road, containing an aggregate area of FIFTY EIGHT THOUSAND THREE HUNDRED
ELEVEN (58,311) square meters, which parcels of land are broken down as follows with
claimants;

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Lot 1-A = 43,532 sq. m. — Henson Family

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ L

ot 2-A = 6,823 sq. m. — Alfredo Tanchiatco,

encumbered with

Land Bank of

the Phil. (LBP)

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ L

ot 3-A = 3,057 sq. m. — Bienvenido David,

encumbered with LBP

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ L

ot 4-A = 1,438 sq. m. — Maria Bondoc

Capili, encumbered

with LBP

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ L

ot 5-A = 3,461 sq. m. — Miguel Manoloto

and Henson Family

Total A = 58,311 sq. m."

and cover by Transfer Certificate of Title No. 557 in the name of Henson, et al.; Transfer Certificate of title
No. 7131/Emancipation Patent No. A-277216 in the name of Alfredo Tanchiatco; Transfer Certificate of
Title No. 7111/Emancipation Patent No. A-278086 in the name of Bienvenido David; Transfer Certificate of
 Title No. 7108/Emancipation Patent No. A-278089 in the name of Maria B. Capili; Certificate of Land
Transfer No. 4550 in the name of Miguel C. Manoloto, and Subdivision Plan Psd-03-017121 (OLT), which
is a subdivision of Lot 212, Mexico Cadastre as surveyed for Josefina Katigbak, et al. Said five (5) parcels
of land agricultural/riceland covered by Operation Land Transfer (OLT) of the Department of Agrarian
Reform. 3

Petitioner needed the entire area of the five (5) parcels of land, comprising an aggregate area of 58,311 square
meters, for the expansion of its Mexico Subdivision. 4

On March 28, 1990, petitioner filed an urgent motion to fix the provisional value of the subject parcels of land. 3

136
On April 20, 1990, respondent filed a motion to dismiss. 4 They did not challenge petitioner's right to condemn
their property, but declared that the fair market value of their property was from P180.00 to P250.00 per
square meter. 5

On July 10, 1990, the trial court denied respondents' motion to dismiss. The court did not declare that
petitioner had a lawful right to take the property sought to be expropriated. 6 However, the court fixed the
provisional value of the land at P100.00 per square meter, for a total area of 63,220 7 square meters of
respondents' property, to be deposited with the Provisional Treasurer of Pampanga. Petitioner deposited
the amount on August 29, 1990. 8

On September 5, 1990, the trial court issued a writ of possession in favor of petitioner, and, on September
11, 1990, the court's deputy sheriff placed petitioner in possession of the subject land. 9

On November 22, 1990, and December 20, 1990, the trial court granted the motions of respondents to
withdraw the deposit made by petitioner of the provisional value of their property amounting to P5,831,100.00,
with a balance of P690,900.00, remaining with the Provisional Treasurer of Pampanga. 10

On April 5, 1991, the trial court issued an order appointing three (3) commissioners to aid the in the reception
of evidence to determine just compensation for the taking of subject property. After receiving the evidence
and conducting an ocular inspection, the commissioners submitted to the court their individual reports.

Commissioner Mariano C. Tiglao, in his report dated September 10, 1992, recommended that their fair market
value of the entire 63,220 square meters property be fixed at P350.00 per square meter. Commissioner Arnold
P. Atienza, in his report dated February 24, 1993, recommended that the fair market value be fixed at P375.00
per square meter. Commissioner Victorino Oracio, in his report dated April 28, 1993, recommended that the
fair market value be fixed at P170.00 per square meter. 11

However, the trial court did not conduct a hearing on any of the reports.

On May 19, 1993, the trial court rendered judgment fixing the amount of just compensation to be paid by the
petitioner for the taking of the entire area of 63,220 squares meters at P400.00 per square meter, with legal
interest thereon computed from September 11, 1990, when petitioner was placed in possession of the land,
plus attorney's fees of P20,000.00, and costs of the proceedings. 12

In due time, petitioner appealed to the Court of Appeals. 13

On July 23, 1997, the Court Appeals rendered decision affirming that of the Regional Trial Court, except that
the award of P20,000.00 as attorney's fees was deleted. 14

Hence, this petition for review. 15

By resolution adopted on October 8, 1997, the Court required respondents to comment on the petition within
ten (10) days from notice. 16 On January 7, 1998, respondents filed their comment thereon. 17

By resolution adopted on February 2, 1998, the Court required petitioner to file a reply to the comment. 18 On
August 25, 1990, petitioner filed a reply thereto. 19

We now resolve to give due course to the petition. We modify the appealed decision. cdphil

As respondents did not challenge petitioner's right to expropriate their property, the issue presented boils
down to what is the just compensation for the taking of respondents' property for the expansion of the NPC's
Mexico Sub-station, situated in San Jose Matulid, Mexico, Pampanga.

The parcels of land sought to be expropriated are undeniably idle, undeveloped, raw agricultural land, bereft of
any improvement. Except for the Henson family, all the other respondents were admittedly farmer
beneficiaries under operation land transfer of the Department of Agrarian Reform. However, the land has been
reclassified as residential. The nature and character of the land at the time of its taking is the principal criterion
to determine just compensation to the landowner. 20

In this case, the trial court and the Court of Appeals fixed the value of the land at P400.00 per square meter,
which was the selling price of lots in the adjacent fully developed subdivision, the Santo Domingo Village
Subdivision. The land in question, however, was an undeveloped, idle land, principally agricultural in character,
though reclassified as residential. Unfortunately, the trial court, after creating a board of commissioners to help
it determine the market value of the land did not conduct a hearing on the report of the commissioners. The

137
trial court fixed the fair market value of subject land in an amount equal to the value of lots in the adjacent
fully developed subdivision. This finds no support in the evidence. The valuation was even higher than the
recommendation of anyone of the commissioners.

On the other hand, Commissioner Atienza recommended a fair market value of P375.00 per square meter.
This appears to be the closest valuation to the market value of lots in the adjoining fully developed subdivision.
Considering that the subject parcels of land are undeveloped raw land, the price of P375.00 per square meter
would appear to the Court as the just compensation for the taking of such raw land.

Consequently, we agree with Commissioner Atienza's report that the fair market value of subject parcels of
land be fixed at P375.00 per square meter.

We also agree with petitioner that the area of the communal irrigation canal consisting of 4,809 square meters
must be excluded from the land to be expropriated. To begin with, it is excluded in the amended complaint.
Hence, the trial court and the Court of Appeals erred in including the same in the area to be taken.

The trial court erroneously ordered double payment for 3,611 square meters of lot 5 (portion) in the
dispositive part of its decision, and, hence, this must be deleted.

The trial court and the Court of Appeals correctly required petitioner to pay legal interest 21 on the
compensation awarded from September 11, 1990, the date petitioner was placed in possession of the subject
land, less the amount respondents had withdrawn from the deposit that petitioner made with the Provincial
Treasurer's Office.

We however, rule that petitioner is under its charter exempt from payment of costs of the proceedings.

WHEREFORE, the decision of the Court of Appeals and that of the trial court subject of the appeal are hereby

MODIFIED.

We render judgment as follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Court fixes the amount

of P375.00, per square meter, as the just compensation to be paid to
respondents for the taking of their property consisting of five (5) parcels of
land, with a total area of 58,311 square meters, described in and covered by
Transfer Certificates of Title Nos. 557, 7131, 7111, 7108 and Certificate of
Land Transfer No. 4550, which parcels of land are broken down as follows:

Lot 1-A, with an area of 43,532 square meters belonging to Lourdes Henson,
Josefina Henson, Jesusa Henson and Corazon Henson;

Lot 2-A, with an area of 6,823 square meters belonging to Alfredo

Tanchiatco;

Lot 3-A, with an area of 3,057 square meters belonging to Bienvenido

David (TCT No. 7111)

Lot 4-A, with an area of 1,438 square meters belonging to Maria Bondoc
Capili (TCT No. 7108)

Lot 5-A, with an area of 3,461 square meters belonging to Miguel Manaloto
(150 square meters), Certificate of Land Transfer No. 4550 and Henson
Family (3,311 square meters),

deducting therefrom the amounts they had withdrawn from the deposit of petitioner for the provisional value
of said parcels of land. 22

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ With legal interest thereon at 6% per annum

commencing on September 11, 1990, until the finality of this decision, and at 12% per annum therefrom on
the remaining unpaid amount until full payment.

Let this decision be recorded in the office of the Register of Deeds of Pampanga.

No costs in all instances.

SO ORDERED. dctai

Romero, Kapunan and Purisima, JJ ., concur.

138
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (National Power Corp. v. Henson, G.R. No. 129998,
[December 29, 1998], 360 PHIL 922-931)

City of Cebu v. Spouses Dedamo, G.R. No. 142971, [May 7, 2002], 431 PHIL 524-535

FIRST DIVISION

[G.R. No. 142971. May 7, 2002.]

THE CITY OF CEBU, petitioner, vs. SPOUSES APOLONIO and BLASA DEDAMO,
respondents.

City Attorney for petitioner.

Zosa & Quijano Law Office for respondents.

SYNOPSIS

Petitioner filed the instant petition for review on certiorari assailing the decision of the Court of Appeals which
affirmed in toto the decision of the Regional Trial Court of Cebu City in Civil Case No. CEB-14632, a case for
eminent domain, which fixed the valuation of the land subject thereof on the basis of the recommendation of
the commissioners appointed by it. Petitioner questioned the land valuation asserting that just compensation
should be determined as of the date of the filing of the complaint, which in this case should be 17 September
1993, and not at the time the property was actually taken in 1994, pursuant to the Court's decision in "National
Power Corporation vs. Court of Appeals." In their Comment, respondents maintained that the trial court
decided the case on the basis of the agreement of the parties that just compensation shall be fixed by
commissioners appointed by the court; that the petitioner did not interpose any serious objection to the
commissioners' report; hence, it was estopped from attacking the report on which the decision was based.

In denying the petition, the Court held that the applicable law as to the point of reckoning for the determination
of just compensation is Section 19 of Republic Act No. 7160, which expressly provides that just compensation
shall be determined as of the time of actual taking. The petitioner had misread the Court's ruling in the above-
mentioned case. The Court did not categorically rule in that case that just compensation should be determined
as of the filing of the complaint. The Court explicitly stated therein that although the general rule in
determining just compensation in eminent domain is the value of the property as of the date of the filing of the
complaint, the rule "admits of an exception: where the Court fixed the value of the property as of the date it
was taken, and not at the date of the commencement of the expropriation proceedings."

Moreover, it was too late for petitioner to question the valuation without violating the principle of equitable
estoppel. Records showed that petitioner consented to conform with the valuation recommended by the
commissioners. It cannot detract from its agreement now and assail the correctness of the
commissioners' assessment.

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ POLITICAL LAW; POWER OF EMINENT DOMAIN;

EXPLAINED. — Eminent domain is a fundamental State power that is inseparable from sovereignty. It is the
Government's right to appropriate, in the nature of a compulsory sale to the State, private property for public
use or purpose. However, the Government must pay the owner thereof just compensation as consideration
therefor. AEDCHc

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; THE LOCAL GOVERNMENT CODE OF 1991,
SECTION 19, APPLICABLE TO THE CASE AT BAR; ASCERTAINMENT OF JUST COMPENSATION; JUST
COMPENSATION SHALL BE DETERMINED AS OF THE TIME OF ACTUAL TAKING. — In the case at bar,
the applicable law as to the point of reckoning for the determination of just compensation is Section 19 of R.A.
No. 7160, which expressly provides that just compensation shall be determined as of the time of actual taking.
139
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; ID.; GENERAL RULE; EXCEPTION. — The
petitioner has misread our ruling in The National Power Corp. vs. Court of Appeals. We did not categorically
rule in that case that just compensation should be determined as of the filing of the complaint. We explicitly
stated therein that although the general rule in determining just compensation in eminent domain is the value
of the property as of the date of the filing of the complaint, the rule "admits of an exception: where this Court
fixed the value of the property as of the date it was taken and not at the date of the commencement of the
expropriation proceedings."

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; SECTION 4, RULE 67 OF THE RULES OF

COURT, A PROCEDURAL LAW CANNOT PREVAIL

OVER R.A. NO. 7160, A SUBSTANTIVE LAW. — While Section 4, Rule 67 of the Rules of Court provides
that just compensation shall be determined at the time of the filing of the complaint for expropriation, such law
cannot prevail overR.A. 7160, which is a substantive law.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CIVIL LAW; ESTOPPEL IN PAIS; PETITIONER IS

ESTOPPED FROM QUESTIONING THE VALUATION OF COMMISSIONERS DUE TO ITS PNOC
AGREEMENT TO CONFORM THEREWITH. — Furthermore, during the hearing on 22 November 1996,
petitioner did not interpose a serious objection. It is therefore too late for petitioner to question the valuation
now without violating the principle of equitable estoppel. Estoppel in pais arises when one, by his acts,
representations or admissions, or by his own silence when he ought to speak out, intentionally or through
culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts
on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts.
Records show that petitioner consented to conform with the valuation recommended by the commissioners. It
cannot detract from its agreement now and assail correctness of the commissioners' assessment.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; CONTRACTS HAVE THE FORCE OF LAW

BETWEEN PARTIES AND SHOULD BE COMPLIED WITH IN GOOD FAITH. — More than anything else, the
parties, by a solemn document freely and voluntarily agreed upon by them, agreed to be bound by the report
of the commission and approved by the trial court. The agreement is a contract between the parties. It has the
force of law between them and should be complied with in good faith. cdasia2005

DECISION

DAVIDE, JR., C.J p:

In its petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner City of Cebu
assails the decision of 11 October 1999 of the Court of Appeals in CA-G.R. CV No. 59204 1 affirming the
judgment of 7 May 1996 of the Regional Trial Court, Branch 13, Cebu City, in Civil Case No. CEB-14632, a
case for eminent domain, which fixed the valuation of the land subject thereof on the basis of the
recommendation of the commissioners appointed by it.

The material operative facts are not disputed.

On 17 September 1993, petitioner City of Cebu filed in Civil Case No. CEB-14632 a complaint for
eminent domain against respondents spouses Apolonio and Blasa Dedamo. The petitioner alleged
therein that it needed the following parcels of land of respondents, to wit:

Lot No. 1527

Area 1,146 square meters

Tax Declaration 03472

Title No. 31833

Market value P240,660.00

Assessed Value P72,200.00

Lot No. 1528

Area 793 square meters

Area sought to be 478 square meters

140
 expropriated

Tax Declaration 03450

Title No. 31832

Market value for the whole lot P1,666,530.00

Market value of the

Area to be expropriated P100,380.00

Assessed Value P49,960.00

for a public purpose, i.e., for the construction of a public road which shall serve as an access/relief road of
Gorordo Avenue to extend to the General Maxilum Avenue and the back of Magellan International Hotel
Roads in Cebu City. The lots are the most suitable site for the purpose. The total area sought to be
expropriated is 1,624 square meters with an assessed value of P1,786,400. Petitioner deposited with the
Philippine National Bank the amount of P51,156 representing 15% of the fair market value of the property
to enable the petitioner to take immediate possession of the property pursuant to Section 19 of R.A. No.
7160. 2

Respondents, filed a motion to dismiss the complaint because the purpose for which their property was to be
expropriated was not for a public purpose but for benefit of a single private entity, the Cebu Holdings, Inc.
Petitioner could simply buy directly from them the property at its fair market value if it wanted to, just like what
it did with the neighboring lots. Besides, the price offered was very low in light of the consideration of P20,000
per square meter, more or less, which petitioner paid to the neighboring lots. Finally, respondents alleged that
they have no other land in Cebu City.

A pre-trial was thereafter had.

On 23 August 1994, petitioner filed a motion for the issuance of a writ of possession pursuant to Section 19
of R.A. No. 7160. The motion was granted by the trial court on 21 September 1994. 3

On 14 December 1994, the parties executed and submitted to the trial court an Agreement 4 wherein they
declared that they have partially settled the case and in consideration thereof they agreed:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the SECOND

PARTY hereby conforms to the intention to [sic] the FIRST PARTY in
expropriating their parcels of land in the above-cited case as for public
purpose and for the benefit of the general public;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the SECOND PARTY

agrees to part with the ownership of the subject parcels of land in favor of the
FIRST PARTY provided the latter will pay just compensation for the same in
the amount determined by the court after due notice and hearing;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That in the meantime the

SECOND PARTY agrees to receive the amount of ONE MILLION SEVEN
HUNDRED EIGHTY SIX THOUSAND FOUR HUNDRED PESOS
(1,786,400.00) as provisional payment for the subject parcels of land, without
prejudice to the final valuation as may be determined by the court;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the FIRST PARTY in

the light of the issuance of the Writ of Possession Order dated September
21, 1994 issued by the Honorable Court, agreed to take possession over that
portion of the lot sought to be expropriated where the house of the SECOND
PARTY was located only after fifteen (15) days upon the receipt of the
SECOND PARTY of the amount of P1,786,400.00;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the SECOND PARTY

upon receipt of the aforesaid provisional amount, shall turn over to the FIRST
PARTY the title of the lot and within the lapse of the fifteen (15) days grace
 period will voluntarily demolish their house and the other structure that may be
located thereon at their own expense;

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the FIRST PARTY and

the SECOND PARTY jointly petition the Honorable Court to render judgment in
said Civil Case No. CEB-14632 in accordance with this AGREEMENT;
141
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the judgment sought to
be rendered under this agreement shall be followed by a supplemental
judgment fixing the just compensation for the property of the SECOND
PARTY after the Commissioners appointed by this Honorable Court to
determine the same shall have rendered their report and approved by the
court.

Pursuant to said agreement, the trial court appointed three commissioners to determine the just
compensation of the lots sought to be expropriated. The commissioners were Palermo M. Lugo, who was
nominated by petitioner and who was designated as Chairman; Alfredo Cisneros, who was nominated by
respondents; and Herbert E. Buot, who was designated by the trial court. The parties agreed to their
appointment.

Thereafter, the commissioners submitted their report, which contained their respective assessments of
and recommendation as to the valuation of the property.

On the basis of the commissioners' report and after due deliberation thereon, the trial court rendered
its decision on 7 May 1996, 5 the decretal portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in accordance with

the report of the commissioners.

Plaintiff is directed to pay Spouses Apolonio S. Dedamo and Blasa Dedamo the sum of pesos:

TWENTY FOUR MILLION EIGHT HUNDRED SIXTY-FIVE THOUSAND AND NINE

HUNDRED THIRTY (P24,865,930.00) representing the compensation mentioned in
the Complaint.

Plaintiff and defendants are directed to pay the following commissioner's fee;

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To Palermo Lugo - P21,000.00

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To Herbert Buot - P19,000.00

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ T

o Alfredo Cisneros - P19,000.00

Without pronouncement as to cost.

SO ORDERED.

Petitioner filed a motion for reconsideration on the ground that the commissioners' report was inaccurate
since it included an area which was not subject to expropriation. More specifically, it contended that Lot No.
1528 contains 793 square meters but the actual area to be expropriated is only 478 square meters. The
remaining 315 square meters is the subject of a separate expropriation proceeding in Civil Case No. CEB-
8348, then pending before Branch 9 of the Regional Trial Court of Cebu City.

On 16 August 1996, the commissioners submitted an amended assessment for the 478 square meters of Lot
No. 1528 and fixed it at P12,824.10 per square meter, or in the amount of P20,826,339.50. The assessment
was approved as the just compensation thereof by the trial court in its Order of 27 December 1996. 6
Accordingly, the dispositive portion of the decision was amended to reflect the new valuation.

Petitioner elevated the case to the Court of Appeals, which docketed the case as CA-G.R. CV No. 59204.
Petitioner alleged that the lower court erred in fixing the amount of just compensation at P20,826,339.50. The
just compensation should be based on the prevailing market price of the property at the commencement of
the expropriation proceedings.

The petitioner did not convince the Court of Appeals. In its decision of 11 October 1999, 7 the Court of Appeals
affirmed in toto the decision of the trial court.

Still unsatisfied, petitioner filed with us the petition for review in the case at bar. It raises the sole issue of
whether just compensation should be determined as of the date of the filing of the complaint. It asserts that it
should be, which in this case should be 17 September 1993 and not at the time the property was actually
taken in 1994, pursuant to the decision in "National Power Corporation vs. Court of Appeals." 8

In their Comment, respondents maintain that the Court of Appeals did not err in affirming the decision of the trial
court because (1) the trial court decided the case on the basis of the agreement of the parties that just
compensation shall be fixed by commissioners appointed by the court; (2) petitioner did not interpose any
serious objection to the commissioners' report of 12 August 1996 fixing the just compensation of the 1,624-
square meter lot at P20,826,339.50; hence, it was estopped from attacking the report on which the decision

142
was based; and (3) the determined just compensation fixed is even lower than the actual value of the property
at the time of the actual taking in 1994.

Eminent domain is a fundamental State power that is inseparable from sovereignty. It is the Government's right
to appropriate, in the nature of a compulsory sale to the State, private property for public use or purpose. 9
However, the Government must pay the owner thereof just compensation as consideration therefor.

In the case at bar, the applicable law as to the point of reckoning for the determination of just compensation is
Section 19 of R.A. No. 7160, which expressly provides that just compensation shall be determined as of the
time of actual taking. The Section reads as follows:

SECTION 19. Eminent Domain. — A local government unit may, through its chief executive
and acting pursuant to an ordinance, exercise the power of eminent domain for public use, or
purpose or welfare for the benefit of the poor and the landless, upon payment of just
compensation, pursuant to the provisions of the Constitution and pertinent laws: Provided,
however, That the power of eminent domain may not be exercised unless a valid and definite
offer has been previously made to the owner, and such offer was not accepted: Provided,
further, That the local government unit may immediately take possession of the property upon
the filing of the expropriation proceedings and upon making a deposit with the proper court of
at least fifteen percent (15%) of the fair market value of the property based on the current tax
declaration of the property to be expropriated: Provided finally, That, the amount to be paid for
the expropriated property shall be determined by the proper court, based on the fair market
value at the time of the taking of the property.

The petitioner has misread our ruling in The National Power Corp. vs. Court of Appeals. 10 We did not
categorically rule in that case that just compensation should be determined as of the filing of the complaint.
We explicitly stated therein that although the general rule in determining just compensation in eminent domain
is the value of the property as of the date of the filing of the complaint, the rule "admits of an exception: where
this Court fixed the value of the property as of the date it was taken and not at the date of the commencement
of the expropriation proceedings."

Also, the trial court followed the then governing procedural law on the matter, which was Section 5 of Rule
67 of the Rules of Court, which provided as follows:

SEC. 5. Ascertainment of compensation. — Upon the entry of the order of condemnation, the
court shall appoint not more than three (3) competent and disinterested persons as
commissioners to ascertain and report to the court the just compensation for the property
sought to be taken. The order of appointment shall designate the time and place of the first
session of the hearing to be held by the commissioners and specify the time within which
their report is to be filed with the court.

More than anything else, the parties, by a solemn document freely and voluntarily agreed upon by them,
agreed to be bound by the report of the commission and approved by the trial court. The agreement is a
contract between the parties. It has the force of law between them and should be complied with in good faith.
Article 1159 and 1315 of the Civil Code explicitly provides:

Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and
law.

Furthermore, during the hearing on 22 November 1996, petitioner did not interpose a serious objection. 11 It is
therefore too late for petitioner to question the valuation now without violating the principle of equitable
estoppel. Estoppel in pais arises when one, by his acts, representations or admissions, or by his own silence
when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain
facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former
is permitted to deny the existence of such facts. 12 Records show that petitioner consented to conform with
the valuation recommended by the commissioners. It cannot detract from its agreement now and assail
correctness of the commissioner's assessment.

143
Finally, while Section 4, Rule 67 of the Rules of Court provides that just compensation shall be determined at
the time of the filing of the complaint for expropriation, 13such law cannot prevail over R.A. 7160, which is a
substantive law. 14

WHEREFORE, finding no reversible error in the assailed judgment of the Court of Appeals in CA-G.R. CV
No. 59204, the petition in this case is hereby DENIED. CcSTHI

No pronouncement as to costs.

SO ORDERED.

Puno, Kapunan, Ynares-Santiago and Austria-Martinez, JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (City of Cebu v. Spouses Dedamo, G.R. No. 142971, [May
7, 2002], 431 PHIL 524-535)

Republic v. Lim, G.R. No. 161656, [June 29, 2005], 500 PHIL 652-672

EN BANC

[G.R. No. 161656. June 29, 2005.]

REPUBLIC OF THE PHILIPPINES, GENERAL ROMEO ZULUETA, COMMODORE

EDGARDO GALEOS, ANTONIO CABALUNA, DOROTEO MANTOS &
FLORENCIO BELOTINDOS, petitioners, vs. VICENTE G. LIM, respondent.

RESOLUTION

SANDOVAL-GUTIERREZ, J p:

Justice is the first virtue of social institutions. 1 When the state wields its power of eminent domain, there arises
a correlative obligation on its part to pay the owner of the expropriated property a just compensation. If it fails,
there is a clear case of injustice that must be redressed. In the present case fifty-seven (57) years have lapsed
from the time the Decision in the subject expropriation proceedings became final, but still the Republic of the
Philippines, herein petitioner, has not compensated the owner of the property. To tolerate such prolonged
inaction on its part is to encourage distrust and resentment among our people — the very vices that corrode
the ties of civility and tempt men to act in ways they would otherwise shun.

A revisit of the pertinent facts in the instant case is imperative.

On September 5, 1938, the Republic of the Philippines (Republic) instituted a special civil action for
expropriation with the Court of First Instance (CFI) of Cebu, docketed as Civil Case No. 781, involving Lots
932 and 939 of the Banilad Friar Land Estate, Lahug, Cebu City, for the purpose of establishing a military
reservation for the Philippine Army. Lot 932 was registered in the name of Gervasia Denzon under Transfer
Certificate of Title (TCT) No. 14921 with an area of 25,137 square meters, while Lot 939 was in the name of
Eulalia Denzon and covered by TCT No. 12560 consisting of 13,164 square meters.

After depositing P9,500.00 with the Philippine National Bank, pursuant to the Order of the CFI dated October
19, 1938, the Republic took possession of the lots. Thereafter, or on May 14, 1940, the CFI rendered its
Decision ordering the Republic to pay the Denzons the sum of P4,062.10 as just compensation.

The Denzons interposed an appeal to the Court of Appeals but it was dismissed on March 11, 1948. An
entry of judgment was made on April 5, 1948.

In 1950, Jose Galeos, one of the heirs of the Denzons, filed with the National Airports Corporation a claim for
rentals for the two lots, but it "denied knowledge of the matter." Another heir, Nestor Belocura, brought the
claim to the Office of then President Carlos Garcia who wrote the Civil Aeronautics Administration and the
Secretary of National Defense to expedite action on said claim. On September 6, 1961, Lt. Manuel Cabal
144
rejected the claim but expressed willingness to pay the appraised value of the lots within a reasonable
time. ETaSDc

For failure of the Republic to pay for the lots, on September 20, 1961, the Denzons' successors-in-interest,
Francisca Galeos-Valdehueza and Josefina Galeos-Panerio, 2filed with the same CFI an action for recovery
of possession with damages against the Republic and officers of the Armed Forces of the Philippines in
possession of the property. The case was docketed as Civil Case No. R-7208.

In the interim or on November 9, 1961, TCT Nos. 23934 and 23935 covering Lots 932 and 939 were issued
in the names of Francisca Valdehueza and Josefina Panerio, respectively. Annotated thereon was the phrase
"subject to the priority of the National Airports Corporation to acquire said parcels of land, Lots 932 and 939
upon previous payment of a reasonable market value."

On July 31, 1962, the CFI promulgated its Decision in favor of Valdehueza and Panerio, holding that they are
the owners and have retained their right as such over Lots 932 and 939 because of the Republic's failure to
pay the amount of P4,062.10, adjudged in the expropriation proceedings. However, in view of the annotation
on their land titles, they were ordered to execute a deed of sale in favor of the Republic. In view of "the
differences in money value from 1940 up to the present," the court adjusted the market value at P16,248.40, to
be paid with 6% interest per annum from April 5, 1948, date of entry in the expropriation proceedings, until full
payment.

After their motion for reconsideration was denied, Valdehueza and Panerio appealed from the CFI Decision, in
view of the amount in controversy, directly to this Court. The case was docketed as No. L-21032. 3 On May
19, 1966, this Court rendered its Decision affirming the CFI Decision. It held that Valdehueza and Panerio are
still the registered owners of Lots 932 and 939, there having been no payment of just compensation by the
Republic. Apparently, this Court found nothing in the records to show that the Republic paid the owners or their
successors-in-interest according to the CFI decision. While it deposited the amount of P9,500.00, and said
deposit was allegedly disbursed, however, the payees could not be ascertained.

Notwithstanding the above finding, this Court still ruled that Valdehueza and Panerio are not entitled to recover
possession of the lots but may only demand the payment of their fair market value, ratiocinating as follows:

"Appellants would contend that: (1) possession of Lots 932 and 939 should be restored to
them as owners of the same; (2) the Republic should be ordered to pay rentals for the use
of said lots, plus attorney's fees; and (3) the court a quo in the present suit had no power to
fix the value of the lots and order the execution of the deed of sale after payment.

It is true that plaintiffs are still the registered owners of the land, there not having been a
transfer of said lots in favor of the Government. The records do not show that the Government
paid the owners or their successors-in-interest according to the 1940 CFI decision although,
as stated, P9,500.00 was deposited by it, and said deposit had been disbursed. With the
records lost, however, it cannot be known who received the money (Exh. 14 says: 'It is further
certified that the corresponding Vouchers and pertinent Journal and Cash Book were
destroyed during the last World War, and therefore the names of the payees concerned
cannot be ascertained.') And the Government now admits that there is no available record
showing that payment for the value of the lots in question has been made (Stipulation of
Facts, par. 9, Rec. on Appeal, p. 28). SacDIE

The points in dispute are whether such payment can still be made and, if so, in what amount.
Said lots have been the subject of expropriation proceedings. By final and executory
judgment in said proceedings, they were condemned for public use, as part of an airport, and
ordered sold to the Government. In fact, the abovementioned title certificates secured by
plaintiffs over said lots contained annotations of the right of the National Airports Corporation
(now CAA) to pay for and acquire them. It follows that both by virtue of the judgment, long
final, in the expropriation suit, as well as the annotations upon their title certificates, plaintiffs
are not entitled to recover possession of their expropriated lots — which are still devoted to
the public use for which they were expropriated — but only to demand the fair market value of
the same."

Meanwhile, in 1964, Valdehueza and Panerio mortgaged Lot 932 to Vicente Lim, herein respondent, 4 as
security for their loans. For their failure to pay Lim despite demand, he had the mortgage foreclosed in
1976. Thus, TCT No. 23934 was cancelled, and in lieu thereof, TCT No. 63894 was issued in his name.
145
On August 20, 1992, respondent Lim filed a complaint for quieting of title with the Regional Trial Court
(RTC), Branch 10, Cebu City, against General Romeo Zulueta, as Commander of the Armed Forces of the
Philippines, Commodore Edgardo Galeos, as Commander of Naval District V of the Philippine Navy, Antonio
Cabaluna, Doroteo Mantos and Florencio Belotindos, herein petitioners. Subsequently, he amended the
complaint to implead the Republic.

On May 4, 2001, the RTC rendered a decision in favor of respondent, thus:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff Vicente Lim and against all
defendants, public and private, declaring plaintiff Vicente Lim the absolute and exclusive
owner of Lot No. 932 with all the rights of an absolute owner including the right to possession.
The monetary claims in the complaint and in the counter claims contained in the answer of
defendants are ordered Dismissed.

Petitioners elevated the case to the Court of Appeals, docketed therein as CA-G.R. CV No. 72915. In its

Decision 5 dated September 18, 2003, the Appellate Court sustained the RTC Decision, thus:

"Obviously, defendant-appellant Republic evaded its duty of paying what was due to the
landowners. The expropriation proceedings had already become final in the late 1940's and
yet, up to now, or more than fifty (50) years after, the Republic had not yet paid the
compensation fixed by the court while continuously reaping benefits from the expropriated
property to the prejudice of the landowner. . . . This is contrary to the rules of fair play because
the concept of just compensation embraces not only the correct determination of the amount
to be paid to the owners of the land, but also the payment for the land within a reasonable
time from its taking. Without prompt payment, compensation cannot be considered "just" for
the property owner is made to suffer the consequence of being immediately deprived of his
land while being made to wait for a decade or more, in this case more than 50 years, before
actually receiving the amount necessary to cope with the loss. To allow the taking of the
landowners' properties, and in the meantime leave them empty-handed by withholding
payment of compensation while the government speculates on whether or not it will pursue
expropriation, or worse, for government to subsequently decide to abandon the property and
return it to the landowners, is undoubtedly an oppressive exercise of eminent domain that
must never be sanctioned. (Land Bank of the Philippines vs. Court of Appeals, 258 SCRA
404).

xxx xxx xxx

An action to quiet title is a common law remedy for the removal of any cloud or doubt or
uncertainty on the title to real property. It is essential for the plaintiff or complainant to have a
legal or equitable title or interest in the real property, which is the subject matter of the action.
Also the deed, claim, encumbrance or proceeding that is being alleged as cloud on plaintiff's
title must be shown to be in fact invalid or inoperative despite its prima facie appearance of
validity or legal efficacy (Robles vs. Court of Appeals, 328 SCRA 97). In view of the
foregoing discussion, clearly, the claim of defendant-appellant Republic constitutes a cloud,
doubt or uncertainty on the title of plaintiff-appellee Vicente Lim that can be removed by an
action to quiet title. ESDHCa

WHEREFORE, in view of the foregoing, and finding no reversible error in the appealed May
4, 2001 Decision of Branch 9, Regional Trial Court of Cebu City, in Civil Case No. CEB-
12701, the said decision is UPHELD AND AFFIRMED. Accordingly, the appeal is
DISMISSED for lack of merit."

Undaunted, petitioners, through the Office of the Solicitor General, filed with this Court a petition for review on
certiorari alleging that the Republic has remained the owner of Lot 932 as held by this Court in Valdehueza vs.
Republic. 6

In our Resolution dated March 1, 2004, we denied the petition outright on the ground that the Court of Appeals
did not commit a reversible error. Petitioners filed an urgent motion for reconsideration but we denied the same
with finality in our Resolution of May 17, 2004.

146
On May 18, 2004, respondent filed an ex-parte motion for the issuance of an entry of judgment. We only
noted the motion in our Resolution of July 12, 2004.

On July 7, 2004, petitioners filed an urgent plea/motion for clarification, which is actually asecond motion for
reconsideration. Thus, in our Resolution of September 6, 2004, we simply noted without action the motion
considering that the instant petition was already denied with finality in our Resolution of May 17, 2004.

On October 29, 2004, petitioners filed a very urgent motion for leave to file a motion for reconsideration of
our Resolution dated September 6, 2004 (with prayer to refer the case to the En Banc). They maintain that
the Republic's right of ownership has been settled in Valdehueza.

The basic issue for our resolution is whether the Republic has retained ownership of Lot 932 despite its failure
to pay respondent's predecessors-in-interest the just compensation therefor pursuant to the judgment of the
CFI rendered as early as May 14, 1940.

Initially, we must rule on the procedural obstacle.

While we commend the Republic for the zeal with which it pursues the present case, we reiterate that its urgent
motion for clarification filed on July 7, 2004 is actually a second motion for reconsideration. This motion is
prohibited under Section 2, Rule 52, of the 1997 Rules of Civil Procedure, as amended, which provides:

"Sec. 2. Second motion for reconsideration. — No second motion for reconsideration of

a judgment or final resolution by the same party shall be entertained."

Consequently, as mentioned earlier, we simply noted without action the motion since petitioners' petition was
already denied with finality.

Considering the Republic's urgent and serious insistence that it is still the owner of Lot 932 and in the interest
of justice, we take another hard look at the controversial issue in order to determine the veracity of petitioner's
stance.

One of the basic principles enshrined in our Constitution is that no person shall be deprived of his private
property without due process of law; and in expropriation cases, an essential element of due process is that
there must be just compensation whenever private property is taken for public use. 7 Accordingly, Section 9,
Article III, of our Constitution mandates: "Private property shall not be taken for public use without just
compensation."

The Republic disregarded the foregoing provision when it failed and refused to pay respondent's
predecessors-in-interest the just compensation for Lots 932 and 939. The length of time and the manner with
which it evaded payment demonstrate its arbitrary high-handedness and confiscatory attitude. The final
judgment in the expropriation proceedings (Civil Case No. 781) was entered on April 5, 1948. More than half of
a century has passed, yet, to this day, the landowner, now respondent, has remained empty-handed.
Undoubtedly, over 50 years of delayed payment cannot, in any way, be viewed as fair. This is more so when
such delay is accompanied by bureaucratic hassles. Apparent from Valdehueza is the fact that respondent's
predecessors-in-interest were given a "run around" by the Republic's officials and agents. In 1950, despite the
benefits it derived from the use of the two lots, the National Airports Corporation denied knowledge of the claim
of respondent's predecessors-in-interest. Even President Garcia, who sent a letter to the Civil Aeronautics
Administration and the Secretary of National Defense to expedite the payment, failed in granting relief to them.
And, on September 6, 1961, while the Chief of Staff of the Armed Forces expressed willingness to pay the
appraised value of the lots, nothing happened. aIcDCH

The Court of Appeals is correct in saying that Republic's delay is contrary to the rules of fair play, as "just
compensation embraces not only the correct determination of the amount to be paid to the owners of the land,
but also the payment for the land within a reasonable time from its taking. Without prompt payment,
compensation cannot be considered 'just.'" In jurisdictions similar to ours, where an entry to the expropriated
property precedes the payment of compensation, it has been held that if the compensation is not paid in a
reasonable time, the party may be treated as a trespasser ab initio. 8

Corollarily, in Provincial Government of Sorsogon vs. Vda. De Villaroya, 9 similar to the present case, this

Court expressed its disgust over the government's vexatious delay in the payment of just compensation, thus:

"The petitioners have been waiting for more than thirty years to be paid for their land which was
taken for use as a public high school. As a matter of fair procedure, it is the duty of the
Government, whenever it takes property from private persons against their will, to supply all
147
 required documentation and facilitate payment of just compensation. The imposition of
unreasonable requirements and vexatious delays before effecting payment is not only
galling and arbitrary but a rich source of discontent with government. There should be some
kind of swift and effective recourse against unfeeling and uncaring acts of middle or lower
level bureaucrats."

We feel the same way in the instant case.

More than anything else, however, it is the obstinacy of the Republic that prompted us to dismiss its petition
outright. As early as May 19, 1966, in Valdehueza, this Court mandated the Republic to pay respondent's
predecessors-in-interest the sum of P16,248.40 as "reasonable market value of the two lots in question."
Unfortunately, it did not comply and allowed several decades to pass without obeying this Court's mandate.
Such prolonged obstinacy bespeaks of lack of respect to private rights and to the rule of law, which we cannot
countenance. It is tantamount to confiscation of private property. While it is true that all private properties are
subject to the need of government, and the government may take them whenever the necessity or the
exigency of the occasion demands, however, the Constitution guarantees that when this governmental right of
expropriation is exercised, it shall be attended by compensation. 10 From the taking of private property by the
government under the power of eminent domain, there arises an implied promise to compensate the owner for
his loss. 11

Significantly, the above-mentioned provision of Section 9, Article III of the Constitution is not a grant but a
limitation of power. This limiting function is in keeping with the philosophy of the Bill of Rights against the
arbitrary exercise of governmental powers to the detriment of the individual's rights. Given this function, the
provision should therefore be strictly interpreted against the expropriator, the government, and liberally in favor
of the property owner. 12

Ironically, in opposing respondent's claim, the Republic is invoking this Court's Decision in Valdehueza, a
Decision it utterly defied. How could the Republic acquire ownership over Lot 932 when it has not paid its
owner the just compensation, required by law, for more than 50 years? The recognized rule is that title to
the property expropriated shall pass from the owner to the expropriator only upon full payment of the just
compensation. Jurisprudence on this settled principle is consistent both here and in other democratic
jurisdictions. In Association of Small Landowners in the Philippines, Inc. et al., vs. Secretary of Agrarian
Reform, 13 thus:

"Title to property which is the subject of condemnation proceedings does not vest the
condemnor until the judgment fixing just compensation is entered and paid, but the
condemnor's title relates back to the date on which the petition under the Eminent
Domain Act, or the commissioner's report under the Local Improvement Act, is filed.

. . . Although the right to appropriate and use land taken for a canal is complete at the time
of entry, title to the property taken remains in the owner until payment is actually made.
(Emphasis supplied.)

In Kennedy v. Indianapolis, the US Supreme Court cited several cases holding that title to
property does not pass to the condemnor until just compensation had actually been made. In
fact, the decisions appear to be uniform to this effect. As early as 1838, in Rubottom v.
McLure, it was held that 'actual payment to the owner of the condemned property was a
condition precedent to the investment of the title to the property in the State' albeit 'not to the
appropriation of it to public use.' InRexford v. Knight, the Court of Appeals of New York said
that the construction upon the statutes was that the fee did not vest in the State until the
payment of the compensation although the authority to enter upon and appropriate the land
was complete prior to the payment. Kennedy further said that 'both on principle and authority
the rule is . . . that the right to enter on and use the property is complete, as soon as the
property is actually appropriated under the authority of law for a public use, but that the title
does not pass from the owner without his consent, until just compensation has been made to
him."

Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes, that:

'If the laws which we have exhibited or cited in the preceding discussion are attentively
examined it will be apparent that the method of expropriation adopted in this
148
 jurisdiction is such as to afford absolute reassurance that no piece of land can be
finally and irrevocably taken from an unwilling owner until compensation is paid . . .'"
(Emphasis supplied.)

Clearly, without full payment of just compensation, there can be no transfer of title from the landowner to the
expropriator. Otherwise stated, the Republic's acquisition of ownership is conditioned upon the full payment
of just compensation within a reasonable time. 14

Significantly, in Municipality of Biñan v. Garcia 15 this Court ruled that the expropriation of lands consists
of two stages, to wit:

". . . The first is concerned with the determination of the authority of the plaintiff to exercise the
power of eminent domain and the propriety of its exercise in the context of the facts involved
in the suit. It ends with an order, if not of dismissal of the action, "of condemnation declaring
that the plaintiff has a lawful right to take the property sought to be condemned, for the public
use or purpose described in the complaint, upon the payment of just compensation to be
determined as of the date of the filing of the complaint" . . . ECDaTI

The second phase of the eminent domain action is concerned with the determination by the
court of "the just compensation for the property sought to be taken." This is done by the court
with the assistance of not more than three (3) commissioners. . . .

It is only upon the completion of these two stages that expropriation is said to have been completed. In
Republic v. Salem Investment Corporation, 16 we ruled that, "the process is not completed until payment of
just compensation." Thus, here, the failure of the Republic to pay respondent and his predecessors-in-interest
for a period of 57 years rendered the expropriation process incomplete.

The Republic now argues that under Valdehueza, respondent is not entitled to recover possession of Lot 932
but only to demand payment of its fair market value. Of course, we are aware of the doctrine that "non-
payment of just compensation (in an expropriation proceedings) does not entitle the private landowners to
recover possession of the expropriated lots." This is our ruling in the recent cases of Republic of the
Philippines vs. Court of Appeals, et al., 17 and Reyes vs. National Housing Authority. 18 However, the facts
of the present case do not justify its application. It bears stressing that the Republic was ordered to pay just
compensation twice, thefirst was in the expropriation proceedings and the second, in Valdehueza. Fifty-seven

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ years have passed since then. We cannot but construe
the Republic's failure to pay just compensation as a deliberate refusal on its part. Under such circumstance,
recovery of possession is in order. In several jurisdictions, the courts held that recovery of possession may be
had when property has been wrongfully taken or is wrongfully retained by one claiming to act under the power
of eminent domain 19 or where a rightful entry is made and the party condemning refuses to pay the
compensation which has been assessed or agreed upon; 20 or fails or refuses to have the compensation
assessed and paid. 21

The Republic also contends that where there have been constructions being used by the military, as in this
case, public interest demands that the present suit should not be sustained.

It must be emphasized that an individual cannot be deprived of his property for the public convenience. 22
In Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform, 23 we ruled:

"One of the basic principles of the democratic system is that where the rights of the
individual are concerned, the end does not justify the means. It is not enough that there be a
valid objective; it is also necessary that the means employed to pursue it be in keeping with
the Constitution. Mere expediency will not excuse constitutional shortcuts. There is no
question that not even the strongest moral conviction or the most urgent public need, subject
only to a few notable exceptions, will excuse the bypassing of an individual's rights. It is no
exaggeration to say that a person invoking a right guaranteed under Article III of the
Constitution is a majority of one even as against the rest of the nation who would deny him
that right.

The right covers the person's life, his liberty and his property under Section 1 of Article III of
the Constitution. With regard to his property, the owner enjoys the added protection of Section
9, which reaffirms the familiar rule that private property shall not be taken for public use
without just compensation."
149
The Republic's assertion that the defense of the State will be in grave danger if we shall order the reversion of
Lot 932 to respondent is an overstatement. First, Lot 932 had ceased to operate as an airport. What remains in
the site is just the National Historical Institute's marking stating that Lot 932 is the "former location of Lahug
Airport." And second, there are only thirteen (13) structures located on Lot 932, eight (8) of which are
residence apartments of military personnel. Only two (2) buildings are actually used as training centers. Thus,
practically speaking, the reversion of Lot 932 to respondent will only affect a handful of military personnel. It will
not result to "irreparable damage" or "damage beyond pecuniary estimation," as what the Republic vehemently
claims. ETCcSa

We thus rule that the special circumstances prevailing in this case entitle respondent to recover possession of
the expropriated lot from the Republic. Unless this form of swift and effective relief is granted to him, the grave
injustice committed against his predecessors-in-interest, though no fault or negligence on their part, will be
perpetuated. Let this case, therefore, serve as a wake-up call to the Republic that in the exercise of its power
of eminent domain, necessarily in derogation of private rights, it must comply with the Constitutional limitations.
This Court, as the guardian of the people's right, will not stand still in the face of the Republic's oppressive and
confiscatory taking of private property, as in this case.

At this point, it may be argued that respondent Vicente Lim acted in bad faith in entering into a contract of
mortgage with Valdehueza and Panerio despite the clear annotation in TCT No. 23934 that Lot 932 is "subject
to the priority of the National Airports Corporation [to acquire said parcels of land] . . . upon previous payment
of a reasonable market value."

The issue of whether or not respondent acted in bad faith is immaterial considering that the Republic did not
complete the expropriation process. In short, it failed to perfect its title over Lot 932 by its failure to pay just
compensation. The issue of bad faith would have assumed relevance if the Republic actually acquired title over
Lot 932. In such a case, even if respondent's title was registered first, it would be the Republic's title or right of
ownership that shall be upheld. But now, assuming that respondent was in bad faith can such fact vest upon
the Republic a better title over Lot 932? We believe not. This is because in the first place, the Republic has no
title to speak of.

At any rate, assuming that respondent had indeed knowledge of the annotation, still nothing would have
prevented him from entering into a mortgage contract involving Lot 932 while the expropriation proceeding
was pending. Any person who deals with a property subject of an expropriation does so at his own risk, taking
into account the ultimate possibility of losing the property in favor of the government. Here, the annotation
merely served as a caveat that the Republic had a preferentialright to acquire Lot 932 upon its payment of a
"reasonable market value." It did not proscribe Valdehueza and Panerio from exercising their rights of
ownership including their right to mortgage or even to dispose of their property. In Republic vs. Salem
Investment Corporation, 24 we recognized the owner's absolute right over his property pending completion of
the expropriation proceeding, thus:

"It is only upon the completion of these two stages that expropriation is said to have been
completed. Moreover, it is only upon payment of just compensation that title over the property
passes to the government. Therefore, until the action for expropriation has been completed
and terminated, ownership over the property being expropriated remains with the registered
owner. Consequently, the latter can exercise all rights pertaining to an owner, including the
right to dispose of his propertysubject to the power of the State ultimately to acquire it through
expropriation.

It bears emphasis that when Valdehueza and Panerio mortgaged Lot 932 to respondent in 1964, they were still
the owners thereof and their title had not yet passed to the petitioner Republic. In fact, it never did. Such title or
ownership was rendered conclusive when we categorically ruled in Valdehueza that: "It is true that plaintiffs are
still the registered owners of the land, there not having been a transfer of said lots in favor of the Government."

For respondent's part, it is reasonable to conclude that he entered into the contract of mortgage with
Valdehueza and Panerio fully aware of the extent of his right as a mortgagee. A mortgage is merely an
accessory contract intended to secure the performance of the principal obligation. One of its characteristics is
that it is inseparablefrom the property. It adheres to the property regardless of who its owner may
subsequently be. 25 Respondent must have known that even if Lot 932 is ultimately expropriated by the
Republic, still, his right as a mortgagee is protected. In this regard, Article 2127 of the Civil Code provides:

150
 "Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due, and to
the amount of the indemnity granted or owing to the proprietor from the insurers of the
property mortgaged, or in virtue of expropriation for public use, with the declarations,
amplifications, and limitations established by law, whether the estate remains in the
possession of the mortgagor or it passes in the hands of a third person. HcSDIE

In summation, while the prevailing doctrine is that "the non-payment of just compensation does not entitle the
private landowner to recover possession of the expropriated lots, 26 however, in cases where the government
failed to pay just compensation within five (5) 27 years from the finality of the judgment in the expropriation
proceedings, the owners concerned shall have the right to recover possession of their property. This is in
consonance with the principle that "the government cannot keep the property and dishonor the judgment." 28
To be sure, the five-year period limitation will encourage the government to pay just compensation punctually.
This is in keeping with justice and equity. After all, it is the duty of the government, whenever it takes property
from private persons against their will, to facilitate the payment of just compensation. In Cosculluela v. Court of
Appeals, 29 we defined just compensation as not only the correct determination of the amount to be paid to the
property owner but also the payment of the property within a reasonable time. Without prompt payment,
compensation cannot be considered "just."

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 72915 is AFFIRMED in toto.

The Republic's motion for reconsideration of our Resolution dated March 1, 2004 is DENIED with FINALITY.

No further pleadings will be allowed.

Let an entry of judgment be made in this case.

SO ORDERED.

Davide, Jr., C. J., Puno, Panganiban, Quisumbing, Ynares-Santiago, Carpio, Austria-Martinez, Corona, Carpio-
Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario and Garcia, JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Republic v. Lim, G.R. No. 161656, [June 29, 2005], 500
PHIL 652-672)

Mactan-Cebu International Airport Authority v. Court of Appeals, G.R. No. 139495, [November 27, 2000],
399 PHIL 695-712

THIRD DIVISION

[G.R. No. 139495. November 27, 2000.]

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), petitioner, vs.

THE HON. COURT OF APPEALS and VIRGINIA CHIONGBIAN,respondents.

The Solicitor General for petitioner.

Chiu Tangete & Gabumpa Law Office for private respondent.

SYNOPSIS

Subject of the action is Lot 941, adjoining the then Lahug Airport, registered in the name of Mactan-Cebu
International Airport Authority (MCIAA). Said lot was expropriated by the Republic of the Philippines in 1961,
through Civil Case No. R-1881, for the expansion and improvement of Lahug, Airport. Later, the assets of
the Lahug Airport, including Lot 941 were transferred to MCIAA. Lahug Airport, however, was closed and
Chiongbian filed a case for reconveyance alleging that she was given the right of repurchase once the land
is longer needed for the airport. The trial court ruled in favor of Chiongbian and the same was affirmed by the
Court of Appeals.
Chiongbian cannot repurchase Lot 941. The terms of the judgment in Civil Case No. R-1881 are clear and
unequivocal and grant title to Lot 941 in fee simple to the Republic of the Philippines. There was no condition

151
imposed to the effect the lot would return to Chiongbian or that Chiongbian had a right to repurchase the
same if the purpose for which it was expropriated is ended or abandoned. Indeed, to allow the alleged
compromise agreement of reconveyance which was supposedly made prior to the rendition of judgment on
the expropriation case is to modify said judgment that has long become final and executory.

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ REMEDIAL LAW; EVIDENCE; RULES OF

ADMISSIBILITY; DOCUMENTARY EVIDENCE; PAROL EVIDENCE RULE; NOT APPLICABLE TO A
JUDGMENT OF THE COURT. — Evidence reveals that Lot No.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ was appropriated by the Republic of the Philippines

through expropriation proceedings in Civil Case No. R-1881. . . . The terms of the judgment [therein] are clear
and unequivocal and grant title to Lot No. 941 in fee simple to the Republic of the Philippines. There was no
condition imposed to the effect that the lot would return to CHIONGBIAN or that CHIONGBIAN had a right to
repurchase the same if the purpose for which it was expropriated is ended or abandoned or if the property was
to be used other than as the Lahug airport. CHIONGBIAN cannot rely on the ruling in Mactan Cebu
International Airport vs. Court of Appealswherein the presentation of parol evidence was allowed to prove the
existence of a written agreement containing the right to repurchase. Said case did not involve expropriation
proceedings but a contract of sale. . . [The parol evidence rule] applies to written agreements and has no
application to a judgment of a court . . . . To permit CHIONGBIAN to prove the existence of a compromise
settlement which she claims to have entered into with the Republic of the Philippines prior to the rendition of
judgment in the expropriation case would result in a modification of the judgment of a court which has long
become final and executory. cASEDC

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CIVIL LAW; CONTRACTS; UNENFORCEABLE

CONTRACTS; INADMISSIBLE TESTIMONIES UNDER THE STATUTE OF FRAUDS TO PROVE
EXISTENCE OF ALLEGED SALE. — Under 1403 of the Civil Code, a contract for the sale of real property
shall be unenforceable unless the same, or some note or memorandum thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore of the agreement cannot be received without the
writing or a secondary evidence of its contents. . . . MCIAA objected to the purpose for which the testimonies
of CHIONGBIAN and BERCEDE were offered, i.e. to prove the existence of the alleged written agreement
evincing a right to repurchase Lot No. 941 in favor of CHIONGBIAN, for being in violation of the Statute of
Frauds. MCIAA also objected to the purpose for which the testimony of PASTRANA was offered, i.e. to prove
the existence of the alleged written agreement and an alleged deed of sale, on the same ground.
Consequently, the testimonies of these witnesses are inadmissible under the Statute of Frauds to prove the
existence of the alleged sale.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ REMEDIAL LAW; EVIDENCE; RULES OF

ADMISSIBILITY; TESTIMONIAL EVIDENCE; HEARSAY RULE.

— [E]vidence is hearsay if its probative value is not based on the personal knowledge of the witness but on
the knowledge of another person who is not on the witness stand.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ POLITICAL LAW; EMINENT DOMAIN;

EXPROPRIATION; WHEN PROPER. — [E]xpropriation lies only when it is made necessary by the
opposition of the owner to the sale or by the lack of agreement as to the price.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CIVIL LAW; CONTRACTS; COMPROMISE

AGREEMENT; JUDICIAL COMPROMISE. — [A] compromise is a contract whereby the parties, by making
reciprocal concessions, avoid litigation or put an end to one already commenced. Essentially. it is a contract
perfected by mere consent, the latter being manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. A judicial compromise has the force of law and is
conclusive between the parties and it is not valid and binding on a party who did not sign the same. Since
CHIONGBIAN was not a party to the compromise agreements, she cannot legally invoke the same. CAcDTI

DECISION
GONZAGA-REYES, Jp:

This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals 1 in CA G.R.
CV No. 56495 entitled "Virginia Chiongbian vs. Mactan-Cebu International Airport Authority" which affirmed the
Decision of the Regional Trial Court, 2 7th Judicial Region, Branch 24, Cebu City.

152
The Court of Appeals rendered its decision based on the following facts:

"Subject of the action is Lot 941 consisting of 13,766 square meters located in Lahug, Cebu
City, adjoining the then Lahug Airport and covered by TCT No. 120366 of the Registry of
Deeds of Cebu City, in the name of MCIAA.

During the liberation, the Lahug Airport was occupied by the United States Army. Then,
in 1947, it was turned over to the Philippine Government through the Surplus Property
Commission. Subsequently, it was transferred to the Bureau of Aeronautics which was
succeeded by the National Airports Corporation. When the latter was dissolved, it was
replaced by the Civil Aeronautics Administration (CAA).

On April 16, 1952, the Republic of the Philippines, represented by the CAA, filed an
expropriation proceeding, Civil Case No. R-1881 (Court of First Instance of Cebu, Third
Branch), on several parcels of land in Lahug, Cebu City, which included Lot 941, for the
expansion and improvement of Lahug Airport.

In June 1953, appellee Virginia Chiongbian purchased Lot 941 from its original owner,
Antonina Faborada, the original defendant in the expropriation case, for P8,000.00.
Subsequently, TCT No. 9919 was issued in her name (Exh. D).

Then, on December 29, 1961, judgment was rendered in the expropriation case in favor of the
Republic of the Philippines which was made to pay Virginia Chiongbian the amount of
P34,415.00 for Lot 941, with legal interest computed from November 16, 1947, the date when
the government begun using it. Virginia Chiongbian did not appeal therefrom.

Thereafter, absolute title to Lot 941 was transferred to the Republic of the Philippines under
TCT No. 27696 (Exhs. E and 2).

Then, in 1990, Republic Act No. 6958 was passed by Congress creating the Mactan-Cebu
International Airport Authority to which the assets of the Lahug Airport was transferred. Lot
941 was then transferred in the name of MCIAA under TCT No. 120366 on May 8, 1992.

On July 24, 1995, Virginia Chiongbian filed a complaint for reconveyance of Lot 941 with the
Regional Trial Court of Cebu, Branch 9, docketed as Civil Case No. CEB-17650 alleging, that
sometime in 1949, the National Airport Corporation (NAC) ventured to expand the Cebu
Lahug Airport. As a consequence, it sought to acquire by expropriation or negotiated sale
several parcels of lands adjoining the Lahug Airport, one of which was Lot 941 owned by
Virginia Chiongbian. Since she and other landowners could not agree with the NAC's offer for
the compensation of their lands, a suit for eminent domain was instituted on April 16, 1952,
before the then Court of First Instance of Cebu (Branch III), against forty-five (45)
landowners, including Virginia Chiongbian, docketed as Civil Case No. R-1881, entitled
"Republic of the Philippine vs. Damian Ouano, et al." It was finally decided on December 29,
1961 in favor of the Republic of the Philippines.

Some of the defendants-landowners, namely, Milagros Urgello, Mamerto Escaño, Inc. and
Ma. Atega Vda. de Deen, appealed the decision to the Court of Appeals under CA-G.R. No.
33045-R, which rendered a modified judgment allowing them to repurchase their expropriated
properties. Virginia Chiongbian, on the other hand, did not appeal and instead, accepted the
compensation for Lot 941 in the amount of P34,415, upon the assurance of the NAC that she
or her heirs would be given the right of reconveyance for the same price once the land would
no longer be used as (sic) airport.

Consequently, TCT No. 9919 of Virginia Chiongbian was cancelled and TCT No. 27696 was
issued in the name of the Republic of the Philippines. Then, with the creation of the MCIAA,
it was cancelled and TCT No. 120366 was issued in its name.

However, no expansion of the Lahug Airport was undertaken by MCIAA and its
predecessors-in-interest. In fact, when Mactan International Airport was opened for
commercial flights, the Lahug Airport was closed at the end of 1991 and all its airport
activities were undertaken at and transferred to the Mactan International Airport. Thus, the
purpose for which Lot 941 was taken ceased to exist." 3
153
On June 3, 1997, the RTC rendered judgment in favor of the respondent Virginia Chiongbian (CHIONGBIAN)

the dispositive portion of the decision reads:

"WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of the
plaintiff, Virginia Chiongbian and against the defendant, Mactan Cebu International Authority
(MCIAA), ordering the latter to restore to plaintiff the possession and ownership of the
property denominated as Lot No. 941 upon reimbursement of the expropriation price paid to
plaintiff.

The Register of Deeds is therefore ordered to effect the Transfer of the Certificate Title from
the defendant to the plaintiff on Lot No. 941, cancelling Transfer Certificate of Title No. 120366
in the name of defendant MCIAA and to issue a new title on the same lot in the name of
Virginia Chiongbian.

No pronouncement as to cost.

SO ORDERED." 4

Aggrieved by the holding of the trial court, the petitioner Mactan Cebu International Airport Authority (MCIAA)
appealed the decision to the Court of Appeals, which affirmed the RTC decision. Motion for Reconsideration
was denied 5 hence this petition where MCIAA raises the following grounds in support of its petition:

I.

THE COURT OF APPEALS ERRED IN UPHOLDING THE TRIAL COURT'S JUDGMENT

THAT THERE WAS A REPURCHASE AGREEMENT AND IGNORING PETITIONER'S
PROTESTATIONS THAT ADMISSION OF RESPONDENT'S ORAL EVIDENCE IS NOT
ALLOWED UNDER THE STATUE OF FRAUDS.

II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DECISION IN LIMBACO IS

MATERIAL AND APPLICABLE TO THE CASE AT BAR.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE MODIFIED JUDGMENT IN CA-
GR NO. 33045 SHOULD INURE TO THE BENEFIT OF CHIONGBIAN EVEN IF SHE WAS
NOT A PARTY IN SAID APPEALED CASE.

IV.

THE COURT OF APPEALS ERRED IN RULING THAT THE RIGHT OF VIRGINIA

CHIONGBIAN TO REPURCHASE SHOULD BE UNDER THE SAME TERMS AND
CONDITIONS AS THE OTHER LANDOWNERS SUCH THAT HER REPURCHASE PRICE
IS ONLY P34,415.00." 6

MCIAA contends that the Republic of the Philippines appropriated Lot No. 941 through expropriation
proceedings in Civil Case No. R-1881. The judgment rendered therein was unconditional and did not contain
a stipulation that ownership thereof would revert to CHIONGBIAN nor did it give CHIONGBIAN the right to
repurchase the same in the event the lot was no longer used for the purpose it was expropriated. Moreover,
CHIONGBIAN's claim that there was a repurchase agreement is not supported by documentary evidence. The
mere fact that twenty six (26) other landowners repurchased their property located at the aforementioned
Lahug airport is of no consequence considering that said landowners were able to secure a rider in their
contracts entitling them to repurchase their property.

MCIAA also argues that the Court of Appeals erroneously concluded that it did not object to the evidence
presented by CHIONGBIAN to prove the alleged repurchase agreement considering that the transcript of
stenographic notes shows that it manifested its objections thereto for being in violation of the Statute of Frauds.

MCIAA also faults the Court of Appeals for applying the ruling in the case of Limbaco vs. Court of Appeals. 7 It
is the position of MCIAA that the ruling in the case ofLimbaco is not squarely in point with respect to the
present case for the reason that the Limbaco case involved a contract of sale of real property and not an
expropriation.

154
Moreover, MCIAA alleges that the Court of Appeals erred in ruling that the case of Escaño, et. al. vs. Republic
8 proves the existence of the repurchase agreement. MCIAA claims that although the parties in said case were
CHIONGBIAN's co-defendants in Civil Case No. R-1881, CHIONGBIAN did not join in their appeal of the
judgment of condemnation. The modified judgment in CA G.R. No. 33045-R should not therefore redound to
CHIONGBIAN's benefit who was no longer a party thereto or to the compromise agreement which Escaño et.
al. entered into with the Republic of the Philippines. TECcHA

Finally, assuming for the sake of argument that CHIONGBIAN has a right to repurchase Lot No. 941, MCIAA
claims that the Court of Appeals erred in ruling that the right of CHIONGBIAN to purchase said lot should be
under the same terms and conditions given to the other landowners and not at the prevailing market price.

Such ruling is grossly unfair and would result in unjustly enriching CHIONGBIAN for the reason that she
received just compensation for the property at the time of its taking by the government and that the property is
now worth several hundreds of millions of pesos due to the improvements introduced by MCIAA. 9

On the other hand, aside from praying that this Court affirm the decision of the Court of Appeals, the private
respondent CHIONGBIAN prays that the petition be denied for the reason that it violates the 1997 Rules on
Civil Procedure, more specifically the requirement of a certification of non-forum shopping. CHIONGBIAN
claims that the Verification and Certification on Non-Forum Shopping executed by the MCIAA on September
13, 1999 was signed by a Colonel Marcelino A. Cordova whose appointment as Assistant General Manager of
MCIAA was disapproved by the Civil Service Commission as early as September 2, 1999. It is
CHIONGBIAN's position that since his appointment was disapproved, the Verification attached to the petition
for review on certiorari cannot be considered as having been executed by the "plaintiff" or "principal party" who
under Section 5, Rule 7 of the Rules of Court can validly make the certification in the instant petition.
Consequently, the petition should be considered as not being verified and as such should not be considered
as having been filed at all.

After a careful consideration of the arguments presented by the parties, we resolve to grant the petition.

We first resolve the procedural issue.

We are not persuaded by CHIONGBIAN's claim that the Verification and Certification against forum shopping
accompanying MCIAA's petition was insufficient for allegedly having been signed by one who was not qualified
to do so. As pointed out by the MCIAA, Colonel Cordova signed the Verification and Certification against
forum shopping as Acting General Manager of the MCIAA, pursuant to Office Order No. 5322-99 dated
September 10, 1999 issued by the General Manager of MCIAA, Alfonso Allere. 10 Colonel Cordova did not
sign the Verification and Certification against forum shopping pursuant to his appointment as assistant
General Manager of the MCIAA, which was later disapproved by the Commission on Appointments. This fact
has not been disputed by CHIONGBIAN.

We come now to the substantive aspects of the case wherein the issue to be resolved is whether the
abandonment of the public use for which Lot No. 941 was expropriated entitles CHIONGBIAN to reacquire it.

In Fery vs. Municipality of Cabanatuan, 11 this Court had occasion to rule on the same issue as follows:

"The answer to that question depends upon the character of the title acquired by the
expropriator, whether it be the State, a province, a municipality, or a corporation which has the
right to acquire property under the power of eminent domain. If, for example, land is
expropriated for a particular purpose, with the condition that when that purpose is ended or
abandoned the property shall return to its former owner, then, of course, when the purpose is
terminated or abandoned the former owner reacquires the property so expropriated. If, for
example, land is expropriated for a public street and the expropriation is granted upon
condition that the city can onlyuse it for a public street, then, of course, when the city
abandons its use as a public street, it returns to the former owner, unless there is some
statutory provision to the contrary. Many other similar examples might be given. If, upon the
contrary, however, the decree of expropriation gives to the entity a fee simple title, then, of
course, the land becomes the absolute property of the expropriator, whether it be the State, a
province, or municipality, and in that case the non-user does not have the effect of defeating
the title acquired by the expropriation proceedings. DCATHS

When land has been acquired for public use in fee simple, unconditionally, either by the
exercise of eminent domain or by purchase, the former owner retains no rights in the land,
155
 and the public use may be abandoned, or the land may be devoted to a different use, without
any impairment of the estate or title acquired, or any reversion to the former owner. 12

In the present case, evidence reveals that Lot No. 941 was appropriated by the Republic of the Philippines
through expropriation proceedings in Civil Case No. R-1881. The dispositive portion of the decision in said
case reads insofar as pertinent as follows:

"IN VIEW OF THE FOREGOING, judgment is hereby rendered:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Declaring the expropriation of Lots

Nos. 75, 76, 89, 90, 91, 105, 106, 107, 108, 104, 921-A, 88, 93, 913-B, 72, 77, 916, 777-A,
918, 919, 920, 764-A, 988, 744-A, 745-A, 746, 747, 752-A, 263-A, 941, 942, 740-A, 743, 985,
956, 976-A, 984, 989-A; and 947, including in the Lahug Airport, Cebu City, justified and in
lawful exercise of the right of eminent domain;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Declaring the fair market values of

the lots thus taken and condemning the plaintiff to pay the same to the respective owners
with legal interest from the dates indicated therein, as follows: Lots Nos. 75, 76, 89, 90, 91,
92, 105, 106, 107, 108-P31, 977 (minus P10,639 or P21,278 as balance in favor of
Mamerto Escaño, Inc., with legal interest from November 16, 1947 until fully paid; . . . Lot
No. 941-P34,415.00 in favor of Virginia Chiongbian, with legal interest from November 16,
1947 until fully paid; . . .

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ After the payment of the foregoing

financial obligation to the landowners, directing the latter to deliver to the plaintiff the
corresponding Transfer Certificate of Title to their representative lots; and upon the
presentation of the said titles to the Register of Deeds, ordering the latter to cancel the same
and to issue, in lieu thereof, new Transfer Certificates of Title in the name of the plaintiff.

NO COST.

SO ORDERED." 13 (Italics supplied)

The terms of the judgment are clear and unequivocal and grant title to Lot No. 941 in fee simple to the
Republic of the Philippines. There was no condition imposed to the effect that the lot would return to
CHIONGBIAN or that CHIONGBIAN had a right to repurchase the same if the purpose for which it was
expropriated is ended or abandoned or if the property was to be used other than as the Lahug airport.

CHIONGBIAN cannot rely on the ruling in Mactan Cebu International Airport vs. Court of Appeals 14 wherein
the presentation of parol evidence was allowed to prove the existence of a written agreement containing the
right to repurchase. Said case did not involve expropriation proceedings but a contract of sale. This Court
consequently allowed the presentation of parol evidence to prove the existence of an agreement allowing the
right of repurchase based on the following ratiocination:

"Under the parol evidence rule, when the terms of an agreement have been reduced into
writing, it is considered as containing all the terms agreed upon, and there can be, between
the parties and their successors-in-interest, no evidence of such terms other than the contents
of the written agreement. However, a party may present evidence to modify, explain or add to
the terms of the written agreement if he puts in issue in his pleading, the failure of the written
agreement to express the true intent of the parties thereto. In the case at bench, the fact
which private respondents seek to establish by parol evidence consists of the agreement or
representation made by the NAC that induced Inez Ouano to execute the deed of sale; that
the vendors and their heirs are given the right of repurchase should the government no longer
need the property. Where a parol contemporaneous agreement was the moving cause of the
written contract, or where the parol agreement forms part of the consideration of the written
contract, and it appears that the written contract was executed on the faith of the parol
contract or representation, such evidence is admissible. It is recognized that proof is
admissible of any collateral parol agreement that is not inconsistent with the terms of the
written contract though it may relate to the same subject matter. The rule excluding parol
evidence to vary or contradict a writing does not extend so far as to preclude the admission of
existing evidence to show prior or contemporaneous collateral parol agreements between the
parties, but such evidence may be received, regardless of whether or not the written

156
 agreement contains any reference to such collateral agreement, and whether the action is at
law or in equity. aCIHcD

More importantly, no objection was made by petitioner when private respondents introduced
evidence to show the right of repurchase granted by the NAC to Inez Ouano. It has been
repeatedly laid down as a rule of evidence that a protest or objection against the admission
of any evidence must be made at the proper time, and if not so made, it will be understood to
have been waived." 15

This pronouncement is not applicable to the present case since the parol evidence rule which provides that
"when the terms of a written agreement have been reduced to writing, it is considered as containing all the
terms agreed upon, and there can be, between the parties and their successors-in-interest, no evidence of
such terms other than the contents of the written agreement" applies to written agreements and has no
application to a judgment of a court. To permit CHIONGBIAN to prove the existence of a compromise
settlement which she claims to have entered into with the Republic of the Philippines prior to the rendition
of judgment in the expropriation case would result in a modification of the judgment of a court which has
long become final and executory. IEHaSc

And even assuming for the sake of argument that CHIONGBIAN could prove the existence of the alleged
written agreement acknowledging her right to repurchase Lot No. 941 through parol evidence, the Court
of Appeals erred in holding that the evidence presented by CHIONGBIAN was admissible.

Under 1403 of the Civil Code, a contract for the sale of real property shall be unenforceable unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his
agent; evidence, therefore of the agreement cannot be received without the writing or a secondary evidence
of its contents.

Contrary to the finding of the Court of Appeals, the records reveal that MCIAA objected to the purpose for
which the testimonies of CHIONGBIAN 16 and Patrosinio Berceder 17 (BERCEDE) were offered, i.e. to prove
the existence of the alleged written agreement evincing a right to repurchase Lot No. 941 in favor of
CHIONGBIAN, for being in violation of the Statute of Frauds. MCIAA also objected to the purpose for which
the testimony of Attorney Manuel Pastrana (PASTRANA) was offered, i.e. to prove the existence of the alleged
written agreement and an alleged deed of sale, on the same ground. 18 Consequently, the testimonies of
these witnesses are inadmissible under the Statute of Frauds to prove the existence of the alleged sale.

Aside from being inadmissible under the provisions of the Statute of Frauds, CHIONGBIAN's and BERCEDE's
testimonies are also inadmissible for being hearsay in nature. Evidence is hearsay if its probative value is not
based on the personal knowledge of the witness but on the knowledge of another person who is not on the
witness stand. 19 CHIONGBIAN, through deposition, testified that:

"ATTY. DUBLIN (To Witness)

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Mrs. Chiongbian, you

said a while ago that there was an assurance by the government to
return this property to you in case Lahug Airport will be no longer used,
is that correct?

WITNESS:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Y

es, sir. That is true. ATTY.

DUBLIN: (To witness)

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Can you recall when was this verbal
assurance made?

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ I cannot remember anymore.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ You cannot also remember the year

in which the alleged assurance was made?
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ I cannot also remember because I'm
very forgetful.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Now, can you tell

us so far as you can remember who was that person or government
authority or employee that made the alleged assurance?

A: The owner of the property.

157
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Now, how many times was
this assurance being made to you to return this property in case the Lahug
Airport will no longer be used?

A: 2 or 3, I cannot recall.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ You cannot also

remember in what particular place or places was this assurance being
made?

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In my previous residence in Mabolo.

DEPOSITION OFFICER:

The assurance was made in my previous residence at Mabolo.

WITNESS:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ I

entrusted that to my lawyer, Atty. Pedro Calderon. IDSaEA

ATTY. DUBLIN: (to witness)

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ You mean the

assurance was made personally to your lawyer at that time, Atty. Pedro
Calderon?

A: Yes, sir.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ So you are now

trying to tell us that that assurance was never made to you personally.
Is that right, Mam?

A: He assured me directly that the property will be returned to me.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ When you said "he,"

are you referring to your lawyer at that time, Atty. Pedro Calderon

A: Yes, sir.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ So, in effect, it was your lawyer, Atty.

Pedro Calderon, who made the assurance to you that the property will be returned
in case Lahug Airport will be abandoned?

A: Yes, sir. 20

CHIONGBIAN's testimony shows that she had no personal knowledge of the alleged assurance
made by the Republic of the Philippines that Lot No. 941 would be returned to her in the event that the
Lahug Airport was closed. She stated that she only learned of the alleged assurance of the Republic of the
Philippines through her lawyer, Attorney Calderon, who was not presented as a witness.

BERCEDE's testimony regarding the alleged agreement is likewise inadmissible to prove the existence of the
agreement for also being hearsay in nature. Like CHIONGBIAN, BERCEDE did not have personal knowledge
of the alleged assurance made by the Republic of the Philippines to his father that their land would be returned
should the Lahug Airport cease to operate for he only learned of the alleged assurance through his father.

PASTRANA's testimony does little to help CHIONGBIAN's cause. He claims that subsequent to the execution
of the alleged written agreement but prior to the rendition of judgment in the expropriation case, the Republic
and CHIONGBIAN executed a Deed of Sale over Lot No. 941 wherein CHIONGBIAN sold the aforementioned
lot to the Republic of the Philippines. However, CHIONGBIAN never mentioned the existence of a deed of
sale. 21 In fact, the records disclose that Lot No. 941 was transferred to the Republic of the Philippines
pursuant to the judgment of expropriation in Civil Case No. R-1881 which CHIONGBIAN herself enforced by
filing a motion for withdrawal of the money after the decision was rendered. 22 Moreover, since the very terms
of the judgment in Civil Case No. R-1881 are silent regarding the alleged deed of sale or of the alleged written
agreement acknowledging the right of CHIONGBIAN to repurchase Lot No. 941, the only logical conclusion is
that no sale in fact took place and that no compromise agreement was executed prior to the rendition of the
judgment. Had CHIONGBIAN and the Republic executed a contract of sale as claimed by PASTRANA, the
Republic of the Philippines would not have needed to pursue the expropriation case inasmuch as it would be
duplicitous and would result in the Republic of the Philippines expropriating something it had already owned.
Expropriation lies only when it is made necessary by the opposition of the owner to the sale or by the lack of
agreement as to the price. 23 Consequently, CHIONGBIAN cannot compel MCIAA to reconvey Lot No. 941 to
her since she has no cause of action against MCIAA. caTESD

158
Finally, CHIONGBIAN cannot invoke the modified judgment of the Court of Appeals in the case of Republic of
the Philippines vs. Escaño, et. al. 24 where her co-defendants, Mamerto Escaño, Inc., Milagros Urgello and
Maria Atega Vda. De Deen entered into separate and distinct compromise agreements with the Republic of the
Philippines wherein they agreed to sell their land subject of the expropriation proceedings to the latter subject
to the resolutory condition that in the event the Republic of the Philippines no longer uses said property as an
airport, title and ownership of said property shall revert to its respective owners upon reimbursement of the
price paid therefor without interest. MCIAA correctly points out that since CHIONGBIAN did not appeal the
judgment of expropriation in Civil Case No. R-1881 and was not a party to the appeal of her co-defendants, the
judgment therein cannot redound to her benefit. And even assuming that CHIONGBIAN was a party to the
appeal, she was not a party to the compromise agreements entered into by her co-defendants. A compromise
is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one
already commenced. 25 Essentially, it is a contract perfected by mere consent, the latter being manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.
26 A judicial compromise has the force of law and is conclusive between the parties 27and it is not valid and
binding on a party who did not sign the same. 28 Since CHIONGBIAN was not a party to the compromise
agreements, she cannot legally invoke the same.

ACCORDINGLY, the Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. The complaint
of Virginia Chiongbian against the Mactan-Cebu International Airport Authority for reconveyance of Lot No. 941
is DISMISSED.

SO ORDERED.

Melo, Vitug, and Panganiban, JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Mactan-Cebu International Airport Authority v. Court of

Appeals, G.R. No. 139495, [November 27, 2000], 399 PHIL 695-712)

City of Mandaluyong v. Aguilar, G.R. No. 137152, [January 29, 2001], 403 PHIL 404-428

FIRST DIVISION

[G.R. No. 137152. January 29, 2001.]

CITY OF MANDALUYONG, petitioner, vs. ANTONIO N., FRANCISCO N., THELMA N.,
EUSEBIO N., RODOLFO N., all surnamed AGUILAR, respondents.

Jimmy D. Lacebal for petitioner.

Ricardo J. M. Rivera Law Office for private respondents.

SYNOPSIS

Respondents Antonio, Francisco, Thelma, Eusebio and Rodolfo, all surnamed Aguilar, were the registered
owners of three adjoining parcels of land with an aggregate area of 1,847 square meters located at 9 de
Febrero Street, Brgy. Mauwag, City of Mandaluyong. Several decades ago, on a portion of the said lots,
respondents constructed residential houses which they leased out to tenants and on the vacant portion, other
families also constructed residential structures which they likewise occupied. In 1983, those lots were classified
by the Board of the Housing and Urban Development Coordinating Counsel as an area for priority
development for urban land reform under Proclamation Nos. 1967 and 2284. As a result, the tenants and
occupants of the said lots offered to purchase those lots from respondents but the latter refused. On November
7, 1996, the Sangguniang Panglungsod of the City of Mandaluyong authorized Mayor Benjamin Abalos
through a resolution to initiate action for the expropriation of the subject lots and the construction of a medium-
rise condominium for qualified occupants therein. On January 10, 1996, Mayor Abalos sent a letter to
respondents offering to purchase the said lots, but the latter did not answer. Thus, Mayor Abalos filed a
complaint for expropriation before the Regional Trial Court, Branch 168 of Pasig City. In their answer,
respondents alleged that the expropriation of their land is arbitrary and capricious and is not for public purpose.
159
Moreover, the subject lots are their only real property and are too small for expropriation. On November 5,
1997, petitioner filed an Amended Complaint. It reduced the area sought to be expropriated to two parcels of
land only totalling 1,636 square meters. At the preliminary hearing, Antonio Aguilar testified and presented
documentary evidence to support their claims while petitioner did not present any evidence. On September
17, 1997, the trial court dismissed the Amended Complaint. Hence, this petition. HEacAS

The Court ruled that upon partition, four (4) co-owners, namely, Francisco, Thelma, Rodolfo and Antonio
Aguilar each had a share of 300 square meters under TCT Nos. 13849, 13852, 13850, 13851. Eusebio
Aguilar's share was 347 square meters under TCT No. 13853, while Virginia Aguilar's was 89 square meters
under TCT No. 13854. Eusebio died on March 23, 1995, and, according to Antonio's testimony, the former
was survived by five (5) children. Where there are several co-owners, and some of them die, the heirs of those
who die, with respect to that part belonging to the deceased, become also co-owners of the property together
with those who survive. After Eusebio died; his five heirs became co-owners of his 347 square-meter portion.
Dividing the 347 square meters among the five would entitle each heir to 69.4 square meters of the land
subject of litigation. Consequently, the share of each co-owner did not exceed the 300 square meter limit set in
R.A. 7279. Finally, the Court noted that the subject lots are now in the possession of respondents. Antonio
Aguilar testified that he and the other co-owners filed ejectment cases against the occupants of the land
before the Metropolitan Trial Court, Mandaluyong, Branches 59 and 60. Orders of eviction were issued and
executed on September 17, 1997 which resulted in the eviction of the tenants and other occupants from the
land in question.

Petition was DISMISSED.

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ LABOR AND SOCIAL LEGISLATION; PRESIDENTIAL

DECREE NO. 1517 (URBAN LAND REFORM ACT); OPTIMUM USE OF LAND AS A NATIONAL
RESOURCE FOR PUBLIC WELFARE. — Presidential Decree (P.D.) No. 1517, the Urban Land Reform Act,
was issued by then President Marcos in 1978. The decree adopted as a State policy the liberation of human
communities from blight congestion and hazard, and promotion of their development and modernization, the
optimum use of land as a national resource for public welfare. Pursuant to this law, Proclamation No. 1893
was issued in 1979 declaring the entire Metro Manila as Urban Land Reform Zone for purposes of urban land
reform. This was amended in 1980 by Proclamation No. 1967 and in 1983 by Proclamation No. 2284 which
identified and specified 245 sites in Metro Manila as Areas for Priority Development and Urban Land Reform
Zones.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; REPUBLIC ACT NO. 7279 (URBAN DEVELOPMENT
HOUSING ACT OF 1992); PURPOSE. — In

1992, the Congress of the Philippines passed Republic Act No. 7279, the "Urban Development and Housing
Act of 1992." The law lays down as a policy that the state, in cooperation with the private sector, undertake a
comprehensive and continuing Urban Development and Housing Program; uplift the conditions of the
privileged and homeless citizens in urban areas and resettlement areas by making available to them decent
housing at affordable cost, basic services and employment opportunities and provide for the rational use and
development of urban land to bring about, among others, equitable utilization of residential lands; encourage
more effective people's participation in the urban development process and improve the capability of local
government units in undertaking urban development and housing programs and projects.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; PROCEDURE FOR ACQUISITION OF LAND

FOR SOCIALIZED HOUSING. — Towards this end, all city and municipal governments are mandated to
conduct aninventory of all lands and improvements within their respective localities, and in coordination with
the National Housing Authority, the Housing and Land Use Regulatory Board, the National Mapping
Resource Information Authority, and the Land management Bureau, identify lands for socialized housing and
resettlements areas for the immediate and future needs of the underprivileged and homeless in the urban
areas, acquire the lands and dispose of said lands to the beneficiaries of the program.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; PRIORITIES IN THE ACQUISITION OF LAND

FOR SOCIALIZED HOUSING. — Lands for socialized housing are to be acquired in the following order: (1)
government lands; (2) alienable lands of public domain; (3) unregistered or abandoned or idle lands within the
declared Areas for Priority Development (APD), Zonal Improvement Program (ZIP) sites, Slum Improvement
and Resettlement (SIR) sites which have not yet been acquired; (5) BLISS sites which have not yet been
acquired; and (6) privately-owned lands.

160
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; MODES OF LAND ACQUISITION. — Lands for
socialized housing under R.A. 7279 are to be acquired in several modes. Among these modes are the
following: (1) community mortgage; (2) land swapping,

(3) land assembly or consolidation; (4) land banking; (5) donation to the government; (6) joint venture
agreement; (7) negotiated purchase; and (8) expropriation. The mode or expropriation is subject to two
conditions: (a) it shall be resorted to only when the other modes of acquisition have been exhausted; and (b)
parcels of land owned by small property owners are exempt from such acquisition.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ACQUISITION OF THE LANDS IN THE

PRIORITY LIST MUST BE MADE SUBJECT TO THE MODES AND CONDITIONS AS REQUIRED
THEREOF. — Section 9 of R.A. 7279 speaks of priorities in the acquisition of lands. It enumerates the type of
lands to be acquired and the hierarchy in their acquisition. Section 10 deals with themodes of land acquisition
or the process of acquiring lands for socialized housing. These are two different things. They mean that the
type of lands that may be acquired in the order of priority in Section 9 are to be acquired only in the modes
authorized under Section 10. The acquisition of the lands in the priority list must be made subject to the modes
and conditions set forth in the next provision. In other words, lands that lies within the APD, such as in the
instant case, may be acquired only in the modes under, and subject to the conditions of, Section 10.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; EXPROPRIATION SHALL BE RESORTED TO

WHEN OTHER MODES OF ACQUISITION HAVE BEEN EXHAUSTED; NOT COMPLIED IN CASE AT BAR.
— Petitioner claims that it had faithfully observed the different modes of land acquisition for socialized housing
under R.A. 7279 and adhered to the priorities in the acquisition for socialized housing under said law. It,
however, did not state with particularity whether it exhausted the other modes of acquisition in Section 9 of the
law before it decided to expropriate the subject lots. The law states "expropriation shall be resorted to when
other modes of acquisition have been exhausted." Petitioner alleged only one mode of acquisition, i.e., by
negotiated purchase. Petitioner, through the City Mayor, tried to purchase the lots from respondents but the
latter refused to sell. As to the other modes of acquisition, no mention has been made. Not even Resolution
No. 516, Series of 1996 of the Sangguniang Panlungsod authorizing the Mayor of Mandaluyong to effect the
expropriation of the subject property states whether the city government tried to acquire the same by
community mortgage, land swapping, land assembly or consolidation, land banking, donation to the
government, or joint venture agreement under Section 9 of the law.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; PARCELS OF LAND OWNED BY SMALL-

PROPERTY OWNERS ARE EXEMPTED FROM EXPROPRIATION. — While we adhere to the expanded
notion of public use, the passage of R.A. No. 7279, the "Urban Development and Housing Act of 1992"
introduced a limitation on the size of the land sought to be expropriated for socialized housing. The law
expressly exempted "small property owners" from expropriation of their land for urban land reform. R.A. No.
7279 originated as Senate Bill No. 234 authored by Senator Joey Lina and House Bill No. 34310. Senate Bill
No. 234 then provided that one of those lands not covered by the urban land reform and housing program was
"land actually used by small property owners within the just and equitable retention limit as provided under this
Act."

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; "SMALL-PROPERTY OWNERS"; DEFINED. —

"Small-property owners" are defined by two elements: (1) those owners of real property, whose property
consists of residential lands with an area of not more than 300 square meters in highly urbanized cities and
800 square meters in other urban areas; and (2) that they do not own real property other than the same.

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CIVIL LAW; PROPERTY; CO-OWNERSHIP; NO

INDIVIDUAL CAN CLAIM TITLE TO ANY DEFINITE PORTION OF COMMUNITY PROPERTY UNTIL THE
PARTITION THEREOF. — Under a co-ownership, the ownership of an undivided thing or right belongs to
different persons. During the existence of the co-ownership, no individual can claim title to any definite portion
of the community property until the partition thereof; and prior to the partition, all that the co-owner has is an
ideal or abstract quota or proportionate share in the entire land or thing.

࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; CO-OWNER IS FREE TO ALIENATE;

ASSIGN OR MORTGAGE HIS UNDIVIDED INTEREST IN THE COMMON PROPERTY. — Article 493 of the
Civil Code however provides that: "Art. 493. Each co-owner shall have the full ownership of his part and of the
fruits and benefits pertaining thereto, and he may therefore alienate assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or
the mortgage, with respect to the co-owners shall be limited to the portion which may be allotted to him in the
division upon termination of the co-ownership." Before partition in a co-ownership, every co-owner has the
absolute ownership of his undivided

161
interest in the common property. The co-owner is free to alienate, assign or mortgage his interest, except as to
purely personal rights. He may also validly lease his undivided interest to a third party independently of the
other co-owners. The effect of any such transfer is limited to the portion which may be awarded to him upon
the partition of the property. Article 493 therefore gives the owner of an undivided interest in the property the
right to freely sell and dispose of his undivided interest. The co-owner, however, has no right to sell or alienate
a concrete specific or determinate part of the thing owned in common, because his right over the thing is
represented by a quota or ideal portion without any physical adjudication. If the co-owner sells a concrete
portion, this, nonetheless, does not render the sale void. Such a sale affects only his own share, subject to the
results of the partition but not those of the other co-owners who did not consent to the sale.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; PARTITION WAS NECESSARY INCIDENT
OF CO-OWNERSHIP AND PRESUMED TO HAVE BEEN DONE IN GOOD FAITH; CASE AT BAR. — In the
instant case, the titles to the subject lots were issued in respondents' names as co-owners in 1997 — ten (10)
years before the expropriation case was filed in 1997. As co-owners all that the respondents had was an ideal
or abstract quota or proportionate share in the lots. This, however, did not mean that they could not separately
exercise any rights over the lots. Each respondent had the full ownership of his undivided interest in the
property. He could freely sell or dispose of his interest independently of the other co-owners. And this interest
could even been attached by his creditors. The partition in 1998, six (6) months after the filing of the
expropriation case, terminated the co-ownership by converting into certain and definite parts the respective
undivided shares of the co-owners. The subject property is not a thing essentially indivisible. The rights of the
co-owners to have the property partitioned and their share in the same delivered to them cannot be questioned
for "[n]o co-owner shall be obliged to remain in the co-ownership." The partition was merely a necessary
incident of the co-ownership; and absent any evidence to the contrary, this partition is presumed to have been
done in good faith.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ LABOR AND SOCIAL LEGISLATION; REPUBLIC ACT NO.
7279 (URBAN DEVELOPMENT AND HOUSING ACT OF 1992); "SMALL-PROPERTY OWNER"; SHARE OF
EACH CO-OWNER OF THE PROPERTY SOUGHT TO BE EXPROPRIATED DID NOT EXCEED THE 300
SQUARE METER LIMIT; CASE AT BAR. — Upon partition, four (4) co-owners, namely, Francisco, Thelma,
Rodolfo and Antonio Aguilar each had a share of 300 square meters under TCT Nos. 13849, 13852, 13850, 13851.
Eusebio Aguilar's share was
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ square meters under TCT No. 13853 while Virginia
Aguilar's was 89 square meters under TCT No. 13854. It is noted that Virginia Aguilar, although granted 89
square meters only of the subject lots, is, at the same time, the sole registered owner of the TCT No. 59780,
one of the three (3) titles initially sought to be expropriated in the original complaint. TCT No. 59780, with a
land area of 211 square meters, was dropped in the amended complaint. Eusebio Aguilar was granted 347
square meters, which is 47 square meters more than the maximum of 300 square meters set by R.A. 7279 for
small property owners. In TCT No. 13853, Eusebio's title, however, appears the following annotations; " . . .
subject to . . . and to the prov. of Sec. 4 Rule 74 of the Rules of Court with respect to the inheritance left by the
deceased Eusebio N. Aguilar." Eusebio died on March 23, 1995, and, according to Antonio's testimony, the
former was survived by five (5) children. Where there are several co-owners, and some of them die, the heirs
of those who die, with respect to that part belonging to the deceased, become also co-owners of the property
together with those who survive. After Eusebio died, his five heirs became co-owners of his 347 square meters
portion. Dividing the 347 square meters among the five entitled each heir to 69.4 square meters of the land
subject of litigation. Consequently, the share of each co-owner did not exceed the 300 square meter limit set in
R.A. 7279.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; PROPERTY OWNERS DO NOT APPEAR TO
OWN REAL PROPERTY OTHER THAN THE LOTS SUBJECT OF EXPROPRIATION; PRESENT IN THE
CASE AT BAR. — Antonio Aguilar testified that he and most of the original co-owners do not reside on the
subject property but in their ancestral home in Paco, Manila. Respondents therefore appear to own real
property other than the lots in litigation. Nonetheless, the records do not show that the ancestral home in Paco,
Manila and the land on which it stands are owned by respondent or any one of them. Petitioner did not present
any little or proof of this fact despite Antonio Aguilar's testimony. On the other hand, respondents claim that the
subject lots are their only real property and that they, particularly two of the five heirs of Eusebio Aguilar, are
merely renting their houses and therefore do not own any other real property in Metro Manila. To prove this,
they submitted certifications from the offices of the City and Municipal Assessors in Metro Manila attesting to
the fact that they have no registered real property declared for taxation purposes in the respective cities.
Respondents were certified by the City Assessor of Manila; Quezon City; Makati City; Pasay City; Parañaque;
Caloocan City; Pasig City; Muntinlupa; Marikina and the then municipality of Las Piñas and the municipality of
San Juan del Monte as having no real property registered for taxation in their individual names.

162
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; MODES OF LAND ACQUISITION;
EXPROPRIATION; PUBLIC PURPOSE WAS NEGATED BY EVICTION OF TENANTS AND OTHER
OCCUPANTS FROM THE LAND IN QUESTION. — Finally, this court notes that the subject lots are now in
the possession of respondents. Antonio Aguilar testified that he and the other co-owners filed ejectment
cases against the occupants of the land before the Metropolitan Trial Court, Mandaluyong, Branches 59 and
60. Orders of eviction were issued and executed on September 17, 1997 which resulted in the eviction of the
tenants and other occupants from the land in question.

DECISION

PUNO, J p:

This is a petition for review under Rule 45 of the Rules of Court of the Orders dated September 17, 1998 and
December 29, 1998 of the Regional Trial Court, Branch 168, Pasig City 1 dismissing the petitioner's
Amended Complaint in SCA No. 1427 for expropriation of two (2) parcels of land in Mandaluyong City.

The antecedent facts are as follows:

On August 4, 1997, petitioner filed with the Regional Trial Court, Branch 168, Pasig City a complaint for
expropriation entitled "City of Mandaluyong, plaintiff v. Antonio N., Francisco N., Thelma N., Eusebio N.,
Rodolfo N., all surnamed Aguilar, defendants." Petitioner sought to expropriate three (3) adjoining parcels of
land with an aggregate area of 1,847 square meters registered under Transfer Certificates of Title Nos. 59780,
63766 and 63767 in the names of the defendants, herein respondents, located at 9 de Febrero Street,
Barangay Mauwag, City of Mandaluyong; on a portion of the 3 lots, respondents constructed residential
houses several decades ago which they had since leased out to tenants until the present; on the vacant
portion of the lots, other families constructed residential structures which they likewise occupied; in 1983, the
lots were classified by Resolution No. 125 of the Board of the Housing and Urban Development Coordinating
Council as an Area for Priority Development for urban land reform under Proclamation Nos. 1967 and 2284 of
then President Marcos; as a result of this classification, the tenants and occupants of the lots offered to
purchase the land from respondents, but the latter refused to sell; on November 7, 1996, the Sangguniang
Panlungsod of petitioner, upon petition of the Kapitbisig, an association of tenants and occupants of the subject
land, adopted Resolution No. 516, Series of 1996 authorizing Mayor Benjamin Abalos of the City of
Mandaluyong to initiate action for the expropriation of the subject lots and construction of a medium-rise
condominium for qualified occupants of the land; on January 10, 1996, Mayor Abalos sent a letter to
respondents offering to purchase the said property at P3,000.00 per square meter; respondents did not answer
the letter. Petitioner thus prayed for the expropriation of the said lots and the fixing of just compensation at the
fair market value of P3,000.00 per square meter. 2

In their answer, respondents, except Eusebio N. Aguilar who died in 1995, denied having received a copy of

Mayor Abalos' offer to purchase their lots. They alleged that the expropriation of their land is arbitrary and

capricious, and is not for a public purpose; the subject lots are their only real property and are too small for

expropriation, while petitioner has several properties inventoried for socialized housing; the fair market value of

P3,000.00 per square meter is arbitrary because the zonal valuation set by the Bureau of Internal Revenue is

P7,000.00 per square meter. As counterclaim, respondents prayed for damages of P21 million. 3

Respondents filed a "Motion for Preliminary Hearing" claiming that the defenses alleged in their Answer are
valid grounds for dismissal of the complaint for lack of jurisdiction over the person of the defendants and lack of
cause of action. Respondents prayed that the affirmative defenses be set for preliminary hearing and that the
complaint be dismissed. 4 Petitioner replied.

On November 5, 1997, petitioner filed an Amended Complaint and named as an additional defendant Virginia
N. Aguilar and, at the same time, substituted Eusebio Aguilar with his heirs. Petitioner also excluded from
expropriation TCT No. 59870 and thereby reduced the area sought to be expropriated from three (3) parcels
of land to two (2) parcels totalling 1,636 square meters under TCT Nos. 63766 and 63767. 5
The Amended Complaint was admitted by the trial court on December 18, 1997. Respondents, who, with the
exception of Virginia Aguilar and the Heirs of Eusebio Aguilar had yet to be served with summons and copies

163
of the Amended Complaint, filed a "Manifestation and Motion" adopting their "Answer with Counterclaim" and
"Motion for Preliminary Hearing" as their answer to the Amended Complaint. 6

The motion was granted. At the hearing of February 25, 1998, respondents presented Antonio Aguilar who
testified and identified several documentary evidence. Petitioner did not present any evidence. Thereafter,
both parties filed their respective memoranda. 7

On September 17, 1998, the trial court issued an order dismissing the Amended Complaint after declaring
respondents as "small property owners" whose land is exempt from expropriation under Republic Act No.
7279. The court also found that the expropriation was not for a public purpose for petitioner's failure to present
any evidence that the intended beneficiaries of the expropriation are landless and homeless residents of
Mandaluyong. The court thus disposed of as follows:

"WHEREFORE, the Amended Complaint is hereby ordered dismissed without pronouncement

as to cost.

SO ORDERED." 8

Petitioner moved for reconsideration. On December 29, 1998, the court denied the motion. Hence this petition.

Petitioner claims that the trial court erred

"IN UPHOLDING RESPONDENT'S CONTENTION THAT THEY QUALIFY AS SMALL

PROPERTY OWNERS AND ARE THUS EXEMPT FROM EXPROPRIATION." 9

Petitioner mainly claims that the size of the lots in litigation does not exempt the same from expropriation in

view of the fact that the said lots have been declared to be within the Area for Priority Development (APD) No.

5 of Mandaluyong by virtue of Proclamation No. 1967, as amended by Proclamation No. 2284 in relation

toPresidential Decree No. 1517. 10 This declaration allegedly authorizes petitioner to expropriate the property,

ipso facto, regardless of the area of the land.

Presidential Decree (P.D.) No. 1517,the Urban Land Reform Act, was issued by then President Marcos in
1978. The decree adopted as a State policy the liberation of human communities from blight, congestion and
hazard, and promotion of their development and modernization, the optimum use of land as a national
resource for public welfare. 11 Pursuant to this law, Proclamation No. 1893 was issued in 1979 declaring the
entire Metro Manila as Urban Land Reform Zone for purposes of urban land reform. This was amended in

1980 by Proclamation No. 1967 and in 1983 by Proclamation No. 2284 which identified and specified 245 sites
in Metro Manila as Areas for Priority Development and Urban Land Reform Zones.

In 1992, the Congress of the Philippines passed Republic Act No. 7279, the "Urban Development and Housing
Act of 1992." The law lays down as a policy that the state, in cooperation with the private sector, undertake a
comprehensive and continuing Urban Development and Housing Program; uplift the conditions of the
underprivileged and homeless citizens in urban areas and resettlement areas by making available to them
decent housing at affordable cost, basic services and employment opportunities and provide for the rational
use and development of urban land to bring about, among others, equitable utilization of residential lands;
encourage more effective people's participation in the urban development process and improve the capability
of local government units in undertaking urban development and housing programs and projects. 12 Towards
this end, all city and municipal governments are mandated to conduct an inventory of all lands and
improvements within their respective localities, and in coordination with the National Housing Authority, the
Housing and Land Use Regulatory Board, the National Mapping Resource Information Authority, and the Land
Management Bureau, identify lands for socialized housing and resettlement areas for the immediate and
future needs of the underprivileged and homeless in the urban areas, acquire the lands, and dispose of said
lands to the beneficiaries of the program. 13

The acquisition of lands for socialized housing is governed by several provisions in the law. Section 9 of R.A.

7279 provides:

"SECTION 9. Priorities in the Acquisition of Land. — Lands for socialized housing shall be
acquired in the following order:
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Those
owned by the Government or any of its subdivisions,
instrumentalities, or agencies, including government-owned
or controlled corporations and their subsidiaries;

164
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Alienable lands of the public
domain;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Unregistered or abandoned

and idle lands;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Those within the

declared Areas for Priority Development, Zonal Improvement Program
sites, and Slum Improvement and Resettlement Program sites which
have not yet been acquired;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Bagong Lipunan

Improvement of Sites and Services or BLISS Sites which have not yet
been acquired;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Privately-owned lands.

Where on-site development is found more practicable and advantageous to the beneficiaries,
the priorities mentioned in this section shall not apply. The local government units shall give
budgetary priority to on-site development of government lands."

Lands for socialized housing are to be acquired in the following order: (1) government lands; (2) alienable
lands of the public domain; (3) unregistered or abandoned or idle lands; (4) lands within the declared Areas
for Priority Development (APD), Zonal Improvement Program (ZIP) sites, Slum Improvement and
Resettlement (SIR) sites which have not yet been acquired; (5) BLISS sites which have not yet been acquired;
and (6) privately-owned lands.

There is no dispute that the two lots in litigation are privately-owned and therefore last in the order of priority
acquisition. However, the law also provides that lands within the declared APD's which have not yet been
acquired by the government are fourth in the order of priority. According to petitioner, since the subject lots
lie within the declared APD, this fact mandates that the lots be given priority in acquisition. 14

Section 9, however, is not a single provision that can be read separate from the other provisions of the law. It
must be read together with Section 10 of R.A. 7279 which also provides:

"SECTION 10. Modes of Land Acquisition. — The modes of acquiring lands for purposes of
this Act shall include, among others, community mortgage, land swapping, land assembly or
consolidation, land banking, donation to the Government, joint-venture agreement, negotiated
purchase, and expropriation: Provided, however, That expropriation shall be resorted to only
when other modes of acquisition have been exhausted: Provided, further, That where
expropriation is resorted to, parcels of land owned by small property owners shall be
exempted for purposes of this Act: Provided, finally, That abandoned property, as herein
defined, shall be reverted and escheated to the State in a proceeding analogous to the
procedure laid down in Rule 91 of the Rules of Court. 15

For the purposes of socialized housing, government-owned and foreclosed properties shall be
acquired by the local government units, or by the National Housing Authority primarily through
negotiated purchase: Provided, That qualified beneficiaries who are actual occupants of the
land shall be given the right of first refusal."

Lands for socialized housing under R.A. 7279 are to be acquired in several modes. Among these modes are
the following: (1) community mortgage; (2) land swapping, (3) land assembly or consolidation; (4) land
banking; (5) donation to the government; (6) joint venture agreement; (7) negotiated purchase; and (8)
expropriation. The mode of expropriation is subject to two conditions: (a) it shall be resorted to only when the
other modes of acquisition have been exhausted; and (b) parcels of land owned by small property owners are
exempt from such acquisition.

Section 9 of R.A. 7279 speaks of priorities in the acquisition of lands. It enumerates the type of lands to be
acquired and the hierarchy in their acquisition. Section 10 deals with the modes of land acquisition or the process
of acquiring lands for socialized housing. These are two different things. They mean that the type of lands that may
be acquired in the order of priority in Section 9 are to be acquired only in the modes authorized under Section 10.
The acquisition of the lands in the priority list must be made subject to the modes and conditions set forth in the
next provision. In other words, land that lies within the APD, such as in the instant case, may be acquired only in
the modes under, and subject to the conditions of, Section 10. IcaHCS

Petitioner claims that it had faithfully observed the different modes of land acquisition for socialized housing
under R.A. 7279 and adhered to the priorities in the acquisition for socialized housing under said law. 16 It,

165
however, did not state with particularity whether it exhausted the other modes of acquisition in Section 9 of the
law before it decided to expropriate the subject lots. The law states "expropriation shall be resorted to when
other modes of acquisition have been exhausted." Petitioner alleged only one mode of acquisition, i.e., by
negotiated purchase. Petitioner, through the City Mayor, tried to purchase the lots from respondents but the
latter refused to sell. 17 As to the other modes of acquisition, no mention has been made. Not even Resolution
No. 516, Series of 1996 of the Sangguniang Panlungsod authorizing the Mayor of Mandaluyong to effect the
expropriation of the subject property states whether the city government tried to acquire the same by
community mortgage, land swapping, land assembly or consolidation, land banking, donation to the
government, or joint venture agreement under Section 9 of the law.

Section 9 also exempts from expropriation parcels of land owned by small property owners. 18 Petitioner
argues that the exercise of the power of eminent domain is not anymore conditioned on the size of the land
sought to be expropriated. 19 By the expanded notion of public use, present jurisprudence has established
the concept that expropriation is not anymore confined to the vast tracts of land and landed estates, but also
covers small parcels of land. 20 That only a few could actually benefit from the expropriation of the property
does not diminish its public use character. 21 It simply is not possible to provide, in one instance, land and
shelter for all who need them. 22

While we adhere to the expanded notion of public use, the passage of R.A. No. 7279, the "Urban Development and
Housing Act of 1992" introduced a limitation on the size of the land sought to be expropriated for socialized housing.
The law expressly exempted "small property owners" from expropriation of their land for urban land reform. R.A. No.
7279 originated as Senate Bill No. 234 authored by Senator Joey Lina 23 and House Bill No. 34310. Senate Bill No.
234 then provided that one of those lands not covered by the urban land reform and housing program was "land
actually used by small property owners within the just and equitable retention limit as provided under this Act." 24
Small property owners" were defined in Senate Bill No. 234 as:

"4. Small Property Owners — are those whose rights are protected under Section 9, Article
XIII of the Constitution of the Philippines, who own small parcels of land within the fair and
just retention limit provided under this Act and which are adequate to meet the reasonable
needs of the small property owner's family and their means of livelihood." 25

The exemption from expropriation of lands of small-property owners was never questioned on the Senate floor.
26 This exemption, although with a modified definition, was actually retained in the consolidation of Senate Bill
No. 234 and House Bill No. 34310 which became R.A. No. 7279. 27

The question now is whether respondents qualify as "small property owners" as defined in Section 3 (q) of R.A.

7279. Section 3 (q) provides:

"SECTION 3 . . . (q). "Small property owners" refers to those whose only real property
consists of residential lands not exceeding three hundred square meters (300 sq.m.) in
highly urbanized cities and eight hundred square meters (800 sq.m.) in other urban areas."

"Small-property owners" are defined by two elements: (1) those owners of real property whose property
consists of residential lands with an area of not more than 300 square meters in highly urbanized cities and
800 square meters in other urban areas; and (2) that they do not own real property other than the same.

The case at bar involves two (2) residential lots in Mandaluyong City, a highly urbanized city. The lot under
TCT No. 63766 is 687 square meters in area and the second under TCT No. 63767 is 949 square meters, both
totalling 1,636 square meters in area. TCT No. 63766 was issued in the names of herein five (5) respondents,
viz:

"FRANCISCO N. AGUILAR, widower; THELMA N. AGUILAR, single; EUSEBIO N.

AGUILAR, JR., widower; RODOLFO N. AGUILAR, single and ANTONIO N. AGUILAR,
married to Teresita Puig; all of legal age, Filipinos." 28

TCT No. 63767 was issued in the names of the five (5) respondents plus Virginia Aguilar, thus:

"FRANCISCO N. AGUILAR, widower; THELMA N. AGUILAR, single; EUSEBIO N.

AGUILAR, JR., widower; RODOLFO N. AGUILAR, single and ANTONIO N. AGUILAR,
married to Teresita Puig; and VIRGINIA N. AGUILAR, single, all of legal age, Filipinos." 29
Respondent Antonio Aguilar testified that he and the other registered owners are all siblings who inherited
the subject property by intestate succession from their parents. 30 Their father died in 1945 and their mother
in 1976. 31 Both TCT's were issued in the siblings' names on September 2, 1987. 32 In 1986, however, the

166
siblings agreed to extrajudicially partition the lots among themselves, but no action was taken by them to this
end. It was only eleven (11) years later, on November 28, 1997 that a survey of the two lots was made 33 and
on February 10, 1998, a consolidation subdivision plan was approved by the Lands Management Service of
the Department of Environment and Natural Resources. 34 The co-owners signed a Partition Agreement on
February 24, 1998 35 and on May 21, 1998, TCT Nos. 63766 and 63767 were cancelled and new titles
issued in the names of the individual owners pursuant to the Partition Agreement.

Petitioner argues that the consolidation of the subject lots and their partition was made more than six (6)
months after the complaint for expropriation was filed on August 4, 1997, hence, the partition was made in
bad faith, for the purpose of circumventing the provisions of R.A. 7279. 36

At the time of filing of the complaint for expropriation, the lots subject of this case were owned in common by
respondents. Under a co-ownership, the ownership of an undivided thing or right belongs to different persons.
37 During the existence of the co-ownership, no individual can claim title to any definite portion of the
community property until the partition thereof; and prior to the partition, all that the co-owner has is an ideal or
abstract quota or proportionate share in the entire land or thing. 38Article 493 of the Civil Code however
provides that:

"ARTICLE 493. Each co-owner shall have the full ownership of his part and of the fruits and
benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even
substitute another person in its enjoyment, except when personal rights are involved. But the
effect of the alienation or the mortgage, with respect to the co-owners shall be limited to the
portion which may be allotted to him in the division upon termination of the co-ownership." 39

Before partition in a co-ownership, every co-owner has the absolute ownership of his undivided interest in the
common property. The co-owner is free to alienate, assign or mortgage his interest, except as to purely
personal rights. 40 He may also validly lease his undivided interest to a third party independently of the other
co-owners. 41 The effect of any such transfer is limited to the portion which may be awarded to him upon the
partition of the property. 42

Article 493 therefore gives the owner of an undivided interest in the property the right to freely sell and
dispose of his undivided interest. 43 The co-owner, however, has no right to sell or alienate a concrete
specific or determinate part of the thing owned in common, because his right over the thing is represented by
a quota or ideal portion without any physical adjudication. 44 If the co-owner sells a concrete portion, this,
nonetheless, does not render the sale void. Such a sale affects only his own share, subject to the results of
the partition but not those of the other co-owners who did not consent to the sale. 45

In the instant case, the titles to the subject lots were issued in respondents' names as co-owners in 1987—ten

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ years before the expropriation case was filed in 1997. As
co-owners, all that the respondents had was an ideal or abstract quota or proportionate share in the lots. This,
however, did not mean that they could not separately exercise any rights over the lots. Each respondent had
the full ownership of his undivided interest in the property. He could freely sell or dispose of his interest
independently of the other co-owners. And this interest could have even been attached by his creditors. 46 The
partition in 1998, six (6) months after the filing of the expropriation case, terminated the co-ownership by
converting into certain and definite parts the respective undivided shares of the co-owners. 47 The subject
property is not a thing essentially indivisible. The rights of the co-owners to have the property partitioned and
their share in the same delivered to them cannot be questioned for "[n]o co-owner shall be obliged to remain in
the co-ownership." 48 The partition was merely a necessary incident of the co-ownership; 49 and absent any
evidence to the contrary, this partition is presumed to have been done in good faith.

Upon partition, four (4) co-owners, namely, Francisco, Thelma, Rodolfo and Antonio Aguilar each had a share of
300 square meters under TCT Nos. 13849, 13852, 13850, 13851. 50 Eusebio Aguilar's share was 347 square
meters under TCT No. 13853 51 while Virginia Aguilar's was 89 square meters under TCT No. 13854.
52

It is noted that Virginia Aguilar, although granted 89 square meters only of the subject lots, is, at the same time,
the sole registered owner of TCT No. 59780, one of the three (3) titles initially sought to be expropriated in the
original complaint. TCT No. 59780, with a land area of 211 square meters, was dropped in the amended
complaint. Eusebio Aguilar was granted 347 square meters, which is 47 square meters more than the
167
maximum of 300 square meters set by R.A. 7279 for small property owners. In TCT No. 13853, Eusebio's title,
however, appears the following annotation:

". . . subject to . . . , and to the prov. of Sec. 4 Rule 74 of the Rules of Court with respect to the
inheritance left by the deceased Eusebio N. Aguilar." 53

Eusebio died on March 23, 1995, 54 and, according to Antonio's testimony, the former was survived by five (5)
children. 55 Where there are several co-owners, and some of them die, the heirs of those who die, with respect
to that part belonging to the deceased, become also co-owners of the property together with those who
survive. 56After Eusebio died, his five heirs became co-owners of his 347 square-meter portion. Dividing the
347 square meters among the five entitled each heir to 69.4 square meters of the land subject of litigation.

Consequently, the share of each co-owner did not exceed the 300 square meter limit set in R.A. 7279. The
second question, however, is whether the subject property is the only real property of respondents for them to
comply with the second requisite for small property owners.

Antonio Aguilar testified that he and most of the original co-owners do not reside on the subject property but in
their ancestral home in Paco, Manila. 57 Respondents therefore appear to own real property other than the lots
in litigation. Nonetheless, the records do not show that the ancestral home in Paco, Manila and the land on
which it stands are owned by respondents or any one of them. Petitioner did not present any title or proof of
this fact despite Antonio Aguilar's testimony.

On the other hand, respondents claim that the subject lots are their only real property 58 and that they,
particularly two of the five heirs of Eusebio Aguilar, are merely renting their houses and therefore do not
own any other real property in Metro Manila. 59 To prove this, they submitted certifications from the offices
of the City and Municipal Assessors in Metro Manila attesting to the fact that they have no registered real
property declared for taxation purposes in the respective cities. Respondents were certified by the City
Assessor of Manila; 60 Quezon City; 61 Makati City; 62 Pasay City; 63 Parañaque; 64 Caloocan City; 65
Pasig City; 66 Muntinlupa; 67 Marikina; 68 and the then municipality of Las Piñas 69 and the municipality of
San Juan del Monte 70 as having no real property registered for taxation in their individual names.

Finally, this court notes that the subject lots are now in the possession of respondents. Antonio Aguilar
testified that he and the other co-owners filed ejectment cases against the occupants of the land before the
Metropolitan Trial Court, Mandaluyong, Branches 59 and 60. Orders of eviction were issued and executed on
September 17, 1997 which resulted in the eviction of the tenants and other occupants from the land in
question. 71

IN VIEW WHEREOF, the petition is DENIED and the orders dated September 17, 1998 and December 29,
1998 of the Regional Trial Court, Branch 168, Pasig City in SCA No. 1427 are AFFIRMED.

SO ORDERED.

Davide, Jr., C.J., Kapunan, Pardo and Ynares-Santiago, JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (City of Mandaluyong v. Aguilar, G.R. No. 137152,

[January 29, 2001], 403 PHIL 404-428)

Mactan-Cebu International Airport Authority v. Lozada, Sr., G.R. No. 176625, [February 25, 2010], 627
PHIL 434-452

EN BANC

[G.R. No. 176625. February 25, 2010.]

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY and AIR TRANSPORTATION

OFFICE, petitioners, vs. BERNARDO L. LOZADA, SR., and the HEIRS OF ROSARIO

MERCADO, namely, VICENTE LOZADA, MARIO M. LOZADA, MARCIA L. GODINEZ,

VIRGINIA L. FLORES, BERNARDO LOZADA, JR., DOLORES GACASAN,
SOCORRO CAFARO and ROSARIO LOZADA, represented by MARCIA LOZADA
GODINEZ, respondents.

168
 DECISION

NACHURA, J p:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse,
annul, and set aside the Decision 1 dated February 28, 2006 and the Resolution 2 dated February 7, 2007
of the Court of Appeals (CA) (Cebu City), Twentieth Division, in CA-G.R. CV No. 65796.

The antecedent facts and proceedings are as follows:

Subject of this case is Lot No. 88-SWO-25042 (Lot No. 88), with an area of 1,017 square meters,
more or less, located in Lahug, Cebu City. Its original owner was Anastacio Deiparine when the same was
subject to expropriation proceedings, initiated by the Republic of the Philippines (Republic), represented by
the then Civil Aeronautics Administration (CAA), for the expansion and improvement of the Lahug Airport.
The case was filed with the then Court of First Instance of Cebu, Third Branch, and docketed as Civil Case
No. R-1881.

As early as 1947, the lots were already occupied by the U.S. Army. They were turned over to the
Surplus Property Commission, the Bureau of Aeronautics, the National Airport Corporation and then to the
CAA. HSEcTC

During the pendency of the expropriation proceedings, respondent Bernardo L. Lozada, Sr.
acquired Lot No. 88 from Deiparine. Consequently, Transfer Certificate of Title (TCT) No. 9045 was issued
in Lozada's name.

On December 29, 1961, the trial court rendered judgment in favor of the Republic and ordered the
latter to pay Lozada the fair market value of Lot No. 88, adjudged at P3.00 per square meter, with
consequential damages by way of legal interest computed from November 16, 1947 — the time when the
lot was first occupied by the airport. Lozada received the amount of P3,018.00 by way of payment.

The affected landowners appealed. Pending appeal, the Air Transportation Office (ATO), formerly
CAA, proposed a compromise settlement whereby the owners of the lots affected by the expropriation
proceedings would either not appeal or withdraw their respective appeals in consideration of a commitment
that the expropriated lots would be resold at the price they were expropriated in the event that the ATO
would abandon the Lahug Airport, pursuant to an established policy involving similar cases. Because of
this promise, Lozada did not pursue his appeal. Thereafter, Lot No. 88 was transferred and registered in
the name of the Republic under TCT No. 25057.

The projected improvement and expansion plan of the old Lahug Airport, however, was not
pursued.

Lozada, with the other landowners, contacted then CAA Director Vicente Rivera, Jr., requesting to
repurchase the lots, as per previous agreement. The CAA replied that there might still be a need for the
Lahug Airport to be used as an emergency DC-3 airport. It reiterated, however, the assurance that "should
this Office dispose and resell the properties which may be found to be no longer necessary as an airport,
then the policy of this Office is to give priority to the former owners subject to the approval of the
President."

On November 29, 1989, then President Corazon C. Aquino issued a Memorandum to the
Department of Transportation, directing the transfer of general aviation operations of the Lahug Airport to
the Mactan International Airport before the end of 1990 and, upon such transfer, the closure of the Lahug
Airport. SATDEI

Sometime in 1990, the Congress of the Philippines passed Republic Act (R.A.) No. 6958, entitled
"An Act Creating the Mactan-Cebu International AirportAuthority, Transferring Existing Assets of the
Mactan International Airport and the Lahug Airport to the Authority, Vesting the Authority with Power to
Administer and Operate the Mactan International Airport and the Lahug Airport, and for Other Purposes."

From the date of the institution of the expropriation proceedings up to the present, the public
propose of the said expropriation (expansion of the airport) was never actually initiated, realized, or
implemented. Instead, the old airport was converted into a commercial complex. Lot No. 88 became the
site of a jail known asBagong Buhay Rehabilitation Complex, while a portion thereof was occupied by
169
squatters. 3 The old airport was converted into what is now known as the Ayala I.T. Park, a commercial area.

Thus, on June 4, 1996, petitioners initiated a complaint for the recovery of possession and
reconveyance of ownership of Lot No. 88. The case was docketed as Civil Case No. CEB-18823 and was
raffled to the Regional Trial Court (RTC), Branch 57, Cebu City. The complaint substantially alleged as
follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Spouses Bernardo and Rosario

Lozada were the registered owners of Lot No. 88 covered by TCT No. 9045;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In the early 1960's, the Republic

sought to acquire by expropriation Lot No. 88, among others, in connection with
its program for the improvement and expansion of the Lahug Airport;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ A decision was rendered by the

Court of First Instance in favor of the Government and against the land owners,
among whom was Bernardo Lozada, Sr. appealed therefrom;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ During the pendency of the appeal,

the parties entered into a compromise settlement to the effect that the subject
property would be resold to the original owner at the same price when it was
expropriated in the event that the Government abandons the Lahug Airport;
HTCISE

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Title to Lot No. 88 was subsequently

transferred to the Republic of the Philippines (TCT No. 25057);

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The projected expansion and improvement

of the Lahug Airport did not materialize;

࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Plaintiffs sought to repurchase their

property from then CAA Director Vicente Rivera. The latter replied by giving as
assurance that priority would be given to the previous owners, subject to the
approval of the President, should CAA decide to dispose of the properties;

࿿࿿࿿ )37桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ On November 29, 1989, then

President Corazon C. Aquino, through a Memorandum to the Department of
Transportation and Communications (DOTC), directed the transfer of general
aviation operations at the Lahug Airport to the Mactan-Cebu International Airport
Authority;

࿿࿿࿿ )38桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Since the public purpose for the

expropriation no longer exists, the property must be returned to the plaintiffs. 4
HSacEI

In their Answer, petitioners asked for the immediate dismissal of the complaint. They specifically
denied that the Government had made assurances to reconvey Lot No. 88 to respondents in the event that
the property would no longer be needed for airport operations. Petitioners instead asserted that the judgment
of condemnation was unconditional, and respondents were, therefore, not entitled to recover the
expropriated property notwithstanding non-use or abandonment thereof.

After pretrial, but before trial on the merits, the parties stipulated on the following set of facts:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The lot involved is Lot No. 88-SWO-

25042 of the Banilad Estate, situated in the City of Cebu, containing an area of
One Thousand Seventeen (1,017) square meters, more or less;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The property was expropriated

among several other properties in Lahug in favor of the Republic of the
Philippines by virtue of a Decision dated December 29, 1961 of the CFI of Cebu
in Civil Case No. R-1881;
࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The public purpose for which the
property was expropriated was for the purpose of the Lahug Airport; DCASEc

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ After the expansion, the property was

transferred in the name of MCIAA; [and]

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ On November 29, 1989, then

President Corazon C. Aquino directed the Department of Transportation and
Communication to transfer general aviation

170
 operations of the Lahug Airport to the Mactan-Cebu International Airport
Authority and to close the Lahug Airport after such transfer[.] 5

During trial, respondents presented Bernardo Lozada, Sr. as their lone witness, while petitioners
presented their own witness, Mactan-Cebu InternationalAirport Authority legal assistant Michael Bacarisas.

On October 22, 1999, the RTC rendered its Decision, disposing as follows:

WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of the
plaintiffs, Bernardo L. Lozada, Sr., and the heirs of Rosario Mercado, namely, Vicente M.
Lozada, Marcia L. Godinez, Virginia L. Flores, Benardo M. Lozada, Jr., Dolores L. Gacasan,
Socorro L. Cafaro and Rosario M. Lozada, represented by their attorney-in-fact Marcia Lozada
Godinez, and against defendants Cebu-Mactan International Airport Authority (MCIAA) and Air
Transportation Office (ATO):

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ordering MCIAA and ATO to restore to

plaintiffs the possession and ownership of their land, Lot No. 88 Psd-821 (SWO-23803), upon
payment of the expropriation price to plaintiffs; and

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ordering the Register of Deeds to effect the

transfer of the Certificate of Title from defendant[s] to plaintiffs on Lot No. [88], cancelling TCT
No. 20357 in the name of defendant MCIAA and to issue a new title on the same lot in the name
of Bernardo L. Lozada, Sr. and the heirs of Rosario Mercado, namely: Vicente M. Lozada, Mario
M. Lozada, Marcia L. Godinez, Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan,
Socorro L. Cafaro and Rosario M. Lozada. cCTAIE

No pronouncement as to costs.

SO ORDERED. 6

Aggrieved, petitioners interposed an appeal to the CA. After the filing of the necessary appellate
briefs, the CA rendered its assailed Decision dated February 28, 2006, denying petitioners' appeal and
affirming in toto the Decision of the RTC, Branch 57, Cebu City. Petitioners' motion for reconsideration was,
likewise, denied in the questioned CA Resolution dated February 7, 2007.

Hence, this petition arguing that: (1) the respondents utterly failed to prove that there was a
repurchase agreement or compromise settlement between them and the Government; (2) the judgment in
Civil Case No. R-1881 was absolute and unconditional, giving title in fee simple to the Republic; and (3) the
respondents' claim of verbal assurances from government officials violates the Statute of Frauds.

The petition should be denied.

Petitioners anchor their claim to the controverted property on the supposition that the Decision in the
pertinent expropriation proceedings did not provide for the condition that should the intended use of Lot No.
88 for the expansion of the Lahug Airport be aborted or abandoned, the property would revert to
respondents, being its former owners. Petitioners cite, in support of this position, Fery v. Municipality of
Cabanatuan, 7 which declared that the Government acquires only such rights in expropriated parcels of land
as may be allowed by the character of its title over the properties —

If . . . land is expropriated for a particular purpose, with the condition that when that purpose is
ended or abandoned the property shall return to its former owner, then, of course, when the
purpose is terminated or abandoned the former owner reacquires the property so expropriated.
If . . . land is expropriated for a public street and the expropriation is granted upon condition that
the city can only use it for a public street, then, of course, when the city abandons its use as a
public street, it returns to the former owner, unless there is some statutory provision to the
contrary. . . . . If, upon the contrary, however, the decree of expropriation gives to the entity a
fee simple title, then, of course, the land becomes the absolute property of the expropriator,
whether it be the State, a province, or municipality, and in that case the non-user does not have
the effect of defeating the title acquired by the expropriation proceedings. . . . . HECTaA

When land has been acquired for public use in fee simple, unconditionally, either by the
exercise of eminent domain or by purchase, the former owner retains no right in the land, and
the public use may be abandoned, or the land may be devoted to a different use, without any
impairment of the estate or title acquired, or any reversion to the former owner. . . . . 8
171
 Contrary to the stance of petitioners, this Court had ruled otherwise in Heirs of Timoteo Moreno and
Maria Rotea v. Mactan-Cebu International AirportAuthority, 9 thus —

Moreover, respondent MCIAA has brought to our attention a significant and telling portion in the
Decision in Civil Case No. R-1881 validating our discernment that the expropriation by the
predecessors of respondent was ordered under the running impression that Lahug Airport would
continue in operation —

As for the public purpose of the expropriation proceeding, it cannot now be doubted.
Although Mactan Airport is being constructed, it does not take away the actual
usefulness and importance of the Lahug Airport: it is handling the air traffic both civilian
and military. From it aircrafts fly to Mindanao and Visayas and pass thru it on their flights
to the North and Manila. Then, no evidence was adduced to show how soon is the
Mactan Airport to be placed in operation and whether the Lahug Airport will be closed
immediately thereafter. It is up to the other departments of the Government to determine
said matters. The Court cannot substitute its judgment for those of the said departments
or agencies. In the absence of such showing, the Court will presume that the Lahug
Airport will continue to be in operation (emphasis supplied).

While in the trial in Civil Case No. R-1881 [we] could have simply acknowledged the presence of
public purpose for the exercise of eminent domain regardless of the survival of Lahug Airport,
the trial court in its Decision chose not to do so but instead prefixed its finding of public purpose
upon its understanding that "Lahug Airportwill continue to be in operation." Verily, these
meaningful statements in the body of the Decision warrant the conclusion that the expropriated
properties would remain to be so until it was confirmed that Lahug Airport was no longer "in
operation." This inference further implies two (2) things: (a) after the Lahug Airport ceased its
undertaking as such and the expropriated lots were not being used for any airport expansion
project, the rights vis-à-vis the expropriated Lots Nos. 916 and 920 as between the State and
their former owners, petitioners herein, must be equitably adjusted; and (b) the foregoing
unmistakable declarations in the body of the Decisionshould merge with and become an
intrinsic part of the fallo thereof which under the premises is clearly inadequate since the
dispositive portion is not in accord with the findings as contained in the body thereof.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ caCEDA

Indeed, the Decision in Civil Case No. R-1881 should be read in its entirety, wherein it is apparent
that the acquisition by the Republic of the expropriated lots was subject to the condition that the Lahug
Airport would continue its operation. The condition not having materialized because the airport had been
abandoned, the former owner should then be allowed to reacquire the expropriated property. 11

On this note, we take this opportunity to revisit our ruling in Fery, which involved an expropriation suit
commenced upon parcels of land to be used as a site for a public market. Instead of putting up a public
market, respondent Cabanatuan constructed residential houses for lease on the area. Claiming that the
municipality lost its right to the property taken since it did not pursue its public purpose, petitioner Juan Fery,
the former owner of the lots expropriated, sought to recover his properties. However, as he had admitted
that, in 1915, respondent Cabanatuan acquired a fee simple title to the lands in question, judgment was
rendered in favor of the municipality, following American jurisprudence, particularly City of Fort Wayne v.
Lake Shore & M.S. RY. Co., 12 McConihay v. Theodore Wright, 13 and Reichling v. Covington Lumber Co.,
14 all uniformly holding that the transfer to a third party of the expropriated real property, which necessarily
resulted in the abandonment of the particular public purpose for which the property was taken, is not a
ground for the recovery of the same by its previous owner, the title of the expropriating agency being one of
fee simple.

Obviously, Fery was not decided pursuant to our now sacredly held constitutional right that private
property shall not be taken for public use without just compensation. 15 It is well settled that the taking of
private property by the Government's power of eminent domain is subject to two mandatory requirements:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ that it is for a particular public purpose; and (2) that just
compensation be paid to the property owner. These requirements partake of the nature of implied conditions
that should be complied with to enable the condemnor to keep the property expropriated. 16 ECcTaS
 More particularly, with respect to the element of public use, the expropriator should commit to use the
property pursuant to the purpose stated in the petition for expropriation filed, failing which, it should file
another petition for the new purpose. If not, it is then incumbent upon the expropriator to return the said

172
property to its private owner, if the latter desires to reacquire the same. Otherwise, the judgment of
expropriation suffers an intrinsic flaw, as it would lack one indispensable element for the proper exercise of
the power of eminent domain, namely, the particular public purpose for which the property will be devoted.
Accordingly, the private property owner would be denied due process of law, and the judgment would violate
the property owner's right to justice, fairness, and equity.

In light of these premises, we now expressly hold that the taking of private property, consequent to
the Government's exercise of its power of eminent domain, is always subject to the condition that the
property be devoted to the specific public purpose for which it was taken. Corollarily, if this particular purpose
or intent is not initiated or not at all pursued, and is peremptorily abandoned, then the former owners, if they
so desire, may seek the reversion of the property, subject to the return of the amount of just compensation
received. In such a case, the exercise of the power of eminent domain has become improper for lack of the
required factual justification. 17

Even without the foregoing declaration, in the instant case, on the question of whether respondents
were able to establish the existence of an oral compromise agreement that entitled them to repurchase Lot
No. 88 should the operations of the Lahug Airport be abandoned, we rule in the affirmative.

It bears stressing that both the RTC, Branch 57, Cebu and the CA have passed upon this factual
issue and have declared, in no uncertain terms, that a compromise agreement was, in fact, entered into
between the Government and respondents, with the former undertaking to resell Lot No. 88 to the latter if the
improvement and expansion of the Lahug Airport would not be pursued. In affirming the factual finding of the
RTC to this effect, the CA declared — EHSIcT

Lozada's testimony is cogent. An octogenarian widower-retiree and a resident of Moon Park,

California since 1974, he testified that government representatives verbally promised him and
his late wife while the expropriation proceedings were on-going that the government shall return
the property if the purpose for the expropriation no longer exists. This promise was made at the
premises of the airport. As far as he could remember, there were no expropriation proceedings
against his property in 1952 because the first notice of expropriation he received was in 1962.
Based on the promise, he did not hire a lawyer. Lozada was firm that he was promised that the
lot would be reverted to him once the public use of the lot ceases. He made it clear that the
verbal promise was made in Lahug with other lot owners before the 1961 decision was handed
down, though he could not name the government representatives who made the promise. It was
just a verbal promise; nevertheless, it is binding. The fact that he could not supply the necessary
details for the establishment of his assertions during cross-examination, but that "When it will
not be used as intended, it will be returned back, we just believed in the government," does not
dismantle the credibility and truthfulness of his allegation. This Court notes that he was 89 years
old when he testified in November 1997 for an incident which happened decades ago. Still, he is
a competent witness capable of perceiving and making his perception known. The minor lapses
are immaterial. The decision of the competency of a witness rests primarily with the trial judge
and must not be disturbed on appeal unless it is clear that it was erroneous. The objection to his
competency must be made before he has given any testimony or as soon as the incompetency
becomes apparent. Though Lozada is not part of the compromise agreement, 18 he
nevertheless adduced sufficient evidence to support his claim.19

As correctly found by the CA, unlike in Mactan Cebu International Airport Authority v. Court of
Appeals, 20 cited by petitioners, where respondent therein offered testimonies which were hearsay in nature,
the testimony of Lozada was based on personal knowledge as the assurance from the government was
personally made to him. His testimony on cross-examination destroyed neither his credibility as a witness nor
the truthfulness of his words.

Verily, factual findings of the trial court, especially when affirmed by the CA, are binding and
conclusive on this Court and may not be reviewed. A petition forcertiorari under Rule 45 of the Rules of Court
contemplates only questions of law and not of fact. 21 Not one of the exceptions to this rule is present in this
case to warrant a reversal of such findings. AaCEDS

As regards the position of petitioners that respondents' testimonial evidence violates the Statute of
Frauds, suffice it to state that the Statute of Frauds operates only with respect to executory contracts, and
does not apply to contracts which have been completely or partially performed, the rationale thereof being as
follows:

173
 In executory contracts there is a wide field for fraud because unless they be in writing there is
no palpable evidence of the intention of the contracting parties. The statute has precisely been
enacted to prevent fraud. However, if a contract has been totally or partially performed, the
exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant
to keep the benefits already delivered by him from the transaction in litigation, and, at the same
time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.
22

In this case, the Statute of Frauds, invoked by petitioners to bar the claim of respondents for the
reacquisition of Lot No. 88, cannot apply, the oral compromise settlement having been partially performed.
By reason of such assurance made in their favor, respondents relied on the same by not pursuing their
appeal before the CA. Moreover, contrary to the claim of petitioners, the fact of Lozada's eventual conformity
to the appraisal of Lot No. 88 and his seeking the correction of a clerical error in the judgment as to the true
area of Lot No. 88 do not conclusively establish that respondents absolutely parted with their property. To our
mind, these acts were simply meant to cooperate with the government, particularly because of the oral
promise made to them.

The right of respondents to repurchase Lot No. 88 may be enforced based on a constructive trust
constituted on the property held by the government in favor of the former. On this note, our ruling in Heirs of
Timoteo Moreno is instructive, viz.: IcAaEH

Mactan-Cebu International Airport Authority is correct in stating that one would not find an
express statement in the Decision in Civil Case No. R-1881 to the effect that"the [condemned]
lot would return to [the landowner] or that [the landowner] had a right to repurchase the same if
the purpose for which it was expropriated is ended or abandoned or if the property was to be
used other than as the Lahug Airport." This omission notwithstanding, and while the inclusion of
this pronouncement in the judgment of condemnation would have been ideal, such precision is
not absolutely necessary nor is it fatal to the cause of petitioners herein. No doubt, the return or
repurchase of the condemned properties of petitioners could be readily justified as the manifest
legal effect or consequence of the trial court's underlying presumption that "Lahug Airport will
continue to be in operation" when it granted the complaint for eminent domain and the airport
discontinued its activities.

The predicament of petitioners involves a constructive trust, one that is akin to the implied trust
referred to in Art. 1454 of the Civil Code, "If an absolute conveyance of property is made in
order to secure the performance of an obligation of the grantor toward the grantee, a trust by
virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the property to him." In the case at bar,
petitioners conveyed Lots No. 916 and 920 to the government with the latter obliging itself to
use the realties for the expansion of Lahug Airport; failing to keep its bargain, the government
can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners
would be denied the use of their properties upon a state of affairs that was not conceived nor
contemplated when the expropriation was authorized.

Although the symmetry between the instant case and the situation contemplated by Art. 1454 is
not perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of
trusts: "The only problem of great importance in the field of constructive trust is to decide
whether in the numerous and varying fact situations presented to the courts there is a wrongful
holding of property and hence a threatened unjust enrichment of the defendant." Constructive
trusts are fictions of equity which are bound by no unyielding formula when they are used by
courts as devices to remedy any situation in which the holder of legal title may not in good
conscience retain the beneficial interest. AICDSa

In constructive trusts, the arrangement is temporary and passive in which the trustee's sole duty
is to transfer the title and possession over the property to the plaintiff-beneficiary. Of course, the
"wronged party seeking the aid of a court of equity in establishing a constructive trust must
himself do equity." Accordingly, the court will exercise its discretion in deciding what acts are
required of the plaintiff-beneficiary as conditions precedent to obtaining such decree and has
the obligation to reimburse the trustee the consideration received from the latter just as the
plaintiff-beneficiary would if he proceeded on the theory of rescission. In the good judgment of
the court, the trustee may also be paid the necessary expenses he may have

174
 incurred in sustaining the property, his fixed costs for improvements thereon, and the
monetary value of his services in managing the property to the extent that plaintiff-beneficiary
will secure a benefit from his acts.

The rights and obligations between the constructive trustee and the beneficiary, in this case,
respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the
Civil Code, "When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each other what they
have received . . . . In case of the loss, deterioration or improvement of the thing, the
provisions which, with respect to the debtor, are laid down in the preceding article shall be
applied to the party who is bound to return . . . ." 23

On the matter of the repurchase price, while petitioners are obliged to reconvey Lot No. 88 to
respondents, the latter must return to the former what they received as just compensation for the
expropriation of the property, plus legal interest to be computed from default, which in this case runs from
the time petitioners comply with their obligation to respondents. cDTACE

Respondents must likewise pay petitioners the necessary expenses they may have incurred in
maintaining Lot No. 88, as well as the monetary value of their services in managing it to the extent that
respondents were benefited thereby.

Following Article 1187 24 of the Civil Code, petitioners may keep whatever income or fruits they
may have obtained from Lot No. 88, and respondents need not account for the interests that the amounts
they received as just compensation may have earned in the meantime.

In accordance with Article 1190 25 of the Civil Code vis-à-vis Article 1189, which provides that "(i)f a
thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor . . .,"
respondents, as creditors, do not have to pay, as part of the process of restitution, the appreciation in value
of Lot No. 88, which is a natural consequence of nature and time. 26

WHEREFORE, the petition is DENIED. The February 28, 2006 Decision of the Court of Appeals,
affirming the October 22, 1999 Decision of the Regional Trial Court, Branch 87, Cebu City, and its February
7, 2007 Resolution are AFFIRMED with MODIFICATION as follows: SDIACc

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Respondents are ORDERED

to return to petitioners the just compensation they received for the expropriation
of Lot No. 88, plus legal interest, in the case of default, to be computed from
the time petitioners comply with their obligation to reconvey Lot No. 88 to them;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Respondents are ORDERED

to pay petitioners the necessary expenses the latter incurred in maintaining Lot
No. 88, plus the monetary value of their services to the extent that respondents
were benefited thereby;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Petitioners are ENTITLED to

keep whatever fruits and income they may have obtained from Lot No. 88; and

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Respondents are also

ENTITLED to keep whatever interests the amounts they received as just
compensation may have earned in the meantime, as well as the appreciation in
value of Lot No. 88, which is a natural consequence of nature and time;

In light of the foregoing modifications, the case is REMANDED to the Regional Trial Court, Branch
57, Cebu City, only for the purpose of receiving evidence on the amounts that respondents will have to pay
petitioners in accordance with this Court's decision. No costs. HTAIcD

SO ORDERED.

Puno, C.J., Carpio, Corona, Carpio Morales, Velasco, Jr., Leonardo-de Castro, Brion, Bersamin,
Del Castillo, Abad, Villarama, Jr., Perez and Mendoza, JJ., concur.

Peralta, J., is on official leave.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Mactan-Cebu International Airport Authority v.
Lozada, Sr., G.R. No. 176625, [February 25, 2010], 627 PHIL 434-452)

175
Reyes v. National Housing Authority, G.R. No. 147511, [January 20, 2003], 443 PHIL 603-617

THIRD DIVISION

[G.R. No. 147511. January 20, 2003.]

MARINA Z. REYES; ALFREDO A. FRANCISCO; ANGELITA Z. GARCIA; ALFREDO Z.

FRANCISCO, JR; ARMANDO Z. FRANCISCO; ALMA C. FRANCISCO; EUGENIA Z.
LUNA; CLARITA Z. ZABALLERO, LEONARDO Z. ZABALLERO, JR., and TEODORO Z.
ZABALLERO, in substitution of LEONARDO M. ZABALLERO; AUGUSTO M.

ZABALLERO; FRINE A. ZABALLERO; ELENA FRONDA ZABALLERO; VICTOR

GREGORIO F. ZABALLERO; MARIA ELENA F. ZABALLERO; LOURDES ZABALLERO-
LAVA; SOCORRO EMILIA ZABALLERO-YAP; and TERESITA F. ZABALLERO, petitioners,
vs. NATIONAL HOUSING AUTHORITY, respondent.

Renato G. Dela Cruz & Associates for petitioners.

SYNOPSIS

Petitioners' lots were ordered expropriated in favor of the NHA for the public purpose of expansion of the
Dasmariñas Resettlement Project to accommodate the squatters relocated from the Metropolitan Manila area.
The NHA, however, had failed to relocate the squatters on the expropriated lands and had not fully paid
petitioners the just compensation fixed by the court. Hence, petitioners prayed for the forfeiture of NHA's rights
under the expropriation judgment.

The Court found the petition not impressed with merit. Public purpose was not abandoned by failure to relocate
the squatters to the expropriated lands. The low-cost housing project of the NHA on the subject lots to be sold
to qualified low income beneficiaries is not a deviation from public purpose; it is in furtherance of social justice.
Further, non-payment of just compensation is not a ground to recover possession of the expropriated lots. At
any rate, petitioners are entitled to the full payment of the just compensation with legal interest of 12% per
annum computed from the taking of the property until full payment.

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ POLITICAL LAW; INHERENT POWERS OF THE STATE;

EMINENT DOMAIN; TAKING OF PRIVATE PROPERTY FOR PUBLIC USE; NOT DEVIATED BY HAVING
LOW COST HOUSING PROJECT. — The 1987 Constitution explicitly provides for the exercise of the power of
eminent domain over private properties upon payment of just compensation. More specifically, Section 9,
Article III states that private property shall not be taken for public use without just compensation. The
constitutional restraints are public use and just compensation. Petitioners cannot insist on a restrictive view of
the eminent domain provision of the Constitution by contending that the contract for low cost housing is a
deviation from the stated public use. It is now settled doctrine that the concept of public use is no longer limited
to traditional purposes. Here, as elsewhere, the idea that "public use" is strictly limited to clear cases of "use by
the public" has been abandoned. The term "public use" has now been held to be synonymous with "public
interest," "public benefit," "public welfare," and "public convenience." Thus, in Heirs of Juancho Ardona, et al.
vs. Reyes, et al., it was specified that . . . It is accurate to state then that at present whatever may be
beneficially employed for the general welfare satisfies the requirement of public use." The Constitution itself
allows the State to undertake, for the common good and in cooperation with the private sector, a continuing
program of urban land reform and housing which will make at affordable cost decent housing and basic
services to underprivileged and homeless citizens in urban centers and resettlement areas. The expropriation
of private property for the purpose of socialized housing for the marginalized sector is in furtherance of the
social justice provision under Section 1, Article XIII of the Constitution.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; ID.; "TAKING" THEREOF IS ABSOLUTE. —
We likewise do not subscribe to petitioners' contention that the stated public purpose was abandoned when
respondent NHA failed to occupy the expropriated lots by relocating squatters from the Metro Manila area.
The expropriation judgment declared that
176
respondent NHA has a lawful right to take petitioners properties "for the public use or purpose of expanding the
Dasmariñas Resettlement Project." The taking here is absolute, without any condition, restriction or
qualification. Contrary to petitioners' submission, the ruling enunciated in the early case of Fery vs. Municipality
of Cabanatuan, is still good and sound doctrine, viz.: ". . . When land has been acquired for public use in fee
simple unconditionally, either by the exercise of eminent domain or by purchase, the former owner retains no
rights in the land, and the public use may be abandoned, or the land may be devoted to a different use, without
any impairment of the estate or title acquired, or any reversion to the former owner."

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; ID.; ALTHOUGH NON-PAYMENT OF JUST
COMPENSATION DOES NOT ENTITLE THE LANDOWNERS TO RECOVER POSSESSION OF THE
EXPROPRIATED LOTS, PAYMENT THEREOF IS NECESSARY FOR TITLE TO PASS FROM THE OWNER
TO THE EXPROPRIATOR. — In the recent case of Republic of the Philippines vs. Court of Appeals, et al., the
Court ruled that non-payment of just compensation does not entitle the private landowners to recover
possession of their expropriated lots. However, the refusal of respondent NHA to pay just compensation,
allegedly for failure of petitioners to pay capital gains tax and surrender the owners' duplicate certificates of
title, is unfounded and unjustified. First, under the expropriation judgment the payment of just compensation is
not subject to any condition. Second, it is a recognized rule that although the right to enter upon and
appropriate the land to public use is completed prior to payment, title to the property expropriated shall pass
from the owner to the expropriator only upon full payment of the just compensation. In Republic, et al. vs.
Court of Appeals, et al., the Court imposed interest at 12% per annum in order to help eliminate the issue of
the constant fluctuation and inflation of the value of the currency over time. Perforce, while petitioners are not
entitled to the return of the expropriated property, they are entitled to be paid the balance of P1,218,574.35
with legal interest thereon at 12% per annum computed from the taking of the property in 1977 until the due
amount shall have been fully paid. TaCDIc

DECISION

PUNO, J p:

This is an appeal by certiorari from the decision of the Court of Appeals in CA-GR CV No. 51641, dated
September 29, 2000 1 affirming the judgment of the Regional Trial Court of Quezon City, Branch 79 which
dismissed the complaint for forfeiture of rights filed by herein petitioners, as well as the Resolution dated
March 13, 2001 denying petitioners' motion for reconsideration.

Records show that in 1977, respondent National Housing Authority (NHA) filed separate complaints for the
expropriation of sugarcane lands, particularly Lot Nos. 6450, 6448-E, 6198-A and 6199 of the cadastral survey of
Dasmariñas, Cavite belonging to the petitioners, before the then Court of First Instance of Cavite, and docketed as
Civil Case Nos. T.G.-392, T.G.-396 and T.G.-417. The stated public purpose of the expropriation was the expansion
of the Dasmariñas Resettlement Project to accommodate the squatters who were relocated from the Metropolitan
Manila area. The trial court rendered judgment ordering the expropriation of these lots and the payment of just
compensation. This was affirmed by the Supreme Court in a decision rendered on October 29, 1987 in the case of
NHA vs. Zaballero 2 and which became final on November 26, 1987. 3

On February 24, 1989, the expropriation court (now Branch 18, Regional Trial Court of Tagaytay City)
issued an Order 4 the dispositive portion of which reads: HEDCAS

"WHEREFORE, and resolving thus, let an Alias Writ of Execution be immediately issued
and that:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Register of Deeds of

the Province of Cavite is hereby ordered to transfer, in the name of the plaintiff
National Housing Authority, the following:

Transfer Certificate No. RT-638 containing an area of 79,167

square meters situated in Barrio Bangkal, Dasmariñas, Cavite;

Transfer Certificate of Title No. T-55702 containing an area of 20,872

square meters situated in Barrio Bangkal, Dasmariñas, Cavite;
177
 Transfer Certificate of Title No. RT-639 and RT-4641 covering Lot Nos.
6198-A and 6199 with an aggregate area of 159,985 square meters
also situated in Barrio Bangkal, Dasmariñas, Cavite.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Plaintiff National Housing

Authority is likewise hereby ordered, under pain of contempt, to immediately pay the
defendants, the amounts stated in the Writ of Execution as the adjudicated
compensation of their expropriated properties, which process was received by it
according to the records, on September 26, 1988, segregating therefrom, and in
separate check, the lawyer's fees in favor of Atty. Bobby P. Yuseco, in the amount of
P322,123.05, as sustained by their contract as gleaned from the records, with no
other deduction, paying on its own (NHA) account, the necessary legal expenses
incident to the registration or issuance of new certificates of title, pursuant to the
provisions of the Property Registration Law (PD 1529);

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Defendants, however, are

directed to pay the corresponding capital gains tax on the subject properties,
directing them additionally, to coordinate with the plaintiff NHA in this regard, in order
to facilitate the termination of this case, put an end to this controversy and consign
the same to its final rest."

For the alleged failure of respondent NHA to comply with the above order, petitioners filed on April 28, 1992 a
complaint 5 for forfeiture of rights before the Regional Trial Court of Quezon City, Branch 79, in Civil Case No.
Q-92-12093. They alleged that respondent NHA had not relocated squatters from the Metropolitan Manila area
on the expropriated lands in violation of the stated public purpose for expropriation and had not paid the just
compensation fixed by the court. They prayed that respondent NHA be enjoined from disposing and alienating
the expropriated properties and that judgment be rendered forfeiting all its rights and interests under the
expropriation judgment. In its Answer, 6 respondent NHA averred that it had already paid a substantial amount
to herein petitioners and that the expropriation judgment could not be executed in view of several issues raised
by respondent NHA before the expropriation court (now Branch 18, RTC, Tagaytay City) concerning capital
gains tax, registration fees and other expenses for the transfer of title to respondent NHA, as well as the claims
for attorney's fees of Atty. Joaquin Yuseco, Jr., collaborating counsel for petitioners.

Ocular inspections 7 conducted by the trial court on the subject properties show that:

"1. 80% of Lot No. 6198-A with an area of 120,146 square meters is already occupied by
relocatees whose houses are made of light materials with very few houses partly
made of hollow blocks. The relocatees were relocated only on (sic)
March of 1994;

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Most of the area covered by Lot No.

2075 is almost occupied by houses and structures, most of which are made of
concrete materials. These houses are not being occupied by squatters relocated to
the said lot by the defendant NHA;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Lot No. 6199 is also occupied by

concrete houses and structures but likewise there

are no relocatees in said lot. A large area of the same is still

unoccupied." DcTAIH

On September 29, 1995, the trial court rendered judgment dismissing the complaint. Finding that the failure of
respondent NHA to pay just compensation and of petitioners to pay capital gains tax are both unjustified and
unreasonable, the trial court held that: (1) respondent NHA is not deemed to have abandoned the public
purpose for which the subject properties were expropriated because the relocation of squatters involves a long
and tedious process. It ruled that respondent NHA actually pursued the public purpose of the expropriation
when it entered into a contract with Arceo C. Cruz involving the construction of low cost housing on the
expropriated lots to be sold to qualified low income beneficiaries; (2) there is no condition imposed in the
expropriation judgment that the subject properties shall revert back to its original owners in case the purpose
of expropriation is terminated or abandoned; (3) the payment of just compensation is independent of the
obligation of herein petitioners to pay capital gains tax; and (4) in the payment of just compensation, the basis
should be the value at the time the property was taken. On appeal, the Court of Appeals affirmed the decision
of the trial court.

Petitioners are now before us raising the following assignment of errors:

178
 "1. The Honorable Court of Appeals had decided a question of substance not in
accord with justice and equity when it ruled that, as the judgment of the
expropriation court did not contain a condition that should the expropriated
property be not used for the intended purpose it would revert to the
condemnee, the action to declare the forfeiture of rights under the expropriation
judgment can not prosper;

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Honorable Court of

Appeals decided a question of substance not in accord with jurisprudence,
justice and equity when it ruled that the non-payment is not a ground for
forfeiture;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Honorable Court of

Appeals erred in not declaring the judgment of expropriation forfeited in light of
the failure of respondent to use the expropriated property for the intended
purpose but for a totally different purpose."

The petition is not impressed with merit.

Petitioners contend that respondent NHA violated the stated public purpose for the expansion of the
Dasmariñas Resettlement Project when it failed to relocate the squatters from the Metro Manila area, as borne
out by the ocular inspection conducted by the trial court which showed that most of the expropriated properties
remain unoccupied. Petitioners likewise question the public nature of the use by respondent NHA when it
entered into a contract for the construction of low cost housing units, which is allegedly different from the stated
public purpose in the expropriation proceedings. Hence, it is claimed that respondent NHA has forfeited its
rights and interests by virtue of the expropriation judgment and the expropriated properties should now be
returned to herein petitioners. We are not persuaded.

The 1987 Constitution explicitly provides for the exercise of the power of eminent domain over private
properties upon payment of just compensation. More specifically, Section 9, Article III states that private
property shall not be taken for public use without just compensation. The constitutional restraints are public use
and just compensation.

Petitioners cannot insist on a restrictive view of the eminent domain provision of the Constitution by contending
that the contract for low cost housing is a deviation from the stated public use. It is now settled doctrine that
the concept of public use is no longer limited to traditional purposes. Here, as elsewhere, the idea that "public
use" is strictly limited to clear cases of "use by the public" has been abandoned. The term "public use" has
now been held to be synonymous with "public interest," "public benefit," "public welfare," and "public
convenience." 8 The rationale for this new approach is well explained in the case of Heirs of Juancho Ardona,
et al. vs.Reyes, et a1., 9 to wit:

"The restrictive view of public use may be appropriate for a nation which circumscribes the
scope of government activities and public concerns and which possesses big and correctly
located public lands that obviate the need to take private property for public purposes. Neither
circumstance applies to the Philippines. We have never been a laissez faire State. And the
necessities which impel the exertion of sovereign power are all too often found in areas of
scarce public land or limited government resources.

xxx xxx xxx

The taking to be valid must be for public use. There was a time when it was felt that a literal
meaning should be attached to such a requirement. Whatever project is undertaken must be
for the public to enjoy, as in the case of streets or parks. Otherwise, expropriation is not
allowable. It is not anymore. As long as the purpose of the taking is public, then the power of
eminent domain comes into play. As just noted, the constitution in at least two cases, to
remove any doubt, determines what is public use. One is the expropriation of lands to be
subdivided into small lots for resale at cost to individuals. The other is in the transfer,
through the exercise of this power, of utilities and other private enterprise to the government.
It is accurate to state then that at present whatever may be beneficially employed for the
general welfare satisfies the requirement of public use." (italics supplied) cASIED

The act of respondent NHA in entering into a contract with a real estate developer for the construction of low
cost housing on the expropriated lots to be sold to qualified low income beneficiaries cannot be taken to mean
as a deviation from the stated public purpose of their taking. Jurisprudence has it that the expropriation of
private land for slum clearance and urban development is for a public purpose even if the developed area is
179
later sold to private homeowners, commercials firms, entertainment and service companies, and other
private concerns. 10

Moreover, the Constitution itself allows the State to undertake, for the common good and in cooperation with
the private sector, a continuing program of urban land reform and housing which will make at affordable cost
decent housing and basic services to underprivileged and homeless citizens in urban centers and resettlement
areas. 11 The expropriation of private property for the purpose of socialized housing for the marginalized
sector is in furtherance of the social justice provision under Section 1, Article XIII of the Constitution which
provides that:

"SECTION 1. The Congress shall give highest priority to the enactment of measures that
protect and enhance the right of all the people to human dignity, reduce social, economic,
and political inequalities, and remove cultural inequities by equitably diffusing wealth and
political power for the common good.

To this end, the State shall require the acquisition, ownership, use and disposition of
property and its increments."

It follows that the low cost housing project of respondent NHA on the expropriated lots is compliant with the
"public use" requirement.

We likewise do not subscribe to petitioners' contention that the stated public purpose was abandoned when
respondent NHA failed to occupy the expropriated lots by relocating squatters from the Metro Manila area. The
expropriation judgment declared that respondent NHA has a lawful right to take petitioners properties "for the
public use or purpose of expanding the Dasmariñas Resettlement Project." The taking here is absolute,
without any condition, restriction or qualification. Contrary to petitioners' submission, the ruling enunciated in
the early case of Fery vs. Municipality of Cabanatuan, 12 is still good and sound doctrine, viz.:

". . . If, for example, land is expropriated for a particular purpose, with the condition that when
that purpose is ended or abandoned the property shall return to its former owner, then, of
course, when the purpose is terminated or abandoned the former owner reacquires the
property so expropriated. . . . If, upon the contrary, however, the decree of expropriation gives
to the entity a fee simple title, then, of course, the land becomes the absolute property of the
expropriator . . . .

When land has been acquired for public use in fee simple unconditionally, either by the
exercise of eminent domain or by purchase, the former owner retains no rights in the land,
and the public use may be abandoned, or the land may be devoted to a different use, without
any impairment of the estate or title acquired, or any reversion to the former owner."

Petitioners further aver that the continued failure of respondent NHA to pay just compensation for a long period
of time justifies the forfeiture of its rights and interests over the expropriated lots. They demand the return of
the expropriated lots. Respondent NHA justifies the delay to pay just compensation by reason of the failure of
petitioners to pay the capital gains tax and to surrender the owners' duplicate certificates of title.

In the recent case of Republic of the Philippines vs. Court of Appeals, et al., 13 the Court ruled that
non-payment of just compensation does not entitle the private landowners to recover possession of
their expropriated lots. Thus:

"Thus, in Valdehueza vs. Republic where the private landowners had remained unpaid ten
years after the termination of the expropriation proceedings, this Court ruled —

'The points in dispute are whether such payment can still be made and, if so, in what amount. Said
lots have been the subject of expropriation proceedings. By final and executory judgment in said
proceedings, they were condemned for public use, as part of an airport, and ordered sold to the
government. . . . . It follows that both by virtue of the judgment, long final, in the expropriation suit,
as well as the annotations upon their title certificates, plaintiffs are not entitled to recover
possession of their expropriated lots — which are still devoted to the public use for which they
were expropriated — but only to demand the market value of the same.
Said relief may be granted under plaintiffs' prayer for such other remedies, which may
be deemed just and equitable under the premises.'

180
 The Court proceeded to reiterate its pronouncement in Alfonso vs. Pasay City where the
recovery of possession of property taken for public use prayed for by the unpaid landowner
was denied even while no requisite expropriation proceedings were first instituted. The
landowner was merely given the relief of recovering compensation for his property
computed at its market value at the time it was taken and appropriated by the State.

The judgment rendered by the Bulacan RTC in 1979 on the expropriation proceedings
provides not only for the payment of just compensation to herein respondents but likewise
adjudges the property condemned in favor of petitioner over which parties, as well as their
privies, are bound. Petitioner has occupied, utilized and, for all intents and purposes,
exercised dominion over the property pursuant to the judgment. The exercise of such rights
vested to it as the condemnee indeed has amounted to at least a partial compliance or
satisfaction of the 1979 judgment, thereby preempting any claim of bar by prescription on
grounds of non-execution. In arguing for the return of their property on the basis of non-
payment, respondents ignore the fact that the right of the expropriating authority is far from
that of an unpaid seller in ordinary sales, to which the remedy of rescission might perhaps
apply. An in rem proceeding, condemnation acts upon the property. After condemnation, the
paramount title is in the public under a new and independent title; thus, by giving notice to all
claimants to a disputed title, condemnation proceedings provide a judicial process for securing
better title against all the world than may be obtained by voluntary conveyance." (italics
supplied)

We, however, likewise find the refusal of respondent NHA to pay just compensation, allegedly for failure of
petitioners to pay capital gains tax and surrender the owners' duplicate certificates of title, to be unfounded
and unjustified.

First, under the expropriation judgment the payment of just compensation is not subject to any condition.
Second, it is a recognized rule that although the right to enter upon and appropriate the land to public use is
completed prior to payment, title to the property expropriated shall pass from the owner to the expropriator
only upon full payment of the just compensation. In the case of Association of Small Landowners in the Phils.,
Inc., et al. vs. Secretary of Agrarian Reform, 14 it was held that:

"Title to property which is the subject of condemnation proceedings does not vest the
condemnor until the judgment fixing just compensation is entered and paid, but the
condemnor's title relates back to the date on which the petition under the Eminent Domain
Act, or the commissioner's report under the Local Improvement Act, is filed.

. . . Although the right to appropriate and use land taken for a canal is complete at the time of
entry, title to the property taken remains in the owner until payment is actually made. HDTSIE

In Kennedy v. Indianapolis, the US Supreme Court cited several cases holding that title to
property does not pass to the condemnor until just compensation had actually been made. In
fact, the decisions appear to be uniformly to this effect. As early as 1838, in Rubottom v.
McLure, it was held that 'actual payment to the owner of the condemned property was a
condition precedent to the investment of the title to the property in the State' albeit 'not to the
appropriation of it to public use.' InRexford v. Knight, the Court of Appeals of New York said
that the construction upon the statutes was that the fee did not vest in the State until the
payment of the compensation although the authority to enter upon and appropriate the land
was complete prior to the payment. Kennedy further said that 'both on principle and authority
the rule is . . . that the right to enter on and use the property is complete, as soon as the
property is actually appropriated under the authority of law for a public use, but that the title
does not pass from the owner without his consent, until just compensation has been made to
him.'"

Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes, that:

If the laws which we have exhibited or cited in the preceding discussion are attentively
examined it will be apparent that the method of expropriation adopted in this jurisdiction is
such as to afford absolute reassurance that no piece of land can be finally and irrevocably
taken from an unwilling owner until compensation is paid. . . . ." (italics supplied)

181
With respect to the amount of the just compensation still due and demandable from respondent NHA, the
lower courts erred in not awarding interest computed from the time the property is actually taken to the time
when compensation is actually paid or deposited in court. In Republic, et al. vs. Court of Appeals, et al., 15 the
Court imposed interest at 12% per annum in order to help eliminate the issue of the constant fluctuation and
inflation of the value of the currency over time, thus:

"The constitutional limitation of 'just compensation' is considered to be the sum equivalent to

the market value of the property, broadly described to be the price fixed by the seller in open
market in the usual and ordinary course of legal action and competition or the fair value of
the property as between one who receives, and one who desires to sell, it being fixed at the
time of the actual taking by the government. Thus, if property is taken for public use before
compensation is deposited with the court having jurisdiction over the case, the final
compensation must include interests on its just value to be computed from the time the
property is taken to the time when compensation is actually paid or deposited with the court.
In fine, between the taking of the property and the actual payment, legal interests accrue in
order to place the owner in a position as good as (but not better than) the position he was in
before the taking occurred.

. . . This allowance of interest on the amount found to be the value of the property as of the
time of the taking computed, being an effective forbearance, at 12% per annum should help
eliminate the issue of the constant fluctuation and inflation of the value of the currency over
time. Article 1250 of the Civil Code, providing that, in case of extraordinary inflation or
deflation, the value of the currency at the time of the establishment of the obligation shall be
the basis for the payment when no agreement to the contrary is stipulated, has strict
application only to contractual obligations. In other words, a contractual agreement is needed
for the effects of extraordinary inflation to be taken into account to alter the value of the
currency."

Records show that there is an outstanding balance of P1,218,574.35 that ought to be paid to petitioners. 16 It
is not disputed that respondent NHA took actual possession of the expropriated properties in 1977. 17
Perforce, while petitioners are not entitled to the return of the expropriated property, they are entitled to be paid
the balance of P1,218,574.35 with legal interest thereon at 12% per annum computed from the taking of the
property in 1977 until the due amount shall have been fully paid. HEacAS

WHEREFORE, the appealed judgment is modified as follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Ordering respondent

National Housing Authority to pay petitioners the amount of P1,218,574.35
with legal interest thereon at 12% per annum computed from the taking of
the expropriated properties in 1997 until the amount due shall have been
fully paid;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Ordering petitioners to pay the

capital gains tax; and

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Ordering petitioners to

surrender to respondent National Housing Authority the owners' duplicate
certificates of title of the expropriated properties upon full payment of just
compensation.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Reyes v. National Housing Authority, G.R. No. 147511,
[January 20, 2003], 443 PHIL 603-617)

Republic v. Salem Investment Corp., G.R. No. 137569, [June 23, 2000], 389 PHIL 658-676

SECOND DIVISION
[G.R. No. 137569. June 23, 2000.]

182
 REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. SALEM INVESTMENT
CORPORATION, MARIA DEL CARMEN ROXAS DE ELIZALDE, CONCEPCION
CABARRUS VDA. DE SANTOS, defendants-appellees. MILAGROS AND INOCENTES DE
LA RAMA, petitioners, ALFREDO GUERRERO, respondent.

The Solicitor General for plaintiff-appellee.

M.M. Lazaro & Associates for petitioners.

Arturo S. Santos for respondent A. Guerrero.

SYNOPSIS

Declaring Alfredo Guerrero the rightful owner of a 920-square meter expropriated property, the Pasay City
Regional Trial Court ordered payment to him of just compensation for the taking of the land. The Court of
Appeals affirmed this decision. Hence, this action, petitioner spouses Milagros and Inocentes De La Rama
claiming that when they agreed to sell a parcel of land in 1988 to Guerrero, it did not include the portion
expropriated by the Republic. According to said spouses, at that time, such portion had been expropriated by
the government by virtue of B.P. Blg. 340 which took effect on February 17, 1983.

It is only upon payment of just compensation that title over the property passes to the government. Until
then, ownership over the property being expropriated remains with the registered owner. Consequently, the
latter can exercise all rights pertaining to an owner, including the right to dispose of his property, subject to
the power of the State to ultimately acquire it through expropriation.

The government filed a petition for the determination of just compensation in 1990. At that point, title to the
expropriated property remained with the De la Ramas and did not pass to the government. Thus, in 1988, the
De la Ramas still had authority to transfer ownership of their land and convey all rights, including the right to
receive just compensation, to Guerrero.

The contention of the De la Ramas that the Deed of Absolute Sale excluded the portion expropriated by the
government is untenable. Guerrero bought the entire property free from all claims of third persons except
those of the government. aATESD

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CONSTITUTIONAL LAW; POWER OF EMINENT

DOMAIN; INHERENT POWERS OF STATE; LIMITATION. — The power of eminent domain is an inherent
power of the State. No constitutional conferment is necessary to vest it in the State. The constitutional
provision on eminent domain, Art. III, §9, provides a limitation rather than a basis for the exercise of such
power by the government. Thus, it states that "Private property shall not be taken for public use without just
compensation."

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; HOW INITIATED. — Expropriation may

be initiated by court action or by legislation. In both instances, just compensation is determined by the
courts.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; STAGES. — The expropriation of lands consists of
two stages. As explained in Municipality of Biñan v. Garcia: The first is concerned with the determination of the
authority of the plaintiff to exercise the power of eminent domain and the propriety of its exercise in the context
of the facts involved in the suit. It ends with an order, if not of dismissal of the action, "of condemnation
declaring that the plaintiff has a lawful right to take the property sought to be condemned, for the public use or
purpose described in the complaint, upon the payment of just compensation to be determined as of the date of
the filing of the complaint." . . . The second phase of the eminent domain action is concerned with the
determination by the court of "the just compensation for the property sought to be taken." This is done by the
court with the assistance of not more than three (3) commissioners. It is only upon the completion of these two
stages that expropriation is said to have been completed. Moreover, it is only upon payment of just
compensation that title over the property passes to the government. Therefore, until the action for expropriation
has been completed and terminated, ownership over the property being expropriated remains with the
registered owner.

183
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — In the case at
hand, the first stage of expropriation was completed when B.P. Blg. 340 was enacted providing for the
expropriation of 1,380 square meters of the land in question. The constitutionality of this law was upheld in the
case of Republic v. De Knecht. In 1990, the government commenced the second stage of expropriation
through the filing of a petition for the determination of just compensation. This stage was not completed,
however, because of the intervention of Guerrero which gave rise to the question of ownership of the subject
land. Therefore, the title to the expropriated property of the De la Ramas remained with them and did not at
that point pass to the government.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CIVIL LAW; PROPERTY; OWNERSHIP; WHAT

CONSTITUTES EFFECTIVE CONVEYANCE THEREOF.

— It is true that the contract to sell did not convey to Guerrero the subject parcel of land described therein.
However, it created an obligation on the part of the De la Ramas to convey the land, subject to the fulfillment of
the suspensive conditions therein stated. The declaration of this contract's validity, which paved the way for the
subsequent execution of the Deed of Absolute Sale on March 8, 1994, following the order of the Regional Trial
Court for its execution, by the Clerk of Court, Branch 113, Pasay City, effectively conveyed ownership of said
parcel of land to Guerrero.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; OBLIGATION AND CONTRACTS; SUBROGATION;

EFFECTS THEREOF. — Lot 834 was conveyed in 1994 to Guerrero by virtue of the Deed of Absolute Sale.
This contract was registered in the Register of Deeds and, accordingly, a new transfer certificate of title was
issued to Guerrero. Pursuant thereto, and by virtue of subrogation, the latter became the rightful owner entitled
to receive the just compensation from the Republic.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; HUMAN RELATIONS; UNJUST ENRICHMENT;

CASE AT BAR. — We take note of the fact that the De la Ramas have withdrawn and appropriated for
themselves the amount paid by Guerrero. This amount represented the purchase price of the entire 4,075
square meters of land, including the expropriated portion, which was the subject of their agreement. The
payment, therefore, to them of the value of the expropriated portion would unjustly enrich them. AHSEaD

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ REMEDIAL LAW; CIVIL PROCEDURE; FINAL AND

EXECUTORY JUDGMENT CAN NO LONGER BE QUESTIONED. — Petitioners can no longer question a
judgment which has already become final and executory. The order of the Regional Trial Court on the
payment of legal interest was issued on September 18, 1991 in the case for specific performance against the
De la Ramas (Civil Case No. 6974-P). Hence, they are already barred from questioning it now in this
proceeding.

DECISION

MENDOZA, J p:

The main petition in this case is for determination of just compensation for the expropriation of lands under
B.P. Blg. 340. Alfredo Guerrero intervened in this proceeding arguing that, instead of the De la Ramas, he
should receive the just compensation for the subject land. The trial court and the Court of Appeals
declared him the rightful recipient of the amount. This is an appeal from the decision 1 of the Court of
Appeals. We affirm. cdtai

The facts are as follows:

On February 17, 1983, Batas Pambansa Blg. 340 was passed authorizing the expropriation of parcels of
lands in the names of defendants in this case, including a portion of the land, consisting of 1,380 square
meters, belonging to Milagros and Inocentes De la Rama covered by TCT No. 16913.

On December 14, 1988, or five years thereafter, Milagros and Inocentes De la Rama entered into a contract 2
with intervenor Alfredo Guerrero whereby the De la Ramas agreed to sell to Guerrero the entire property
covered by TCT No. 16213, consisting of 4,075 square meters for the amount of P11,800,000.00. The De la
Ramas received the sum of P2,200,000.00 as partial payment of the purchase price, the balance thereof to
be paid upon release of the title by the Philippine Veterans Bank
On November 3, 1989, Guerrero filed in the Regional Trial Court in Pasay City a complaint for specific
performance (Civil Case No. 6974-P) to compel the De la Ramas to proceed with the sale.

On July 10, 1990, while this case for specific performance was pending, the Republic of the Philippines filed the
present case (Civil Case No. 7327) for expropriation pursuant to B.P. Blg. 340. 3 Among the defendants

184
named in the complaint were Milagros and Inocentes De la Rama as registered owners of Lot 834, a portion of
which (Lot 834-A) was part of the expropriated property. Upon the deposit of P12,970,350.00 representing 10
percent of the approximate market value of the subject lands, a writ of possession 4 was issued on August 29,
1990 in favor of the government.

On May 2, 1991, Guerrero filed a motion for intervention 5 alleging that the De la Ramas had agreed to sell to
him the entire Lot 834 (TCT No. 16213) on December 14, 1988 and that a case for specific performance had
been filed by him against the De la Ramas. cdtai

On September 9, 1991, based on the report of the committee on appraisers appointed by the court and the
submissions of defendants, the trial court approved payment to the De la Ramas at the rate of P23,976.00 per
square meter for the taking of 920 square meters out of the 1,380 square meters to be expropriated
underB.P. Blg. 340. 6

Meanwhile, on September 18, 1991, the trial court rendered a decision in the case for specific performance
(Civil Case No. 6974-P) 7 upholding the validity of the contract to sell and ordering the De la Ramas to execute
the corresponding deed of sale covering the subject property in favor of Guerrero. The De la Ramas appealed
to the Court of Appeals (CA-G.R. No. CV-35116) but their petition was dismissed on July 28, 1992. They tried
to appeal to this Court (G.R. No. 106488) but again they failed in their bid as their petition for review was
denied on December 7, 1992.

Meanwhile, on October 2, 1991, Guerrero filed an Omnibus Motion 8 praying that the just compensation for the

land be deposited in court pursuant to Rule 67, §9 of the Rules of Court. As his motion for intervention and

omnibus motion had not yet been resolved, Guerrero filed with the Court of Appeals a petition for

mandamus,certiorari, and injunction with temporary restraining order 9 (C.A.-G.R. SP No. 28311) to enjoin the

Republic from releasing or paying to the De la Ramas any amount corresponding to the payment of the

expropriated property and to compel the trial court to resolve his two motions.

On January 12, 1993, the Court of Appeals rendered a decision granting the writ of mandamus. 10

Nonetheless, the De la Ramas filed on March 17, 1993 a Motion for Authority to Withdraw 11 the deposit made
by the Republic in 1991. This motion was denied as the trial court, on May 7, 1993, allowed the intervention of
Guerrero and ordered the Republic to deposit the amount of just compensation with the Clerk of Court of RTC,
Pasay City. 12

On June 16, 1993, the De la Ramas filed a Motion for Execution 13 again praying that the court's order dated
September 9, 1991, approving the recommendation of the appraisal committee, be enforced. This was duly
opposed by Guerrero. 14

On June 22, 1993, the trial court denied the motion of the De la Ramas holding that there had been a
change in the situation of the parties, therefore, making the execution of the September 9, 1991 Order
inequitable, impossible, or unjust. 15

As if to further delay the proceedings of this case, the De la Ramas then filed an Omnibus Motion seeking
clarification of the September 18, 1991 decision of the trial court in the case for specific performance,
upholding the validity of the contract to sell, insofar as the area covered by the contract was concerned,
and asking that a restraining order be issued until this motion was granted. prcd

In its order dated October 7, 1993, the trial court clarified that the area of land covered by the contract to
sell included the portion expropriated by the Republic. It stated:

WHEREFORE, by way of clarification, the court holds that the transfer of title to the plaintiff
under the Contract to Sell dated December 14, 1988 covers the entire Lot 834 consisting of
4,075 square meters (including the expropriated portion); that this change of owner over the
entire property is necessarily junior or subject to the superior rights of the REPUBLIC over the
expropriated portion (the metes and bounds of which are clearly defined in Section 1 '6' of
B.P. Blg. 340); that the Contract to Sell dated December 14, 1988 executed by the parties is
a valid document that authorizes the plaintiff to step into the shoes of the defendants in
relation to the property covered by TCT No. 16213; and that the transfer shall be free from all
liens and encumbrances except for the expropriated portion of 1,380 square meters. 16

185
The decision in the action for specific performance in Civil Case No. 6974-P having become final, an order of
execution 17 was issued by the Pasay City RTC, and as a result of which, a deed of absolute sale 18 was
executed by the Branch Clerk of Court on March 8, 1994 in favor of Guerrero upon payment by him of the sum
of P8,808,000.00 on January 11, 1994 and the further sum of P1,608,900.00 on February 1, 1994 as full
payment for the balance of the purchase price under the contract to sell of December 14, 1988. The entire
amount was withdrawn and duly received by the De la Ramas. 19

Thereafter, the De la Ramas sought the nullification of the June 22, 1993 order of the trial court in this case,
denying their motion for execution of the order approving the recommendation of the appraisal committee, by
filing a petition for certiorari and mandamus in the Court of Appeals. This petition was, however, dismissed in a
decision dated July 29, 1994 of the appellate court. 20

On April 5, 1995, the Pasay City Regional Trial Court, Branch 111, declared Guerrero the rightful owner of the
920-square meter expropriated property and ordered payment to him of just compensation for the taking of
the land. The dispositive portion of its decision reads: llcd

WHEREFORE, respondent-intervenor Alfredo Guerrero is hereby declared as the rightful

person entitled to receive the just compensation of the 920-square meter portion of the
property described in TCT No. 16213 of the Register of Deeds of Pasay City and ordering the
Philippine National Bank to release and deliver to Uniland Realty and Development
Corporation, the assignee of Guerrero, the amount of P20,000,000.00 representing the
deposit made by the plaintiff through the Department of Public Works and Highways in the
Philippine National Bank, Escolta Branch with the check solely payable to said Uniland Realty
and Development Corporation, as assignee of Alfredo Guerrero. 21

This decision was subsequently affirmed by the Court of Appeals. 22

Hence, this petition.

The De la Ramas contend:

I. THE COURT OF APPEALS WRONGLY INTERPRETED B.P. NO. 340 BY

HOLDING THAT BATAS PAMBANSA BLG. 340 MERELY AUTHORIZED THE
EXPROPRIATION OF THE LANDS OF THE DEFENDANTS, INCLUDING
THAT PORTION BELONGING TO THE HEREIN PETITIONERS DE LA
RAMAS COVERED BY TCT NO. 16213. cdasia

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ THE COURT OF APPEALS

WRONGLY INTERPRETED THE CONTRACT TO SELL BY HOLDING THAT
THE PETITIONERS DE LA RAMAS HAD CONVEYED TO THE RESPONDENT
GUERRERO THE WHOLE PROPERTY COVERED BY TCT NO. 16213,
INCLUDING THE EXPROPRIATED AREA.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ THE HONORABLE

COURT OF APPEALS WRONGLY DECLARED THAT THE PETITIONERS
DE LA RAMAS COULD STILL SELL IN 1988 THEIR PROPERTY AS
TITLE THERETO HAD NOT YET PASSED TO THE GOVERNMENT IN
1983.

IV. THE COURT OF APPEALS GRAVELY ERRED IN WRONGLY INTERPRETING

THE CONTRACT TO SELL, BY HOLDING THAT PETITIONERS DE LA
RAMAS HAD CONVEYED TO THE RESPONDENT GUERRERO THE RIGHT
TO RECEIVE THE JUST COMPENSATION FOR THE EXPROPRIATED
AREA.

V. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE

RIGHT TO RECEIVE THE JUST COMPENSATION FOR THE
EXPROPRIATED AREA BECAME VESTED UPON THE RESPONDENT
GUERRERO THROUGH SUBROGATION. cdasia

VI. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE

RESPONDENT GUERRERO HAD PAID TO PETITIONERS RAMAS THE

FULL PURCHASE PRICE OF P11,800,000.00 STIPULATED IN THE

CONTRACT TO SELL OF 14 DECEMBER 1988. 23

186
As already stated, the De la Ramas and Guerrero entered into a contract to sell with respect to Lot 834. This
lot has an area of 4,075 square meters. This contract was executed on, December 14, 1988, after B.P. Blg.
340 was passed authorizing the expropriation of a portion of the land, consisting of 1,380 square meters, of the
De la Ramas. The only issue in this case is who, between the De la Ramas and Guerrero, is/are entitled to
receive payment of just compensation for the taking of 920 square meters of the land in question? LexLib

The De la Ramas claim that they should receive the amount of just compensation because when they agreed
to sell Lot 834 in 1988 to Guerrero, it did not include the portion expropriated by the Republic since, at that
time, such portion had been expropriated by the government by virtue of B.P. Blg. 340, which took effect on
February 17, 1983. They state:

In, 1988, the petitioners Ramas could no longer agree to sell to another person the
expropriated property itself. For one thing, the property was already expropriated and
petitioners Ramas for not objecting in effect conveyed the same to the Government. Secondly,
the physical and juridical possession of the property was already in the Government. Thirdly,
the equitable and beneficial title over the property was already vested in the Government, and
therefore the property itself was already outside the commerce of man. As a matter of fact, the
property was already part of a Government infrastructure. 24

On the other hand, Alfredo Guerrero argues that the title to the expropriated portion of Lot 834 did not
immediately pass to the government upon the enactment ofB.P. Blg. 340 in 1983, as payment of just
compensation was yet to be made before ownership of the land was transferred to the government. As a
result, petitioners still owned the entire Lot 834 at the time they agreed to sell it to Guerrero. Therefore, since
Guerrero obtained ownership of Lot 834, including the 920 square meters expropriated by the government, he
has the right to receive the just compensation over the said property. cdphil

We find the De la Ramas' contention without merit. We hold that Guerrero is entitled to receive payment of
just compensation for the taking of the land.

The power of eminent domain

The power of eminent domain is an inherent power of the State. No constitutional conferment is necessary to
vest it in the State. The constitutional provision on eminent domain, Art. III, §9, provides a limitation rather than
a basis for the exercise of such power by the government. Thus, it states that "Private property shall not be
taken for public use without just compensation."

Expropriation may be initiated by court action or by legislation. 25 In both instances, just compensation is
determined by the courts. 26

The expropriation of lands consists of two stages. As explained in Municipality of Biñan v. Garcia: 27

The first is concerned with the determination of the authority of the plaintiff to exercise the
power of eminent domain and the propriety of its exercise in the context of the facts involved
in the suit. It ends with an order, if not of dismissal of the action, "of condemnation declaring
that the plaintiff has a lawful right to take the property sought to be condemned, for the
public use or purpose described in the complaint, upon the payment of just compensation to
be determined as of the date of the filing of the complaint" . . . cdtai

The second phase of the eminent domain action is concerned with the determination by the
court of the "just compensation for the property sought to be taken." This is done by the court
with the assistance of not more than three (3) commissioners. . .

It is only upon the completion of these two stages that expropriation is said to have been completed. Moreover,
it is only upon payment of just compensation that title over the property passes to the government. 28
Therefore, until the action for expropriation has been completed and terminated, ownership over the property
being expropriated remains with the registered owner. Consequently, the latter can exercise all rights
pertaining to an owner, including the right to dispose of his property, subject to the power of the State
ultimately to acquire it through expropriation.

In the case at hand, the first stage of expropriation was completed when B.P. Blg. 340 was enacted providing
for the expropriation of 1,380 square meters of the land in question. The constitutionality of this law was
upheld in the case of Republic v. De Knecht. 29 In 1990, the government commenced the second stage of
187
expropriation through the filing of a petition for the determination of just compensation. This stage was not
completed, however, because of the intervention of Guerrero which gave rise to the question of ownership of
the subject land. Therefore, the title to the expropriated property of the De la Ramas remained with them
and did not at that point pass to the government.

The De la Ramas are mistaken in arguing that the two stages of expropriation cited above only apply to
judicial, and not to legislative, expropriation. Although Congress has the power to determine what land to take,
it can not do so arbitrarily. Judicial determination of the propriety of the exercise of the power, for instance, in
view of allegations of partiality and prejudice by those adversely affected, 30 and the just compensation for
the subject property is provided in our constitutional system. Cdpr

We see no point in distinguishing between judicial and legislative expropriation as far as the two stages
mentioned above are concerned. Both involve these stages and in both the process is not completed until
payment of just compensation is made. The Court of Appeals was correct in saying that B.P. Blg. 340 did not
effectively expropriate the land of the De la Ramas. As a matter of fact, it merely commenced the
expropriation of the subject property.

Thus, in 1988, the De la Ramas still had authority to transfer ownership of their land and convey all rights,
including the right to receive just compensation, to Guerrero.

The Contract to Sell and the Deed of Absolute Sale

The contract to sell between the De la Ramas and Guerrero, executed on December 14, 1988, reads:

CONTRACT TO SELL

KNOW ALL MEN BY THESE PRESENTS:

This CONTRACT is made and executed by and between:

MILAGROS DE LA RAMA and INOCENTES DE LA RAMA, of legal age, both single, Filipinos
Citizen and with residence and postal address at 2838 F.B. Harrison St., Pasay City, Metro
Manila, hereinafter referred to as the SELLERS. cdtai

-and-

ALFREDO S. GUERRERO, of legal age, Filipino, married to SUSANA C. PASCUAL and

with residence and postal address at No. 17 Mangyan, La Vista, Quezon City, hereinafter
referred to as the BUYER.

WITNESSETH:

WHEREAS, the SELLERS are the registered owners of a parcel of land consisting of 4,075
square meters together with all the improvements thereon situated at 2838 F.B. Harrison
St., Pasay City, covered by Transfer Certificate of Title No. 16213 of the Registry of Deeds
of Pasay City and more particularly described as follows:

A PARCEL OF LAND (Lot 834 of the Cadastral Survey of Pasay, L.R.C. Cad. Rec.
No.), situated in the City of Pasay. Bounded on the N., along line 1-2 by lot 835; and
along line 2-3 by Lot 836, on the NE., and SE., along lines 3-4-5 by lot 833, all of
Pasay Cadastre; and on the SW., along lines 5-6-1 by Calle F.B. Harrison. Beginning
at a point marked "1" on plan, being N. 3 deg. 50'E., 100.44 m. from B.L.L.M. 5, Pasay
Cadastre; thence N. 84 deg. 19'E., 73.79 m. to point 2; thence N. 84 deg. 19'E., 14.47
m. to point 3; thence S. 93 deg. 11'E., 45.69 m. to point 4; thence S. 33 deg.
10'W.,87.39 m. to point 5; thence N. 10 deg. 46'W., 11.82 m. to point 6; thence N. 10
deg. 46'W., 35.70 m. to point of beginning; containing an area of FOUR THOUSAND
AND SEVENTY FIVE (4,075) SQUARE METERS. All points referred to are indicated
on the plan and marked on the ground by Old Points; bearing true date of the cadastral
survey, Oct., 1928 to Nov., 1930. LibLex

WHEREAS, the SELLERS offer to sell and the BUYER agrees to buy the above-described
real property;
188
 NOW, THEREFORE, for and in consideration of the amount of ELEVEN MILLION EIGHT
HUNDRED THOUSAND PESOS (P11,800,000.00) the parties hereby agree to enter unto
the Contract subject to such terms and conditions as follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Upon execution of this Contract,

the BUYER shall pay the SELLERS the sum of TWO MILLION TWO HUNDRED TWO
THOUSAND PESOS (P2,200,000.00) it being understood and agreed that this payment shall
be for the purpose of liquidating in full the mortgage indebtedness and affecting the
redemption of the property subject of the sale as annotated at the back of the title;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The balance of EIGHT MILLION

EIGHT HUNDRED THOUSAND PESOS (P8,800,000.00) shall be paid by the BUYER upon
release of the title by the Phil. Veterans Bank and execution of the Deed of Absolute Sale;
prcd

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The amount of P800,000.00 shall

be paid by the BUYER upon payment of Capital Gains Tax and documentary sales stamp
by the SELLERS and their vacation of the premises.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ All existing improvements shall be assigned

to the BUYER;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The SELLERS shall settle all realty taxes up
to the end of 1988, water and electric bills;

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The SELLERS shall pay

three percent (3%) of the total consideration as broker's commission to be
computed in the purchase price of P11,000,000.00;

࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ It is hereby agreed and

covenanted and stipulated by and between the parties hereto that the SELLERS shall
execute and deliver to the BUYER a formal Absolute Deed of Sale free from all liens and
encumbrances;

࿿࿿࿿ )37桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the SELLERS shall vacate the

premises and or deliver the physical possession of the property within thirty (30) days from
the date of sale, that is upon complete payment by the BUYER of the agreed purchase price
and execution of Deed of Sale; prLL

࿿࿿࿿ )38桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the execution of all legal

documents in connection with this sale transaction shall be done thru SELLERS' legal
counsel;

࿿࿿࿿ )39桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The BUYER shall assume payment of

transfer and registration expenses.

IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day
of December 1988 at Manila, Metro Manila. 31

The land, as described above in the Contract to Sell, includes the land expropriated under B.P. Blg. 340, to wit:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ A parcel of land (a portion of Lot No. 834 of

the Cadastral Survey of Pasay, Cadastral Case. No. 23, G.L.R.O. Cadastral Record No. 1368),
situated in the City of Pasay, bounded on the southeast, along lines 1-2-3 by Lot No. 833, Pasay
Cadastre; and on the southwest, along lines 3-4-5 by Calle F.B. Harrison; and on the north, points
5-17-17-1 by the remaining portion of Lot 834; beginning at point marked "1" on plan, being S. 32
deg. 17' 44"E., 267.187 meters from BLLM No. 5, Pasay Cadastre; thence S.9 deg. 11'E., 11.579
m. to point "2"; thence S.82 deg. 10'W., 87.390 m. to point "3"; thence N. 10 deg. 45' 58"W., 11.82
m. to point "4"; thence N. 10 deg. 46 W., 15,568.4 m. to point "5"; thence S.15 deg. 37' 27"E.,
3.287 m. to point "6"; thence S.34 deg.. 32'27"E., 3.287 m. to point "7"; thence S. 53 deg.
26'50"E., 3.287 m. to point "8"; thence S. 72 deg. 22'51"E., 3.287 m. to point "9"; thence N. 88
 deg. 40'32"E., 3.287 m. to point "10"; thence N. 72 deg. 00'53"E., 6.480 m. to point "11"; thence
N. 84 deg. 55' 05"E., 10.375 m. to point "12"; thence N. 85 deg. 38'14"E., 10.375 m. to point "13";
thence N. 86 deg. 21' 10"E., 10.375 m. to point "14"; thence N. 87 deg. 04' 18"E., 10.375 m. to
point "15"; thence N. 87 deg. 97' 06"E., 10.375 m. to point "16"; thence N. 88 deg. 30'11"E.,
10.375 m. to point "17"; thence N. 89 deg. 12'56"E., 9.422 m. to the point of beginning, containing
an area of one thousand three hundred eighty square meters (1,380.00 Sq.M.), more or less. 32

As the trial court in the case for specific performance ruled, the contract to sell, covered the entire Lot
834, including the expropriated area, which was then owned by the De la Ramas.

It is true that the contract to sell did not convey to Guerrero the subject parcel of land described therein.
However, it created an obligation on the part of the De la Ramas to convey the land, subject to the fulfillment of
the suspensive conditions therein stated. The declaration of this contract's validity, which paved the way for the

189
subsequent execution of the Deed of Absolute Sale on March 8, 1994, following the order of the Regional
Trial Court for its execution, by the Clerk of Court, Branch 113, Pasay City, effectively conveyed ownership of
said parcel of land to Guerrero.

The contention that the Deed of Absolute Sale excluded the portion expropriated by the government
is untenable. The Deed of Absolute Sale reads in pertinent parts:

That for and in consideration of the sum of ELEVEN MILLION PESOS (P11,000,000),
Philippine Currency, paid by the VENDEE, the VENDORS, by these presents hereby SELL,
TRANSFER, CONVEY and ASSIGN, unto the herein VENDEE, his heirs, successors-in-
interest and assigns, by way of absolute sale, a parcel of land located in 2838 F.B. Harrison
Street, Pasay City, formerly covered by Transfer Certificate of Title No. 16213 of the land
records of Pasay City, presently covered by the new Transfer Certificate of Title No. 132995,
together with all improvements thereon, free from all liens and encumbrances whatsoever
except over a portion equal to one thousand three hundred eighty (1,380) square meters
expropriated by the Republic of the Philippines under and by virtue of Batas Pambansa Blg.
340 which took effect on February 17, 1983, the technical description of which is found
therein, and which Lot 834 in its entirety is more particularly described as follows: cdrep

A PARCEL OF LAND (Lot 834 of the Cadastral Survey of Pasay, L.R.C. Cad. Rec
No.), situated in the City of Pasay. Bounded on the N. along line 1-2 by Lot 835, and
along line 2-3 by Lot 836; on the NE., and SE., along lines 3-4-5 by Lot 833; all of
Pasay Cadastre; and on the SW., along lines 5-6-1 by Calle F.B. Harrison. Beginning
at a point marked "1" on plan, being N. 3 deg. 50'E., 100.44 from B.L.L.M. 5; Pasay
Cadastre; thence N. 84 deg. 19'E., 73.79 m. to point 2; thence N. 84 deg. 19'E., 14.47
m. to point 3; thence S. 9 deg. 11'E., 45.69 m. to point 4; thence S.53 deg. 10'W.,

87.39 m. to point 5; thence N. 10 deg. 46'W., 11.82 m. to point 6; thence N. 10 deg.

46'W., 35.70 m. to point of beginning; containing an area of FOUR THOUSAND AND
SEVENTY FIVE (4,075) SQUARE METERS. All points referred to are indicated on the
plan and are marked on the ground by Old Points; bearing true date of the Cadastral
Survey, Oct. 1928 to Nov. 1, 1930. 33

The underscored phrase does not say that the expropriated portion of the lot was excluded from the sale.
Rather, it states that the entire property, consisting of 4,075 square meters, was being sold free from all liens
and encumbrances except the lien in favor of the government over the portion being expropriated by it.
Stated in another way, Guerrero was buying the entire property free from all claims of third persons except
those of the government. cdrep

Evidently, Lot 834 was conveyed in 1994 to Guerrero by virtue of the Deed of Absolute Sale. This contract
was registered in the Register of Deeds and, accordingly, a new transfer certificate of title was issued to
Guerrero. 34 Pursuant thereto, and by virtue of subrogation, the latter became the rightful owner entitled to
receive the just compensation from the Republic.

The De la Ramas make much of the fact that ownership of the land was transferred to the government
because the equitable and the beneficial title was already acquired by it in 1983, leaving them with only the
naked title. However, as this Court held in Association of Small Landowners in the Phil., Inc. v. Secretary
of Agrarian Reform: 35

The recognized rule, indeed, is that title to the property expropriated shall pass from the
owner to the expropriator only upon full payment of the just compensation. Jurisprudence on
this settled principle is consistent both here and in other democratic jurisdictions. Thus:

. . . although the right to expropriate and use land taken for a canal is complete at
the time of entry, title to the property taken remains in the owner until payment is
actually made. (Italics supplied).

In Kennedy v. Indianapolis, the US Supreme Court cited several cases holding that title to
property does not pass to the condemnor until just compensation had actually been made. In
fact, the decisions appear to be uniformly to this effect. As early as 1838, in Rubottom v.
McLure, it was held that "actual payment to the owner of the condemned property was a
condition precedent to the investment of the title to the property in the State" albeit "not to the
190
 appropriation of it to public use." InRexford v. Knight, the Court of Appeals of New York said
that the construction upon the statutes was that the fee did not vest in the State until the
payment of the compensation although the authority to enter upon and appropriate the land
was complete prior to the payment. Kennedy further said that "both on principle and authority
the rule is . . . that the right to enter upon and use the property is complete, as soon as the
property is actually appropriated under the authority of law for a public use, but that the title
does not pass from the owner without his consent, until just compensation has been made to
him." LLjur

The amount paid by Guerrero

Lastly, the De la Ramas contend that Guerrero only paid P7,417,000 00 and not P8,800,000.00 as stipulated in
the contract to sell. However, Guerrero explained in his comment in this case:

In making such misleading allegations, petitioners withheld the information that on January 25,
1994, Branch 114 of the Pasay City Regional Trial Court had issued an order which explained
very clearly why the sum of P7,417,000.00 deposited by Guerrero constitute full payment of
the agreed price, viz: llcd

Plaintiff's motion is meritorious. The decision dated September 18,1991 rendered in

this case has long become final and executory. Paragraph 4 of the dispositive portion
of said decision reads as follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Ordering defendants

Milagros dela Rama and Inocentes dela Rama to execute the corresponding deed of
sale conveying the subject property, free from all liens and encumbrances in favor of
the plaintiff upon payment of the latter of his balance of

P8,800,000.00:

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Ordering both

defendants, jointly and severally, to pay the plaintiff the following: a. the sum of

P500,000.00 by way of moral damages;

b. the sum of P200,000.00 by way of exemplary damages;

c. the sum of P100,000.00 by way of attorney's fees;

d. legal interest of the amount of P2,200,000.00 from August 2, 1989 until the deed
of absolute sale is executed in favor of the plaintiff;

The plaintiff [Alfredo Guerrero] is therefore entitled to collect from the defendants [Milagros
and Inocentes de la Rama] the sum of P800,000.00 in damages and attorney's fees, and
interest at the legal rate. The earlier computation of the court's Branch Sheriff Edilberto
Santiago is wrong. The legal rate of interest for damages, and even for loans where interest
was not stipulated, is 6% per annum (Art. 2209, Civil Code). The rate of 12% per annum was
established by the Monetary Board when, under the power vested in it by P.D. 116 to amend
Act No. 2655 (more commonly known as the Anti Usury Law), it amended Section 1 by
'increasing the rate of legal interest for loans, renewals and forbearance thereof, as well as for
judgments, from 6% per annum to 12% per annum. Inasmuch as the Monetary Board may not
repeal or amend the Civil Code, in the face of the apparent conflict between Art. 2209 and Act
No. 2655 as amended, it is this court's persuasion that the ruling of the Monetary Board
applies only to banks, financing companies, pawnshops and intermediaries performing quasi-
banking functions, all of which are under the control and supervision of the Central Bank and
of the Monetary Board. LLphil

The interest rate on the P2,200,000.00 paid to the defendants by the plaintiff at the inception of the
transactions should be only 6% per annum from August 2, 1989, and as of January 2, 1994 this
amounts to the sum of P583,000.00 and P11,000.00 every month thereafter until the deed of
absolute sale over the property subject matter of this case is executed. The amounts payable by
the defendants to the plaintiff therefore stands at a total of P1,383,000.00. Offsetting this amount
from the balance of P8,800,000.00, the plaintiff must still pay to the defendants the sum of
P7,417,000.00. The plaintiff has already deposited with the Clerk of

191
 Court of this court the sum of P5,808,100.00 as of January 11, 1994; he should add to this the
sum of P1,608,900.00. 36

The De la Ramas question this ruling of the lower court. They say:

That Petitioners do not agree with the explanation of the lower Court, which held that the
Petitioners are liable to pay legal interest on the initial payment of P2,200.00 that petitioners
received under the Contract To Sell as part of the purchase price. Why should Petitioners pay
legal interest on a sum of money that was payable to them and which they received as initial
payment of the purchase price? This ruling is absurd and preposterous. It is a legal
monstrosity. 37

Petitioners can no longer question a judgment which has already become final and executory. The order of the
Regional Trial Court on the payment of legal interest was issued on September 18, 1991 in the case for
specific performance against the De la Ramas (Civil Case No. 6974-P). Hence, they are already barred from
questioning it now in this proceeding.

Finally, we take note of the fact that the De la Ramas have withdrawn and appropriated for themselves the
amount paid by Guerrero. This amount represented the purchase price of the entire 4,075 square meters of
land, including the expropriated portion, which was the subject of their agreement. The payment, therefore, to
them of the value of the expropriated portion would unjustly enrich them. Cdpr

WHEREFORE, the decision of the Court Appeals is AFFIRMED.

SO ORDERED.

Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Republic v. Salem Investment Corp., G.R. No. 137569,
[June 23, 2000], 389 PHIL 658-676)

National Power Corp. v. Spouses Campos, Jr., G.R. No. 143643, [June 27, 2003], 453 PHIL 79-97

SECOND DIVISION

[G.R. No. 143643. June 27, 2003.]

NATIONAL POWER CORPORATION, petitioner, vs. SPS. JOSE C. CAMPOS, JR. and MA.

CLARA LOPEZ-CAMPOS, respondents.

The Solicitor General for petitioner.

Law Firm of R.V. Domingo & Associates for respondents.

SYNOPSIS

Petitioner in this case claimed that under Article 620 of the Civil Code, it had already acquired by prescription
the easement of right-of-way over the portion of the subject property where its wooden electric posts and
transmission lines were erected.

On appeal, the Supreme Court affirmed the decision of the CA and the RTC which ordered the petitioner to
pay, among others, actual, moral and nominal damages to the respondents' spouses, for having violated or
invaded the latter's property. The Court also held: that petitioner's possession of that portion of subject property
where it erected the wooden posts and transmission lines was merely upon the tolerance of the respondents-
owners, thus, it will not create an easement of right-of-way by prescription. Neither can petitioner invoke
Section 34 (i) of Rep. Act. No. 6395, as amended. The five-year period provided thereunder, within which all
claims for compensation and damages, should be reckoned from the time that it acquired title over the private
property on which the right-of-way is sought to be established. Prior thereto, respondent's right to file an action
for the claims for compensation and/or damages does not even commence to run.

192
 SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CIVIL LAW; CIVIL CODE; PROPERTY; PRESCRIPTION,

AS A MODE OF ACQUIRING OWNERSHIP; CASE AT BAR. — Prescription as a mode of acquisition under
Article 620 of the Civil Code requires the existence of the following: (1) capacity to acquire by prescription; (2)
a thing capable of acquisition by prescription; (3) possession of the thing under certain conditions; and (4)
lapse of time provided by law. Acquisitive prescription may either be ordinary, in which case the possession
must be in good faith and with just title, or extraordinary, in which case there is neither good faith nor just title.
In either case, there has to be possession which must be in the concept of an owner, public, peaceful and
uninterrupted. . . . In this case, the records clearly reveal that the petitioner's possession of that portion of the
subject property where it erected the wooden posts and transmission lines was merely upon the tolerance of
the respondents. Accordingly, this permissive use by the petitioner of that portion of the subject property, no
matter how long continued, will not create an easement of right-of-way by prescription. TCacIA

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; ID.; POSSESSION OF PROPERTY BY

MERE TOLERANCE OF THE OWNER WILL NOT CREATE AN EASEMENT OF RIGHT-OF-WAY BY
PRESCRIPTION; CASE AT BAR. — The five-year period provided under Section 3(i) of Rep. Act No. 6395, as
amended, within which all claims for compensation and/or damages may be allowed against the petitioner
should be reckoned from the time that it acquired title over the private property on which the right-of-way is
sought to be established. Prior thereto, the claims for compensation and/or damages do not prescribe. . . . The
petitioner instituted the expropriation proceedings only on December 12, 1995. Indisputably, the petitioner
never acquired title to that portion of the subject property where it erected the wooden electrical posts and
transmission lines. Until such time, the five-year prescriptive period within which the respondents' right to file
an action to claim for compensation and/or damages for the petitioner's use of their property does not even
commence to run. The CA thus correctly ruled that Section 3(i) of Rep. Act No. 6395, as amended, finds no
application in this case and that the respondents' action against the petitioner has not prescribed.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID.; ID.; DAMAGES AWARDED FOR VIOLATION OF
PROPERTY RIGHT; CASE AT BAR. — Nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him. Similarly, the court may award nominal
damages in every case where any property right has been invaded. The petitioner, in blatant disregard of the
respondents' proprietary right, trespassed the subject property and conducted engineering surveys thereon. It
even attempted to deceive the respondents' caretaker by claiming that its agents were authorized by the
respondents to enter the property when in fact, the respondents never gave such authority. Under the
circumstances, the award of nominal damages is likewise warranted. Finally, the award of attorney's fees as
part of damages is deemed just and equitable considering that by the petitioner's unjustified acts, the
respondents were obviously compelled to litigate and incur expenses to protect their interests over the subject
property.

DECISION

CALLEJO, SR., J p:

This is a petition for review of the Decision 1 dated June 16, 2000 of the Court of Appeals in CA-G.R. CV No.
54265. The assailed decision affirmed in toto the Decision 2 of the Regional Trial Court (RTC) of Quezon
City, Branch 98, which ordered petitioner National Power Corporation to pay, among others, actual, moral and
nominal damages in the total amount of P1,980,000 to respondents Spouses Jose C. Campos, Jr. and Ma.
Clara A. Lopez-Campos.

The petition at bar stemmed from the following antecedents:

On February 2, 1996, the respondents filed with the court a quo an action for sum of money and damages
against the petitioner. In their complaint, the respondents alleged that they are the owners of a parcel of land
situated in Bo. San Agustin, Dasmariñas, Cavite, consisting of 66,819 square meters ("subject property") covered
by Transfer Certificate of Title (TCT) No. T-957323. Sometime in the middle of 1970, Dr. Paulo C. Campos, who
was then the President of the Cavite Electric Cooperative and brother of respondent Jose C. Campos, Jr.,
verbally requested the respondents to grant the petitioner a right-of-way over a portion of the
193
subject property. Wooden electrical posts and transmission lines were to be installed for the electrification of
Puerto Azul. The respondents acceded to this request upon the condition that the said installation would only
be temporary in nature. The petitioner assured the respondents that the arrangement would be temporary
and that the wooden electric posts would be relocated as soon as permanent posts and transmission lines
shall have been installed. Contrary to the verbal agreement of the parties, however, the petitioner continued
to use the subject property for its wooden electrical posts and transmission lines without compensating the
respondents therefor. 3

The complaint likewise alleged that some time in 1994, the petitioner's agents trespassed on the subject
property and conducted engineering surveys thereon. The respondents' caretaker asked these agents to
leave the property. Thereafter, in 1995, a certain "Mr. Raz," who claimed to be the petitioner's agent, went to
the office of respondent Jose C. Campos, Jr., then Associate Justice of the Supreme Court, and requested
permission from the latter to enter the subject property and conduct a survey in connection with the petitioner's
plan to erect an all-steel transmission line tower on a 24-square meter area inside the subject property.
Respondent Jose Campos, Jr., refused to grant the permission and expressed his preference to talk to the
Chief of the Calaca Sub-station or the head of the petitioner's Quezon City office. The respondents did not
hear from "Mr. Raz" or any one from the petitioner's office since then. Sometime in July or August of 1995, the
petitioner's agents again trespassed on the subject property, presenting to the respondents' caretaker a letter
of authority purportedly written by respondent Jose C. Campos, Jr. When the caretaker demanded that the
letter be given to him for verification with respondent Jose C. Campos, Jr. himself, the petitioner's agents
refused to do so. Consequently, the caretaker ordered the agents to leave the subject property. 4

The complaint further alleged that on December 12, 1995, the petitioner instituted an expropriation case
involving the subject property before the RTC of Imus, Cavite, Branch 22. The case was docketed as Civil
Case No. 1174-95. The petitioner alleged in its complaint therein that the subject property was selected "in a
manner compatible with the greatest public good and the least private injury" and that it (petitioner) had tried
to negotiate with the respondents for the acquisition of the right-of-way easement on the subject property but
that the parties failed to reach an amicable settlement. 5

The respondents maintained that, contrary to the petitioner's allegations, there were other more suitable or
appropriate sites for the petitioner's all-steel transmission lines and that the petitioner chose the subject
property in a whimsical and capricious manner. The respondents averred that the proposed right-of-way was
not the least injurious to them as the system design prepared by the petitioner could be further revised to
avoid having to traverse the subject property. The respondents vigorously denied negotiating with the
petitioner in connection with the latter's acquisition of a right-of-way on the subject property. 6

Finally, the complaint alleged that unaware of the petitioner's intention to expropriate a portion of the subject
property, the respondents sold the same to Solar Resources, Inc. As a consequence, the respondents stand
to lose a substantial amount of money derived from the proceeds of the sale of the subject property should the
buyer (Solar Resources, Inc.) decide to annul the sale because of the contemplated expropriation of the
subject property. 7

The complaint a quo thus prayed that the petitioner be adjudged liable to pay the respondents, among
others, actual, nominal and moral damages:

WHEREFORE, premises considered, it is respectfully prayed that the Honorable Court award
the plaintiffs:

a. Actual damages for the use of defendants' property since middle 1970's,
including legal interest thereon, as may be established during the
trial; DcSTaC

b. P1,000,000.00 as nominal damages;

c. P1,000,000.00 as moral damages;

d. Lost business opportunity as may be established during the trial;

e. P250,000.00 as attorney's fees;

f. Costs of suit.
194
 Plaintiffs pray for other, further and different reliefs as may be just and equitable under
the premises. 8

Upon receipt of the summons and complaint, the petitioner moved for additional time to file its responsive
pleading. However, instead of filing an answer to the complaint, the petitioner filed a motion to dismiss on the
ground that the action had prescribed and that there was another action pending between the same parties for
the same cause (litis pendencia). The respondents opposed said motion. On May 2, 1996, the RTC issued an
order denying the petitioner's motion to dismiss.

The petitioner then moved for reconsideration of the aforesaid order. The respondents opposed the same and
moved to declare the petitioner in default on the ground that its motion for reconsideration did not have the
required notice of hearing; hence, it did not toll the running of the reglementary period to file an answer.

On July 15, 1996, the RTC issued an order denying the petitioner's motion for reconsideration.
Subsequently, on July 24, 1996, it issued another order granting the respondents' motion and declared the
petitioner in default for its failure to file an answer. The petitioner filed a motion to set aside the order of
default but the same was denied by the RTC.

The petitioner filed a petition for certiorari, prohibition and preliminary injunction with the Court of Appeals,
docketed as CA-G.R. SP No. 41782, assailing the May 2, 1996, July 15, 1996 and July 24, 1996 Orders
issued by the RTC as having been issued with grave abuse of discretion and to enjoin it from proceeding with
the case. On February 13, 1996, the CA dismissed the petition for certiorari, prohibition and preliminary
injunction filed by the petitioner in CA-G.R. SP No. 41782.

In the meantime, the respondents adduced their evidence ex parte in the RTC. As synthesized by the
trial court, the respondents adduced evidence, thus:

From the evidence thus far submitted, it appears that the plaintiffs spouses, both of whom
professional of high standing in society, are the absolute owners of a certain parcel of land
situated in Bo. San Agustin, Dasmariñas, Cavite, consisting of 66,819 square meters, more or
less, covered and embraced in TCT No. T-95732. Sometime in the mid-1970, Dr. Paulo C.
Campos, brother of Justice Jose Campos, Jr., then President of the Cavite Electric
Cooperative, approached the latter and confided to him the desire of the National Power
Corporation to be allowed to install temporary wooden electric posts on the portion of his
wife's property in order that the high-tension transmission line coming from Kaliraya passing
thru that part of Cavite can be continued to the direction of Puerto Azul.

Having heard the plea of his brother and the fact that National Power Corporation was under
pressure because at the time that Puerto Azul was being developed there was no electricity
nor was there electrical lines towards that place and acting on the belief that the installation of
wooden electric posts would be temporary in nature, plaintiffs gave oral permission for the
NPC personnel to enter the said parcel of land. Dr. Paulo C. Campos, assured him that it was
just a temporary measure to meet the emergency need of the Puerto Azul and that the
wooden electric posts will be relocated when a permanent posts and transmission lines shall
have been installed. Pursuant to their understanding, the National Power Corporation
installed wooden posts across a portion of plaintiffs' property occupying a total area of about
2,000 square meters more or less. To date, defendant NPC has been using the plaintiffs'
property for its wooden electrical posts and transmission lines; that the latter has estimated
that the aggregate rental (which they peg at the conservative rate of P1.00 per square meter)
of the 2,000 square meters for twenty-four (24) years period, would amount to the aggregate
sum of P480,000.00.

From the time National Power Corporation installed those temporary wooden posts, no notice
was ever served upon the plaintiffs of their intention to relocate the same or to install permanent
transmission line on the property. Also, there was no personal contact between them. However,
in late 1994, plaintiffs' overseer found a group of persons of the defendant NPC conducting
survey inside the said property, and were asked to leave the premises upon being discovered
that they have no authority to do so from the owners thereof. Subsequently thereafter, or
sometime in 1995, a person by the name of Mr. Paz, bearing a letter from Calaca Regional
Office, went to see Justice Jose C. Campos, Jr. in his office, informing the latter that he was
authorized by the National Power Corporation to acquire private lands. In the same breath, Mr.
Paz requested his permission to let NPC men enter the subject property
195
and to conduct a survey in connection with its plan to erect an all steel transmission line tower on a 24
square meter area inside plaintiffs' property, but same was denied. Justice Campos, however, expressed
his preference to talk instead to the Chief of the Calaca Sub-station or the Head of the NPC, Quezon City
office. Since then, nothing however transpired. aECTcA

Sometime in July or August 1995, plaintiffs learned that defendant's agents again entered the
subject property. This time, they have presented to the caretaker a letter of authority supposedly
from Justice Jose C. Campos, Jr. And, when prodded to see the letter for verification, defendant's
agents refused to do so. So, they were ordered out of the vicinity. Plaintiffs stressed that defendant's
repeated intrusions into their property without their expressed knowledge and consent had impugned
on their constitutional right to protection over their property.

Later, on December 12, 1995, plaintiffs received copy of summons and complaint in Civil Case No.
1174-95 filed by the defendant before the Regional Trial Court, Fourth Judicial Region, Branch 22,
Imus, Cavite for the expropriation of 5,320 square meters of plaintiffs' above-described property to be
used as right-of-way for the all-steel transmission line tower of the Calaca-Dasmariñas 230 KV T/L
Project. But what had caused plaintiffs' discomfiture is the allegation in said complaint stating that the
"parcel of land sought to be expropriated has not been applied to nor expropriated for any public use
and is selected by plaintiff in a manner compatible with the greatest good and the least private injury"
and that defendant "had negotiated with (plaintiffs) for the acquisition of the right-of-way easement
over the portion of the same for the public purpose as above-stated at a price prescribed by law, but
failed to reach an agreement with them notwithstanding the repeated negotiations between the
parties."

Plaintiffs' assert that at no instance was there a negotiation between them and the NPC or its
representative. The alleged "talk" initiated by Mr. Paz with Justice Campos, Jr. just ended in the
latter's remonstrance and in prevailing upon the former of his preference to discuss the matter with a
more responsible officer of the National Power Corporation, such as the Chief of the Calaca Sub-
Station or the Head of NPC's Office in Quezon City. But plaintiffs' plea just fell on the deaf ear. The
next thing they know was Civil Case No. Q-1174-95 already filed in court. A party to a case shall not
do falsehood nor shall mislead or misrepresent the contents of its pleading. That gross
misrepresentation had been made by the National Power Corporation in their said pleading is
irrefutable.

Plaintiffs-spouses Campos declared that there are other areas more suitable or appropriate that
can be utilized as alternative sites for the all-steel transmission line tower. Just a few meters from
the planned right-of-way is an abandoned road occupied by squatters; it is a government property
and the possession of which the NPC need not compensate. The latter had not exercised
judiciously in the proper selection of the property to be appropriated. Evidently, NPC's choice was
whimsical and capricious. Such arbitrary selection of plaintiffs' property despite the availability of
another property in a manner compatible with the greatest public good and the least private injury,
constitutes an impermissible encroachment of plaintiffs' proprietary rights and their right to due
process and equal protection.

Concededly, NPC's intention is to expropriate a portion of plaintiffs' property. This limitation on the
right of ownership is the paramount right of the National Power Corporation granted by law. But
before a person can be deprived of his property through the exercise of the power of eminent
domain, the requisites of law must strictly be complied with. (Endencia vs. Lualhati, 9 Phil. 177) No
person shall be deprived of his property except by competent authority and for public use and always
upon payment of just compensation. Should this requirement be not first complied with, the courts
shall protect and, in a proper case, restore the owner in his possession. (Art. 433 Civil Code of the
Philippines)

Records disclose that in breach of such verbal promise, defendant NPC had not withdrawn the
wooden electrical posts and transmission lines; said wooden electrical posts and transmission lines
still occupy a portion of plaintiffs' property; that the NPC had benefited from them for a long period of
time already, sans compensation to the owners thereof.

196
 Without first complying with the primordial requisites appurtenant to the exercise of the power
of eminent domain, defendant NPC again boldly intruded into plaintiffs' property by conducting
engineering surveys with the end in view of expropriating 5,320 square meters thereof to be
used as right-of-way for the all-steel transmission line tower of the Calaca-Dasmariñas 230 KV
T/L Project. Such acts constitute a deprivation of one's property for public use without due
compensation. It would therefore seem that the expropriation had indeed departed from its
own purpose and turns out to be an instrument to repudiate compliance with obligation legally
and validly contracted. 9

On September 26, 1996, the RTC rendered a decision finding the petitioner liable for damages to the
respondents. The dispositive portion of the RTC decision reads:

WHEREFORE, in view of the foregoing consideration, justment [sic] is hereby rendered in

favor of the plaintiffs, condemning the defendant to pay —

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Actual damages of

P480,000.00 for the use of plaintiff's property;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ One Million Pesos

(P1,000,000.00) as moral damages;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Five Hundred Thousand

Pesos (P500,000.00) as nominal damages;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ One Hundred Fifty Thousand

Pesos (P150,000.00) as attorney's fees; and

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Costs of suit in the amount of

P11,239.00.

SO ORDERED. 10

The petitioner appealed the decision to the Court of Appeals which on June 16, 1990 rendered a decision
affirming the ruling of the RTC. cTCaEA

Essentially, the CA held that the respondents' claim for compensation and damages had not prescribed
because Section 3(i) of the petitioner's Charter, Republic Act No. 6395, as amended, is not applicable to the
case. The CA likewise gave scant consideration to the petitioner's claim that the respondents' complaint
should be dismissed on the ground of litis pendencia. According to the CA, the complaint a quo was the more
appropriate action considering that the venue for the expropriation case (Civil Case No. 1174-95) was initially
improperly laid. The petitioner filed the expropriation proceedings with the RTC in Imus, Cavite, when the
subject property is located in Dasmariñas, Cavite. Moreover, the parties in the two actions are not the same
since the respondents were no longer included as defendants in the petitioner's amended complaint in the
expropriation case (Civil Case No. 1174-95) but were already replaced by Solar Resources, Inc., the buyer of
the subject property, as defendant therein.

The CA likewise found the damages awarded by the RTC in favor of the respondents just and
reasonable under the circumstances obtaining in the case.

The petitioner now comes to this Court seeking to reverse and set aside the assailed decision. The
petitioner alleges as follows:

The Court of Appeals grievously erred and labored under a gross misapprehension of fact
in finding that the Complaint below should not be dismissed on the ground of prescription.

II

The Court of Appeals erred in affirming the award of nominal and moral damages,
attorney's fees and costs of litigation. 11
Citing Article 620 of the Civil Code, the petitioner contends that it had already acquired the easement of right-
of-way over the portion of the subject property by prescription, the said easement having been allegedly
continuous and apparent for a period of about twenty-three (23) years, i.e., from about the middle of 1970 to
the early part of 1994. The petitioner further invokes Section 3(i) of its Charter in asserting that the respondents
already waived their right to institute any action for compensation and/or damages concerning the acquisition
of the easement of right-of-way in the subject property. Accordingly, the petitioner concludes that the award of
damages in favor of the respondents is not warranted.

197
The petition is bereft of merit.

The petitioner's claim that, under Article 620 of the Civil Code, it had already acquired by prescription the
easement of right-of-way over that portion of the subject property where its wooden electric posts and
transmission lines were erected is untenable. Article 620 of the Civil Code provides that:

Art. 620. Continuous and apparent easements are acquired either by virtue of a title or
by prescription of ten years.

Prescription as a mode of acquisition requires the existence of the following: (1) capacity to acquire by
prescription; (2) a thing capable of acquisition by prescription; (3) possession of the thing under certain
conditions; and (4) lapse of time provided by law. 12 Acquisitive prescription may either be ordinary, in which
case the possession must be in good faith and with just title, 13 or extraordinary, in which case there is neither
good faith nor just title. In either case, there has to be possession which must be in the concept of an owner,
public, peaceful and uninterrupted. 14 As a corollary, Article 1119 of the Civil Code provides that:

Art. 1119. Acts of possessory character executed in virtue of license or by mere tolerance of
the owner shall not be available for the purposes of possession.

In this case, the records clearly reveal that the petitioner's possession of that portion of the subject property
where it erected the wooden posts and transmission lines was merely upon the tolerance of the respondents.
Accordingly, this permissive use by the petitioner of that portion of the subject property, no matter how long
continued, will not create an easement of right-of-way by prescription. The case of Cuaycong vs. Benedicto 15
is particularly instructive. In that case, the plaintiffs for more than twenty years made use of the road that
passed through the hacienda owned by the defendants, being the only road that connected the plaintiff's
hacienda to the public road. The defendants closed the road in question and refused the use of the same
unless a toll was paid. The plaintiffs therein brought an action to enjoin the defendants from interfering with
the use of the road. In support of their action, the plaintiffs presented evidence tending to show that they have
acquired the right-of-way through the road by prescription. This Court rejected the contention, holding as
follows:

Had it been shown that the road had been maintained at the public expense, with the
acquiescence of the owners of the estates crossed by it, this would indicate such adverse
possession by the government as in course of time would ripen into title or warrant the
presumption of a grant or of a dedication. But in this case there is no such evidence, and the
claims of plaintiffs, whether regarded as members of the public asserting a right to use the
road as such, or as persons claiming a private easement of way over the land of another must
be regarded as resting upon the mere fact of user. DACaTI

If the owner of a tract of land, to accommodate his neighbors or the public in general, permits
them to cross his property, it is reasonable to suppose that it is not his intention, in so doing,
to divest himself of the ownership of the land so used, or to establish an easement upon it,
and that the persons to whom such permission, tacit or express, is granted, do not regard their
privilege of use as being based upon anything more than the mere tolerance of the owner.
Clearly, such permissive use is in its inception based upon an essentially revocable license. If
the use continues for a long period of time, no change being made in the relations of the
parties by any express or implied agreement, does the owner of the property affected lose his
right of revocation? Or, putting the same question in another form, does the mere permissive
use ripen into title by prescription?

It is a fundamental principle of the law in this jurisdiction concerning the possession of real
property that such possession is not affected by acts of a possessory character which are
"merely tolerated" by the possessor, which are or due to his license (Civil Code, Arts. 444
and 1942). This principle is applicable not only with respect to the prescription of the
dominium as a whole, but to the prescription of right in rem. In the case of Cortes vs. Palanca
Yu-Tibo (2 Phil. Rep., 24, 38), the Court said:

The provision of article 1942 of the Civil Code to the effect that acts which are merely
tolerated produce no effect with respect to possession is applicable as much to the
prescription of real rights as to the prescription of the fee, it being a glaring and self-
evident error to affirm the contrary, as does the appellant in his motion papers.
Possession is the fundamental basis of prescription. Without it no kind of prescription
198
 is possible, not even the extraordinary. Consequently, if acts of mere tolerance
produce no effect with respect to possession, as that article provides, in conformity
with Article 444 of the same Code, it is evident that they can produce no effect with
respect to prescription, whether ordinary or extraordinary. This is true whether the
prescriptive acquisition be of a fee or of real rights, for the same reason holds in one
and the other case; that is, that there has been no true possession in the legal
sense of the word. (Citations omitted)

Possession, under the Civil Code, to constitute the foundation of a prescriptive right, must be
possession under claim of title (en concepto de dueño), or to use the common law equivalent
of the term, it must be adverse. Acts of possessory character performed by one who holds by
mere tolerance of the owner are clearly not en concepto de dueño, and such possessory acts,
no matter how long so continued, do not start the running of the period of prescription. 16

Following the foregoing disquisition, the petitioner's claim that it had acquired the easement of right-of-way
by prescription must perforce fail. As intimated above, possession is the fundamental basis of prescription,
whether ordinary or extraordinary. The petitioner never acquired the requisite possession in this case. Its use
of that portion of the subject property where it erected the wooden poles and transmission lines was due
merely to the tacit license and tolerance of the respondents. As such, it cannot be made the basis of the
acquisition of an easement of right-of-way by prescription.

Neither can the petitioner invoke Section 3(i) of its Charter (Rep. Act No. 6395, as amended) to put up the
defense of prescription against the respondents. The said provision reads in part:

Sec. 3(i). . . . The Corporation or its representatives may also enter upon private property in
the lawful performance or prosecution of its business or purposes, including the construction
of transmission lines thereon; Provided, that the owner of such private property shall be paid
the just compensation therefor in accordance with the provisions hereinafter provided;
Provided, further, that any action by any person claiming compensation and/or damages
shall be filed within five years after the right-of-way, transmission lines, substations, plants or
other facilities shall have been established: Provided, finally, that after the said period no suit
shall be brought to question the said right-of-way, transmission lines, substations, plants or
other facilities nor the amounts of compensation and/or damages involved;

Two requisites must be complied before the above provision of law may be invoked:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The petitioner

entered upon the private property in the lawful performance or
prosecution of its businesses or purposes; and

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The owner of the private property

shall be paid the just compensation therefor.

As correctly asserted by the respondents, Section 3(i) of Rep. Act No. 6395, as amended, presupposes that
the petitioner had already taken the property through a negotiated sale or the exercise of the power of eminent
domain, and not where, as in this case, the petitioner was merely temporarily allowed to erect wooden
electrical posts and transmission lines on the subject property. Significantly, the provision uses the term "just
compensation," implying that the power of eminent domain must first be exercised by the petitioner in
accordance with Section 9, Article III of the Constitution, which provides that "no private property shall be taken
for public use without just compensation."

This Court's ruling in Lopez vs. Auditor General 17 is likewise in point:

The petitioner brought this case to this Court on the sole issue of prescription. He cites
Alfonso vs. Pasay City in which a lot owner was allowed to bring an action to recover
compensation for the value of his land, which the Government had taken for road purposes,
despite the lapse of thirty years (1924-1954). On the other hand, the respondents base their
defense of prescription on Jaen vs. Agregado which held an action for compensation for land
taken in building a road barred by prescription because it was brought after more than ten
years (i.e., thirty three years, from 1920 to 1953). They argue that the ruling in Alfonso cannot
be applied to this case because, unlike Alfonso who made repeated demands for
compensation within ten years, thereby interrupting the running of the period of prescription,
the petitioner here filed his claim only in 1959. HCIaDT

199
 It is true that in Alfonso vs. Pasay City this Court made the statement that "registered lands
are not subject to prescription and that on grounds of equity, the government should pay for
private property which it appropriates though for the benefit of the public, regardless of the
passing of time." But the rationale in that case is that where private property is taken by the
Government for public use without first acquiring title thereto either through expropriation or
negotiated sale, the owner's action to recover the land or the value thereof does not prescribe.
This is the point that has been overlooked by both parties.

On the other hand, where private property is acquired by the Government and all that
remains is the payment of the price, the owner's action to collect the price must be brought
within ten years otherwise it would be barred by the statute of limitations. 18

Thus, the five-year period provided under Section 3(i) of Rep. Act No. 6395, as amended, within which all
claims for compensation and/or damages may be allowed against the petitioner should be reckoned from
the time that it acquired title over the private property on which the right-of-way is sought to be established.
Prior thereto, the claims for compensation and/or damages do not prescribe. In this case, the findings of the
CA is apropos:

Undeniably, NPC never acquired title over the property over which its wooden electrical posts and
transmission lines were erected. It never filed expropriation proceedings against such property.
Neither did it negotiate for the sale of the same. It was merely allowed to temporarily enter into the
premises. As NPC's entry was gained through permission, it had no intention to acquire
ownership either by voluntary purchase or by the exercise of eminent domain. 19

The petitioner instituted the expropriation proceedings only on December 12, 1995. Indisputably, the
petitioner never acquired title to that portion of the subject property where it erected the wooden electrical
posts and transmission lines. Until such time, the five-year prescriptive period within which the respondents'
right to file an action to claim for compensation and/or damages for the petitioner's use of their property does
not even commence to run. The CA thus correctly ruled that Section 3(i) of Rep. Act No. 6395, as amended,
finds no application in this case and that the respondents' action against the petitioner has not prescribed.

With respect to the damages awarded in favor of the respondents, the petitioner avers, thus:

The Court of Appeals erred in

affirming the award of nominal

and moral damages, attorney's

fees and costs of litigation.

It follows from Section 31(c) of R.A. 6395 that the award moral and nominal damages, as well
as attorney's fees and costs are baseless. The right to claim them has likewise prescribed. 20

With our ruling that the claims of the respondents had not prescribed, the petitioner's contention that the
respondents are not entitled to moral and nominal damages and attorney's fees must fail. In affixing the
award for moral and nominal damages and attorney's fees, the CA ratiocinated:

With respect to the fourth assignment of error, this Court is not persuaded to reverse
much less modify the court a quo's findings.

An award of moral damages would require certain conditions to be met, to wit: (1) first, there
must be an injury, whether physical, mental or psychological, clearly sustained by the
claimant; (2) second, there must be a culpable act or omission factually established; (3) third,
the wrongful act or omission of the defendant is the proximate cause of the injury sustained
by the claimant; and (4) fourth, the award of damages is predicated on any of the cases
stated in Article 2219 of the Civil Code.

NPC made it appear that it negotiated with the appellees when no actual negotiations took
place. This allegation seriously affected the ongoing sale of the property to Solar Resources, Inc.
as appellees seemed to have sold the property knowing fully well that a portion thereof was
being expropriated. Such an act falls well withinArticle 21 of the Civil Code. NPC's subterfuge
certainly besmirched the reputation and professional standing of Justice Jose C.
200
 Campos, Jr. and Professor Maria Clara A. Lopez-Campos, and caused them
physical suffering, mental anguish, moral shock and wounded feelings.

The records show that Justice Campos' career included, among other[s], being a Professor of
Law at the University of the Philippines; Acting Chairman of the Board of Transportation;
Presiding Judge of the Court of First Instance of Pasay City, and Associate Justice of the
Court of Appeals. Such career reached its apex when he was appointed Associate Justice of
the Supreme Court in 1992. Justice Campos was a member of the Judicial and Bar Council
when NPC filed its Civil Case No. 1174-95. Professor Maria Clara A. Lopez-Campos is a
noted authority in Corporate and Banking Laws and is a Professor Emerita of the University
of the Philippines from 1981 to the present. She had taught more than three decades at the
College of Law. Against such backdrop, it does not take too much imagination to conclude
that the oppressive and wanton manner in which NPC sought to exercise its statutory right of
eminent domain warranted the grant of moral damages.

On the award of nominal damages, such are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered by him. As previously
discussed, it does not brood well for a government entity such as NPC to disregard the tenets
of private property enshrined in the Constitution. NPC not only intentionally trespassed on
appellees' property and conducted engineering surveys thereon but also sought to fool the
appellees' caretaker by claiming that such entry was authorized. Moreover, NPC even justifies
such trespass as falling under its right to expropriate the property. Under the circumstances,
the award of nominal damages is sustained.

That NPC's highhanded exercise of its right of eminent domain constrained the appellees to
engage the services of counsel is obvious. As testified upon, the appellees engaged their
counsel for an agreed fee of P250,000.00. The trial court substantially reduced this to
P150,000.00. Inasmuch as such services included not only the present action but also
those for Civil Case No. 1174-95 erroneously filed by NPC with the Regional Trial Court of
Imus, Cavite, and the Petition for Certiorari in CA-GR No. 41782, this Court finds such
attorney's fees to be reasonable and equitable. 21

We agree with the CA.

The award of moral damages in favor of the respondents is proper given the circumstances obtaining in this
case. As found by the CA:

NPC made it appear that it negotiated with the appellees when no actual negotiation took
place. This allegation seriously affected the ongoing sale of the property to Solar Resources,
Inc. as appellees seemed to have sold the property knowing fully well that a portion thereof
was being expropriated. Such an act falls well within Article 21 of the Civil Code. NPC's
subterfuge certainly besmirched the reputation and professionally standing of Justice Jose C.
Campos, Jr. and Professor Maria Clara A. Lopez-Campos, and caused them physical
suffering, mental anguish, moral shock and wounded feelings.

The records show that Justice Campos' career included, among other[s], being a Professor of
Law at the University of the Philippines; Acting Chairman of the Board of Transportation;
Presiding Judge of the Court of First Instance of Pasay City, and Associate Justice of the
Court of Appeals. Such career reached its apex when he was appointed Associate Justice of
the Supreme Court in 1992. Justice Campos was a member of the Judicial and Bar Council
when NPC filed its Civil Case No. 1174-95. Professor Maria Clara A. Lopez-Campos is a
noted authority in Corporate and Banking Laws and is a Professor Emerita of the University
of the Philippines from 1981 to the present. She had taught more than three decades at the
College of Law. Against such backdrop, it does not take too much imagination to conclude
that the oppressive and wanton manner in which NPC sought to exercise its statutory right of
eminent domain warranted the grant of moral damages. 22

Further, nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the

201
plaintiff for any loss suffered by him. 23 Similarly, the court may award nominal damages in every case where
any property right has been invaded. 24 The petitioner, in blatant disregard of the respondents' proprietary
right, trespassed the subject property and conducted engineering surveys thereon. It even attempted to
deceive the respondents' caretaker by claiming that its agents were authorized by the respondents to enter
the property when in fact, the respondents never gave such authority. Under the circumstances, the award of
nominal damages is likewise warranted.

Finally, the award of attorney's fees as part of damages is deemed just and equitable considering that by the
petitioner's unjustified acts, the respondents were obviously compelled to litigate and incur expenses to
protect their interests over the subject property. 25

WHEREFORE, the petition is hereby DENIED for lack of merit. The assailed Decision dated June 16, 2000
of the Court of Appeals in CA-G.R. CV No. 54265 is AFFIRMED in toto.

SO ORDERED. TSIDEa

Bellosillo and Quisumbing, JJ., concur.

Austria-Martinez, J., is on official leave.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (National Power Corp. v. Spouses Campos, Jr., G.R. No.
143643, [June 27, 2003], 453 PHIL 79-97)

Lung Center of the Philippines v. Quezon City, G.R. No. 144104, [June 29, 2004], 477 PHIL 141-160

EN BANC

[G.R. No. 144104. June 29, 2004.]

LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO
P. ROSAS, in his capacity as City Assessor of Quezon City,respondents.

DECISION

CALLEJO, SR., J p:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision
1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the
Central Board of Assessment Appeals holding that the lot owned by the petitioner and its hospital building
constructed thereon are subject to assessment for purposes of real property tax.

The Antecedents

The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16, 1981
by virtue of Presidential Decree No. 1823. 2 It is theregistered owner of a parcel of land, particularly described as
Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central
District,Quezon City. The lot has an area of 121,463 square meters and is covered by Transfer Certificate of Title
(TCT) No. 261320 of the Registry of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital
known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for
canteen and small store spaces, and to medical or professional practitioners who use the same as their private
clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the
left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, atthe corner
of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as
the Elliptical Orchids and Garden Center.

The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both
paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies
from the government.
202
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes
in the amount of P4,554,860 by the City Assessor ofQuezon City. 3 Accordingly, Tax Declaration Nos. C-021-
01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the hospital building,
respectively. 4On August 25, 1993, the petitioner filed a Claim for Exemption 5 from real property taxes with
the City Assessor, predicated on its claim that it is a charitable institution.The petitioner's request was denied,
and a petition was, thereafter, filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA,
for brevity) for thereversal of the resolution of the City Assessor. The petitioner alleged that under Section 28,
paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred that a
minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of its
hospital operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as
such, is exempt from real property taxes. The QC-LBAA rendered judgment dismissing the petition and holding
the petitioner liable for real property taxes. 6

The QC-LBAA's decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of
Quezon City (CBAA, for brevity) 7 which ruled that thepetitioner was not a charitable institution and that its real
properties were not actually, directly and exclusively used for charitable purposes; hence, it was not entitled to
real property tax exemption under the constitution and the law. The petitioner sought relief from the Court of
Appeals, which rendered judgment affirming thedecision of the CBAA. 8

Undaunted, the petitioner filed its petition in this Court contending that:

A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED

TO REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND,
BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE
NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR
CHARITABLE PURPOSES.

B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT

UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY
NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.

The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the 1987
Constitution. It asserts that its character as a charitable institution is not altered by the fact that it admits
paying patients and renders medical services to them, leases portions of the land to private parties, and rents
out portions of the hospital to private medical practitioners from which it derives income to be used for
operational expenses. The petitioner points out that for the years 1995 to 1999, 100% of its out-patients were
charity patients and of the hospital's 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients.
It asserts thatthe fact that it receives subsidies from the government attests to its character as a charitable
institution. It contends that the "exclusivity" required in the Constitution does not necessarily mean "solely."
Hence, even if a portion of its real estate is leased out to private individuals from whom it derives income, it
does not lose its character as a charitable institution, and its exemption from the payment of real estate taxes
on its real property. The petitioner cited our ruling in Herrera v. QC-BAA 9to bolster its pose. The petitioner
further contends that even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not
precluded from seeking tax exemption under the 1987 Constitution.

In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The
petitioner's real property is not exempt from the payment ofreal estate taxes under P.D. No. 1823 and even
under the 1987 Constitution because it failed to prove that it is a charitable institution and that the said property
is actually, directly and exclusively used for charitable purposes. The respondents noted that in a newspaper
report, it appears that graft charges were filed with theSandiganbayan against the director of the petitioner, its
administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden Center, for
entering into a lease contract over 7,663.13 square meters of the property in 1990 for only P20,000 a month,
when the monthly rental should be P357,000 a month as determined by the Commission on Audit; and that
instead of complying with the directive of the COA for the cancellation of the contract for being grossly
prejudicial tothe government, the petitioner renewed the same on March 13, 1995 for a monthly rental of only
P24,000. They assert that the petitioner uses the subsidies granted bythe government for charity patients and
uses the rest of its income from the property for the benefit of paying patients, among other purposes. They
aver that thepetitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds in the
hospital are reserved for indigent patients. The respondents further assert, thus:

203
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the claims/allegations of the
Petitioner LCP do not speak well of its record of service. That before a patient is admitted for
treatment in the Center, first impression is that it is pay-patient and required to pay a certain
amount as deposit. That even if a patient is living below the poverty line, he is charged with
high hospital bills. And, without these bills being first settled, the poor patient cannot be
allowed to leave the hospital or be discharged without first paying the hospital bills or issue a
promissory note guaranteed and indorsed by an influential agency or person known only to
the Center; that even the remains of deceased poor patients suffered the same fate.
Moreover, before a patient is admitted for treatment as free or charity patient, one must
undergo a series of interviews and must submit all therequirements needed by the Center,
usually accompanied by endorsement by an influential agency or person known only to the
Center. These facts were heard and admitted by the Petitioner LCP during the hearings
before the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent
patients, instead of seeking treatment with the Center, they prefer to be treated at the Quezon
Institute. Can such practice by the Center be called charitable? 10

The Issues

The issues for resolution are the following: (a) whether the petitioner is a charitable institution within the context
of Presidential Decree No. 1823 and the 1973 and1987 Constitutions and Section 234(b) of Republic Act No.
7160; and (b) whether the real properties of the petitioner are exempt from real property taxes.

The Court's Ruling

The petition is partially granted.

On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and 1987
Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which
should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-
laws, the methods of administration, the nature of the actual work performed, the character of the services
rendered, the indefiniteness of the beneficiaries, and theuse and occupation of the properties. 11

In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the
benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of
education or religion, by assisting them to establish themselves in life or otherwise lessening the burden
ofgovernment. 12 It may be applied to almost anything that tend to promote the well-doing and well-being of
social man. It embraces the improvement and promotion ofthe happiness of man. 13 The word "charitable" is
not restricted to relief of the poor or sick. 14 The test of a charity and a charitable organization are in law the
same. Thetest whether an enterprise is charitable or not is whether it exists to carry out a purpose
reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage. TDCcAE

Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions
of the decree, is to be administered by the Office of thePresident of the Philippines with the Ministry of Health
and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people
principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The raison
d'etre for the creation of the petitioner is stated in thedecree, viz:

Whereas, for decades, respiratory diseases have been a priority concern, having been the
leading cause of illness and death in the Philippines, comprising more than 45% of the total
annual deaths from all causes, thus, exacting a tremendous toll on human resources,
which ailments are likely to increase and degenerate into seriouslung diseases on account
of unabated pollution, industrialization and unchecked cigarette smoking in the country;

Whereas, the more common lung diseases are, to a great extent, preventable, and curable
with early and adequate medical care, immunization and through prompt and intensive
prevention and health education programs;

Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies
and efforts at preventing, treating and rehabilitating people affected bylung diseases, and to
undertake research and training on the cure and prevention of lung diseases, through a Lung
Center which will house and nurture the above and related activities and provide tertiary-
level care for more difficult and problematical cases;

204
 Whereas, to achieve this purpose, the Government intends to provide material and
financial support towards the establishment and maintenance of a Lung Center forthe
welfare and benefit of the Filipino people. 15

The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:

SECOND: That the purposes for which such corporation is formed are as follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To construct, establish, equip,

maintain, administer and conduct an integrated medical institution which shall specialize in the
treatment, care, rehabilitation and/or relief of lung and allied diseases in line with the concern
of the government to assist and provide material and financial support in the establishment
and maintenance of a lung center primarily to benefit the people of the Philippines and in
pursuance of the policy of the State to secure the well-being of the people by providing them
specialized health and medical services and by minimizing the incidence of lung diseases in
the country and elsewhere.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To promote the noble undertaking

of scientific research related to the prevention of lung or pulmonary ailments and the care of
lung patients, including theholding of a series of relevant congresses, conventions, seminars
and conferences;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To stimulate and, whenever

possible, underwrite scientific researches on the biological, demographic, social, economic,
eugenic and physiological aspects of lungor pulmonary diseases and their control; and to
collect and publish the findings of such research for public consumption;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To facilitate the dissemination of

ideas and public acceptance of information on lung consciousness or awareness, and the
development of fact-finding, information and reporting facilities for and in aid of the general
purposes or objects aforesaid, especially in human lung requirements, general health and
physical fitness, and other relevant or related fields;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To encourage the training of

physicians, nurses, health officers, social workers and medical and technical personnel in the
practical and scientific implementationof services to lung patients;

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To assist universities and

research institutions in their studies about lung diseases, to encourage advanced
training in matters of the lung and related fields and to support educational programs of
value to general health;

࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To encourage the formation of

other organizations on the national, provincial and/or city and local levels; and to
coordinate their various efforts and activities forthe purpose of achieving a more effective
programmatic approach on the common problems relative to the objectives enumerated
herein;

࿿࿿࿿ )37桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To seek and obtain assistance in

any form from both international and local foundations and organizations; and to administer
grants and funds that may be given to the organization;

࿿࿿࿿ )38桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To extend, whenever possible and

expedient, medical services to the public and, in general, to promote and protect the health
of the masses of our people, which has long been recognized as an economic asset and a
social blessing;

࿿࿿࿿ )39桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To help prevent, relieve and

alleviate the lung or pulmonary afflictions and maladies of the people in any and all walks of
life, including those who are poor and needy, all without regard to or discrimination, because
of race, creed, color or political belief of the persons helped; and to enable them to obtain
treatment when such disorders occur;

࿿࿿࿿ )40桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To participate, as circumstances

may warrant, in any activity designed and carried on to promote the general health of the
community;

࿿࿿࿿ )41桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To acquire and/or borrow funds

and to own all funds or equipment, educational materials and supplies by purchase,
donation, or otherwise and to dispose ofand distribute the same in such manner, and, on
such basis as the Center shall, from time to time, deem proper and best, under the particular
circumstances, to serve its general and non-profit purposes and objectives;

205
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To buy, purchase, acquire,
own, lease, hold, sell, exchange, transfer and dispose of properties, whether real or
personal, for purposes herein mentioned; and

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To do everything necessary,

proper, advisable or convenient for the accomplishment of any of the powers herein set
forth and to do every other act and thing incidental thereto or connected therewith. 16

Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of
life including those who are poor and the needy without discrimination. After all, any person, the rich as well
as the poor, may fall sick or be injured or wounded and become a subject of charity. 17

As a general principle, a charitable institution does not lose its character as such and its exemption from
taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital,
or receives subsidies from the government, so long as the money received is devoted or used altogether to
thecharitable object which it is intended to achieve; and no money inures to the private benefit of the persons
managing or operating the institution. 18 In Congregational Sunday School, etc. v. Board of Review, 19 the
State Supreme Court of Illinois held, thus:

. . . [A]n institution does not lose its charitable character, and consequent exemption from
taxation, by reason of the fact that those recipients of its benefits who are able to pay are
required to do so, where no profit is made by the institution and the amounts so received are
applied in furthering its charitable purposes, and those benefits are refused to none on
account of inability to pay therefor. The fundamental ground upon which all exemptions in
favor of charitable institutions are based isthe benefit conferred upon the public by them, and
a consequent relief, to some extent, of the burden upon the state to care for and advance the
interests of its citizens. 20

As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South Dakota
v. Baker: 21

. . . [T]he fact that paying patients are taken, the profits derived from attendance upon these
patients being exclusively devoted to the maintenance of the charity, seems rather to enhance
the usefulness of the institution to the poor; for it is a matter of common observation amongst
those who have gone about at all amongst thesuffering classes, that the deserving poor can
with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects
of charity; and that their honest pride is much less wounded by being placed in an institution in
which paying patients are also received. The fact of receiving money from some of the
patients does not, we think, at all impair the character of the charity, so long as the money
thus received is devoted altogether to the charitable object which the institution is intended to
further. 22

The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust
purposes and cannot be diverted to private profit or benefit.23

Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character
as a charitable institution simply because the gift or donation is in the form of subsidies granted by the
government. As held by the State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt
Lake County: 24

Second, the . . . government subsidy payments are provided to the project. Thus, those
payments are like a gift or donation of any other kind except they come fromthe government.
In both Intermountain Health Care and the present case, the crux is the presence or absence
of material reciprocity. It is entirely irrelevant to this analysis that the government, rather than
a private benefactor, chose to make up the deficit resulting from the exchange between St.
Mark's Tower and the tenants by making a contribution to the landlord, just as it would have
been irrelevant in Intermountain Health Care if the patients' income supplements had come
from private individuals rather than the government.

Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the
government rather than private charitable contributions does not dictatethe denial of a
charitable exemption if the facts otherwise support such an exemption, as they do here. 25
206
In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from
the government for 1991 and 1992 for its patients and forthe operation of the hospital. It even incurred a net
loss in 1991 and 1992 from its operations.

Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those
portions of its real property that are leased to private entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for charitable purposes.

The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris
against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the
exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax
payments must be clearly shown and based on language in the law too plain to be mistaken. 26 As held in
Salvation Army v. Hoehn: 27

An intention on the part of the legislature to grant an exemption from the taxing power of the
state will never be implied from language which will admit of any other reasonable
construction. Such an intention must be expressed in clear and unmistakable terms, or must
appear by necessary implication from the language used, for it is a well settled principle that,
when a special privilege or exemption is claimed under a statute, charter or act of
incorporation, it is to be construed strictly against theproperty owner and in favor of the
public. This principle applies with peculiar force to a claim of exemption from taxation. . . . 28

Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the petitioner
shall enjoy the tax exemptions and privileges:

SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. — Being a non-profit, non-stock corporation

organized primarily to help combat the high incidence of lung and pulmonary diseases in the
Philippines, all donations, contributions, endowments and equipment and supplies to be
imported by authorized entities or persons and bythe Board of Trustees of the Lung Center
of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt
from income and gift taxes, thesame further deductible in full for the purpose of determining
the maximum deductible amount under Section 30, paragraph (h), of the National Internal
Revenue Code, as amended.

The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and
fees imposed by the Government or any political subdivision or instrumentality thereof with
respect to equipment purchases made by, or for the Lung Center. 29

It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption privileges for
its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should
have been among the enumeration of tax exempt privileges under Section 2:

It is a settled rule of statutory construction that the express mention of one person, thing, or
consequence implies the exclusion of all others. The rule is expressed inthe familiar
maxim, expressio unius est exclusio alterius.

The rule of expressio unius est exclusio alterius is formulated in a number of ways. One
variation of the rule is the principle that what is expressed puts an end to that which is implied.
Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly limited to
certain matters, it may not, by interpretation or construction, be extended to other matters.

xxx xxx xxx

The rule of expressio unius est exclusio alterius and its variations are canons of restrictive
interpretation. They are based on the rules of logic and the natural workingsof the human
mind. They are predicated upon one's own voluntary act and not upon that of others. They
proceed from the premise that the legislature would not have made specified enumeration in
a statute had the intention been not to restrict its meaning and confine its terms to those
expressly mentioned. 30

The exemption must not be so enlarged by construction since the reasonable presumption is that the State
has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very
terms of the statute the favor would be intended beyond what was meant. 31
207
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Charitable institutions, churches

and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements,actually, directly and exclusively used for religious,
charitable or educational purposes shall be exempt from taxation. 32

The tax exemption under this constitutional provision covers property taxes only. 33 As Chief Justice Hilario G.
Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is exempted is not the
institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or educational purposes." 34

Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No.
7160 (otherwise known as the Local Government Code of 1991) as follows:

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

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Charitable institutions, churches,

parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and
all lands, buildings, and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes. 35

We note that under the 1935 Constitution, ". . . all lands, buildings, and improvements used 'exclusively' for …
charitable . . . purposes shall be exempt from taxation." 36However, under the 1973 and the present
Constitutions, for "lands, buildings, and improvements" of the charitable institution to be considered exempt,
the same should not only be "exclusively" used for charitable purposes; it is required that such property be
used "actually" and "directly" for such purposes. 37

In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling in
Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30, 1961
before the 1973 and 1987 Constitutions took effect. 38 As this Court held in Province of Abra v. Hernando: 39

. . . Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents

appurtenant thereto, and all lands, buildings, and improvements used exclusively for
religious, charitable, or educational purposes shall be exempt from taxation." The present
Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required
that for the exemption of "lands, buildings, and improvements," they should not only be
"exclusively" but also "actually" and "directly" used for religious or charitable purposes. The
Constitution is worded differently. The change should not be ignored. It must be duly taken
into consideration. Reliance on past decisions would have sufficed were the words "actually"
as well as "directly" not added. There must be proof therefore of the actual and direct use of
the lands, buildings, and improvements for religious or charitable purposes to be exempt from
taxation . . .

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to
the exemption,the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable
purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege
exclusively." 40 If real property is used for one or more commercial purposes, it is not exclusively used for the
exempted purposes but is subject to taxation. 41The words "dominant use" or "principal use" cannot be
substituted for the words "used exclusively" without doing violence to the Constitutions and the law. 42 Solely
is synonymous with exclusively. 43

What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to thepurposes for which the charitable institution is
organized. It is not the use of the income from the real property that is determinative of whether the property is
used for tax-exempt purposes. 44
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and
exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and
the dispensation of medical services to them, whether paying or non-paying, other portions thereof are

208
being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased
to a private individual for her business enterprise under the business name "Elliptical Orchids and Garden
Center." Indeed, the petitioner's evidence shows that it collected P1,136,483.45 as rentals in 1991 and
P1,679,999.28 for 1992 from the said lessees.

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes. 45 On the other hand, the portions of the
land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying,
are exempt from real property taxes.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City
Assessor is hereby DIRECTED to determine, after due hearing, theprecise portions of the land and the area
thereof which are leased to private persons, and to compute the real property taxes due thereon as
provided for by law.

SO ORDERED. cCAIES

Davide, Jr., C .J ., Puno, Panganiban, Quisumbing, Sandoval-Gutierrez, Carpio, Corona, Carpio-Morales,

Azcuna and Tinga, JJ ., concur.

Vitug, J ., is on official leave.

Ynares-Santiago and Austria-Martinez, JJ ., are on leave.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Lung Center of the Philippines v. Quezon City, G.R. No.
144104, [June 29, 2004], 477 PHIL 141-160)

Manila International Airport Authority v. Court of Appeals, G.R. No. 155650, [July 20, 2006], 528 PHIL 181-309

EN BANC

[G.R. No. 155650. July 20, 2006.]

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS,

CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG

PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY
TREASURER OF PARAÑAQUE, respondents.

DECISION

CARPIO, J p:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport
(NAIA) Complex in Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter
of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July
1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 1 and 298 2
amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the
NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, 3 including the
runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation. 4 The
MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through
sale or any other mode unless specifically approved by the President of the Philippines. 5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC
opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to
209
MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to
pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque
for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:

TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY TOTAL

E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20

E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49

E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00

E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00

E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24

E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99

E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00

E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00

*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50

*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00

*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00

GRAND TOTAL P392,435,861.95 P232,070,863.47 P624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R. #9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.00 6

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy
on the Airport Lands and Buildings. The Mayor of the Cityof Parañaque threatened to sell at public auction the
Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a
clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed
out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show
proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt
from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction,
with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of
Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the AirportLands
and Buildings. The petition was docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day
reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for
reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the
present petition for review. 7

Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of
Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and
in the main lobby of the Parañaque City Hall. The City of Parañaque published the notices in the 3 and 10
January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines.
The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7
February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-
Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain
respondents — the City of Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng
210
Parañaque, City Treasurer of Parañaque, and the City Assessor of Parañaque ("respondents") — from
auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court
ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings.
Respondents received the TRO on the same day that the Court issued it. However, respondents received the
TRO only at 1:25 p.m. or three hours after the conclusion of the public auction. DTSaIc

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued
during the hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted
their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of
MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of
the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote
the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are
devoted to public use and public service, the ownershipof these properties remains with the State. The Airport
Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real
estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government
Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA
invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of
public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor
is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the Local
Government Code. Respondents also argue that a basic rule of statutory construction is that the express
mention of one person, thing, or act excludes all others. An international airport is not among the exceptions
mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim
that the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos 8 where we held that
the Local Government Code has withdrawn the exemption from real estate tax granted to international airports.
Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is
now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from
real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of
Parañaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues
raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ MIAA is Not a Government-Owned or

Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real
estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so
exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax
exemption ofgovernment-owned or controlled corporations. The deleted phrase appeared in Section 40(a) of
the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
211
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax.
However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as
follows:

SEC. 2. General Terms Defined. — . . .

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Government-owned or controlled

corporation refers to any agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent
of its capital stock: . . . . (Emphasis supplied)

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ government-owned or controlled corporation must be

"organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock
corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has
no stockholders or voting shares. Section 10 of the MIAA Charter 9provides:

SECTION 10. Capital. — The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to
Ten Billion (P10,000,000,000.00) Pesos to consist of:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The value of fixed assets including

airport facilities, runways and equipment and such other properties, movable and
immovable[,] which may be contributed by the National Government or transferred by it from
any of its agencies, the valuation of which shall be determined jointly with the Department of
Budget and Management and the Commission on Audit on the date of such contribution or
transfer after making due allowances for depreciation and other deductions taking into
account the loans and other liabilities of the Authority at the time of the takeover of the assets
and other properties;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the amount of P605 million as

of December 31, 1986 representing about seventy percentum (70%) of the unremitted share
of the National Government from 1983 to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E.O. No. 903 as amended, shall be converted into the equity of
the National Government in the Authority. Thereafter, the Government contribution to the
capital of the Authority shall be provided in the General Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code 10 defines a stock corporation as one whose "capital stock is divided into
shares and . . . authorized to distribute to the holdersof such shares dividends . . . ." MIAA has capital
but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA
Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. 11 This
prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or
similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these
purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned
or controlled corporation. What then is the legal status ofMIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with

212
corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:

SEC. 2. General Terms Defined. –– . . .

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Instrumentality refers to any agency

of the National Government, not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter.
. . . (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains
a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA
exercises the governmental powers of eminent domain, 12 police authority 13 and the levying of fees and
charges. 14 At the same time, MIAA exercises "all the powers ofa corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this Executive Order." 15

Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and
autonomous body" 16 will make its operation more "financially viable." 17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-
stock corporations, which is a necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the
Philippine PortsAuthority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These
government instrumentalities are sometimes loosely called government corporate entities. However, they are
not government-owned or controlled corporations in the strict sense as understood under the Administrative
Code, which is the governing law defining the legal relationship and status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code,
which states:

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

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes, fees or charges of any kind on

the National Government, its agencies and instrumentalities and local government units.
(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government,
which historically merely delegated to local governments the power to tax. While the 1987 Constitution now
includes taxation as one of the powers of local governments, local governments may only exercise such
power "subject to such guidelines and limitations as the Congress may provide." 18

When local governments invoke the power to tax on national government instrumentalities, such power is
construed strictly against local governments. The rule is that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local governments seek to tax national government
instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national government instrumentality from local taxation, such
exemption is construed liberally in favor of the national government instrumentality. As this Court declared
inMaceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its

213
 operations. For these reasons, provisions granting exemptions to government agencies
may be construed liberally, in favor of non tax-liability of such agencies. 19

There is, moreover, no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering
essential public services to inhabitants of local governments.The only exception is when the legislature
clearly intended to tax government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express language in the law empowering local
governments to tax national government instrumentalities. Any doubt whether such power exists is resolved
against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code,
local governments cannot tax national government instrumentalities. As this Court held in Basco v.
Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Maryland, 4
Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over
local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the power
to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42). TAScID

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc
Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the
very entity which has the inherent power to wield it. 20

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Airport Lands and Buildings of MIAA are

Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State
or the Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

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

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Those intended for public use,

such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others ofsimilar character;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Those which belong to the State,

without being for public use, and are intended for some public service or for the
development of the national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in
the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or
for public service, shall form part of the patrimonial property of the State.

214
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads,
canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term
"ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port"
constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees and
other charges from the public does not remove the character of the Airport Lands and Buildings as properties
for public use. The operation by the government of a tollway does not change the character of the road as
one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the
taxes they pay the government, or only those among the public who actually use the road through the toll fees
they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the
public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is of public
dominion or not. Article 420 of the Civil Code defines propertyof public dominion as one "intended for public
use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the
road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the
kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not
affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute
the bulk of the income that maintains the operations ofMIAA. The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those
among the public who actually use a public facility instead of taxing all the public including those who never
use the particular public facility. A user's tax is more equitable — a principle of taxation mandated in the 1987
Constitution. 21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic," 22 are propertiesof public dominion because they are intended for public
use. As properties of public dominion, they indisputably belong to the State or the Republic of the
Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion.
As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man.
The Court has ruled repeatedly that properties of public dominion are outside the commerce of man. As early
as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are
outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns

comprises the provincial and town roads, the squares, streets, fountains, and public waters,

the promenades, and public works of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite
could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for
the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public
place to the defendant for private use the plaintiff municipality exceeded its authority in the
exercise of its powers by executing a contract over a thing of which it could not dispose, nor
is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce
of man may be the object of a contract, and plazas and streets are outside ofthis
commerce, as was decided by the supreme court of Spain in its decision of February 12,
1895, which says: "Communal things that cannot be sold because they are by their
very nature outside of commerce are those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc." (Emphasis supplied)23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the
commerce of man:

215
 . . . Town plazas are properties of public dominion, to be devoted to public use and to be
made available to the public in general. They are outside the commerce ofman and cannot
be disposed of or even leased by the municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied temporarily by private individuals, as was
done and as was tolerated by the Municipality of Pozorrubio, when the emergency has
ceased, said temporary occupation or use must also cease, and the town officials should see
to it that the town plazas should ever be kept open to the public and free from encumbrances
or illegal private constructions. 24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be
the subject of an auction sale. 25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition
through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public
dominion is void for being contrary to public policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of
Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment
of real estate tax.

Before MIAA can encumber 26 the Airport Lands and Buildings, the President must first withdraw from public
use the Airport Lands and Buildings. Sections 83 and 88of the Public Land Law or Commonwealth Act No.

141, which "remains to this day the existing general law governing the classification and disposition of lands
of the public domain other than timber and mineral lands," 27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts ofland of the
public domain as reservations for the use of the Republic of the Philippines or of any of its
branches, or of the inhabitants thereof, in accordance with regulations prescribed for this
purposes, or for quasi-public uses or purposes when the public interest requires it, including
reservations for highways, rights of way for railroads, hydraulic power sites, irrigation
systems, communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section
eighty-three shall be non-alienable and shall not be subject to occupation, entry,
sale, lease, or other disposition until again declared alienable under the provisions of
this Act or by proclamation of the President. (Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use,
these properties remain properties of public dominion and are inalienable. Since the Airport Lands and
Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy
on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public
use, is reiterated in Section 14, Chapter 4, Title I, Book IIIof the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1)

The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is
not otherwise directed by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or proclamation;

xxx xxx xxx. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or
presidential proclamation from public use, they are propertiesof public dominion, owned by the Republic
and outside the commerce of man. DSAICa

c. MIAA is a Mere Trustee of the Republic

216
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12,
Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties
owned by the Republic, thus:

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

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ For property belonging to and

titled in the name of the Republic of the Philippines, by the President, unless the authority
therefor is expressly vested by law in another officer.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ For property belonging to the

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

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its
executive head cannot sign the deed of conveyance on behalfof the Republic. Only the President of the
Republic can sign such deed of conveyance. 28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from
the Bureau of Air Transportation of the Department ofTransportation and Communications. The MIAA
Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. — . . .

The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to
the ownership and administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall undertake an actual
survey of the area transferred within one year from the promulgation of this Executive Order
and the corresponding title to be issued in the name of the Authority. Any portion thereof
shall not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public
airport facilities, runways, lands, buildings and other property, movable or immovable,
belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to
the Bureau of Air Transportation relating to airport works or air operations, including all
equipment which are necessary for the operation of crash fire and rescue facilities, are hereby
transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of
Air Transportation and Transitory Provisions. — The Manila International Airportincluding
the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby
abolished.

xxx xxx xxx.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and

Buildings to MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both
international and domestic air traffic, is required to provide standards ofairport accommodation
and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be
upgraded to meet the current and future air traffic and other demands ofaviation in Metro
Manila;

WHEREAS, a management and organization study has indicated that the objectives of
providing high standards of accommodation and service within the contextof a

217
 financially viable operation, will best be achieved by a separate and autonomous
body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree

No. 1772, the President of the Philippines is given continuing authority to reorganize the

National Government, which authority includes the creation of new entities, agencies
and instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant
to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to
reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The
Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the
Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through
sale or through any other mode unless specifically approved by the President of the Philippines." This
only means that the Republic retained the beneficial ownership of the Airport Lands and Buildings because
under Article 428 of the Civil Code, only the "owner has the right to . . . dispose of a thing." Since MIAA cannot
dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the
Republic paying MIAA any consideration. Under Section 3of the MIAA Charter, the President is the only one
who can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport
Lands and Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the

Republic of the Philippines." Section 234(a) provides:

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

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Real property owned by the

Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person;

xxx xxx xxx. (Emphasis supplied)

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

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even as
the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic
loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the
Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of
the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt
from real estate tax. For example, the land area occupied by hangars that MIAA leases to private
corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land
area for a consideration to a taxable person and therefore such land area is subject to real estate tax. In
Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those
parts of the hospital leased to private individuals are not exempt from such taxes. On the other

218
 hand, the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes. 29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local
Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon
the effectivity of the Code. Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges — Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations, except
local water districts, cooperatives duly registered underR.A. No. 6938, non-stock and non-
profit hospitals and educational institutions are hereby withdrawn upon effectivity of this
Code. (Emphasis supplied) ESacHC

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local
Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from
real estate tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the
withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat,
the provisions lay down the explicit proposition that the withdrawal of realty tax exemption
applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or
illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our
laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical
person at all. (Emphasis and underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status —
whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be
examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew
the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of
the Local Government Code expressly provides otherwise, specifically prohibiting local governments from
imposing any kind of tax on national government instrumentalities. Section 133(o) states:

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

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes, fees or charges of any kinds on

the National Government, its agencies and instrumentalities, and local government
units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on
national government instrumentalities like the MIAA. Local governments are devoid of power to tax the
national government, its agencies and instrumentalities. The taxing powers of local governments do
not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in
this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the
exception to the exemption from real estate tax of real property owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject
to tax by local governments. The minority insists that the juridical persons exempt from local taxation are
limited to the three classes of entities specifically enumerated as exempt in Section 193. Thus, the
minority states:
. . . Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-

219
 profit hospitals and educational institutions. It would be belaboring the obvious why the
MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government
Code. This theory will result in gross absurdities. It will make the national government, which itself is a
juridical person, subject to tax by local governments since the national government is not included in the
enumeration ofexempt entities in Section 193. Under this theory, local governments can impose any kind of
local tax, and not only real estate tax, on the national government.

Under the minority's theory, many national government instrumentalities with juridical personalities will also be
subject to any kind of local tax, and not only real estate tax. Some of the national government
instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas, 30 Philippine
Rice Research Institute, 31 Laguna Lake Development Authority, 32 Fisheries Development Authority, 33
Bases Conversion Development Authority, 34 Philippine Ports Authority, 35Cagayan de Oro Port Authority,
36 San Fernando Port Authority, 37 Cebu Port Authority, 38 and Philippine National Railways. 39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local
governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does
not distinguish between national government instrumentalities with or without juridical personalities.
Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national
government instrumentalities, with or without juridical personalities. The determinative test whether MIAA is
exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national
government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the
specific provision of law prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in
this Code." This means that unless the Local Government Code grants an express authorization, local
governments have no power to tax the national government, its agencies and instrumentalities. Clearly, the
rule is local governments have no power to tax the national government, its agencies and instrumentalities. As
an exception to this rule, local governments may tax the national government, its agencies and
instrumentalities only if the Local Government Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code,
which makes the national government subject to real estate taxwhen it gives the beneficial use of its real
properties to a taxable entity. Section 234(a) of the Local Government Code provides:

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

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Real property owned by the

Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person.

xxx xxx xxx. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception
to this exemption is when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government,
its agencies and instrumentalities are subject to any kind of tax by local governments. The exception to
the exemption applies only to real estate tax and not to any other tax. The justification for the exception to the
exemption is that the real property, although owned by the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government
Code, the later provisions prevail over Section 133. Thus, the minority asserts:

. . . Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an
accepted rule of construction, in case of conflict the subsequent provisions should
prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the general
exemptions attaching to instrumentalities under Section 133(o) ofthe Local Government
Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)
220
The minority assumesthat there is an irreconcilable conflict between Section 133 on one hand, and Sections
193 and 234 on the other. No one has urged that there is such a conflict, much less has any one presented a
persuasive argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in
the statutory provisions is an egregious error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits
its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided
in this Code." By its own words, Section 193 admits the superiority of other provisions of the Local
Government Code that limit the exercise of the taxing power in Section 193. When a provision of law grants a
power but withholds such power on certain matters, there is no conflict between the grant of power and the
withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its
power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units."
Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a
delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend to
the levy" ofany kind of tax on the national government, its agencies and instrumentalities. There is no clearer
limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section
133 logically prevails over Section 193 which grants local governments such taxing powers. By their very
meaning and purpose, the "common limitations" on the taxing power prevail over the grant or
exercise of the taxing power. If the taxing power of local governments in Section 193 prevails over the
limitations on such taxing power in Section 133, then local governments can impose any kind of tax on the
national government, its agencies and instrumentalities — a gross absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities, except
as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating
"[u]nless otherwise provided in this Code." This exception — which is an exception to the exemption of the
Republic from real estate tax imposed by local governments — refers to Section 234(a) of the Code. The
exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in
the name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use
of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or
controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions
of the Administrative Code admits that its definitions are not controlling when it provides:

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

xxx xxx xxx

The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute
may require a different meaning than that defined in the Administrative Code. However, this does not
automatically mean that the definition in the Administrative Code does not apply to the Local Government
Code. Section 2of the Administrative Code clearly states that "unless the specific words . . . of a particular
statute shall require a different meaning," the definition in Section 2 ofthe Administrative Code shall apply.
Thus, unless there is specific language in the Local Government Code defining the phrase "government-owned
or controlled corporation" differently from the definition in the Administrative Code, the definition in the
Administrative Code prevails. EcSCHD

The minority does not point to any provision in the Local Government Code defining the phrase "government-
owned or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is
none. The Local Government Code is silent on the definition of the phrase "government-owned or
controlled corporation." The Administrative Code, however, expressly defines the phrase "government-
owned or controlled corporation." The inescapable conclusion is that the Administrative Code definition of the
phrase "government-owned or controlled corporation" applies to the Local Government Code.
221
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified
document the major structural, functional and procedural principles and rules of governance." Thus,
the Administrative Code is the governing law defining the status and relationship of government departments,
bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status and
relationship for a specific government unit or entity, the provisionsof the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the general incorporation law, and not to corporations
created by special charters. The minority sees no reason why government corporations with special charters
should have a capital stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the

Administrative Code refer to those corporations owned by the government or its
instrumentalities which are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities and Exchange
Commission. In short, these are GOCCs without original charters.

xxx xxx xxx

It might as well be worth pointing out that there is no point in requiring a capital structure for
GOCCs whose full ownership is limited by its charter to the State or Republic. Such
GOCCs are not empowered to declare dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing
legislations. It will also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not
distinguish between one incorporated under the Corporation Code or under a special charter. Where the law
does not distinguish, courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized
as stock corporations. Prime examples are the Land Bankof the Philippines and the Development Bank of
the Philippines. The special charter 40 of the Land Bank of the Philippines provides:

SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion
pesos, divided into seven hundred and eighty million common shares with a par value
of ten pesos each, which shall be fully subscribed by the Government, and one hundred and
twenty million preferred shares with a par value of ten pesos each, which shall be issued in
accordance with the provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)

Likewise, the special charter 41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock — Par value. — The capital stock of the Bank shall
be Five Billion Pesos to be divided into Fifty Million common shares with par value of
P100 per share. These shares are available for subscription by the National Government.

Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-Five
Million common shares of stock worth Two Billion Five Hundred Million which shall be deemed
paid for by the Government with the net asset values of the Bank remaining after the transfer
of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the
Philippine Crop Insurance Corporation, 42 PhilippineInternational Trading Corporation, 43 and the Philippine
National Bank 44 before it was reorganized as a stock corporation under the Corporation Code. All these
government-owned corporations organized under special charters as stock corporations are subject to real estate
tax on real properties owned by them. To rule that they are not government-owned or controlled corporations
because they are not registered with the Securities and Exchange Commission would remove them from the reach
of Section 234 of the Local Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet
the two conditions prescribed in Section 16, Article XII ofthe Constitution. The first condition is that the
government-owned or controlled corporation must be established for the common good. The second
condition is that the government-owned or controlled corporation must meet the test of economic
viability. Section 16, Article XII of the 1987 Constitution provides:

222
 SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability. (Emphasis and underscoring
supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations"
through special charters only if these entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create government-owned or controlled
corporations with special charters unless they are made to comply with the two conditions of common
good and economic viability. The test of economic viability applies only to government-owned or controlled
corporations that perform economic or commercial activities and need to compete in the market place. Being
essentially economic vehicles of the State for the common good — meaning for economic development
purposes — these government-owned or controlled corporations with special charters are usually organized as
stock corporations just like ordinary private corporations.

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

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

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and
similar government-owned or controlled corporations, which derive their income to meet operating expenses
solely from commercial transactions in competition with the private sector. The intent of the Constitution is to
prevent the creation of government-owned or controlled corporations that cannot survive on their own in the
market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the
test of economic performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers' money through new equity
infusions from the government and what is always invoked is the common good. That is the
reason why this year, out of a budget of P115 billion for the entire government, about P28
billion of this will go into equity infusions to support a few government financial institutions.
And this is all taxpayers' money which could have been relocated to agrarian reform, to social
services like health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common
good," this becomes a restraint on future enthusiasts for state capitalism to excuse
themselves from the responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committee's consideration and I am glad that I
am joined in this proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good. 45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The

1987 Constitution of the Republic of the Philippines: A Commentary:

223
 The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase "in the interest of the common good and subject to the
test of economic viability." The addition includes the ideas that they must show capacity
to function efficiently in business and that they should not go into activities which the
private sector can do better. Moreover, economic viability is more than financial viability but
also includes capability to make profit and generate benefits not quantifiable in financial terms.
46 (Emphasis supplied) DAEcIS

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

However, government-owned or controlled corporations with special charters, organized essentially for
economic or commercial objectives, must meet the test ofeconomic viability. These are the government-
owned or controlled corporations that are usually organized under their special charters as stock corporations,
like the Land Bank of the Philippines and the Development Bank of the Philippines. These are the
government-owned or controlled corporations, along with government-owned or controlled corporations
organized under the Corporation Code, that fall under the definition of "government-owned or controlled
corporations" in Section 2(10) ofthe Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to
compete in the market place. MIAA does not compete in the market place because there is no competing
international airport operated by the private sector. MIAA performs an essential public service as the primary
domestic andinternational airport of the Philippines. The operation of an international airport requires the
presence of personnel from the following government agencies:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Bureau of Immigration

and Deportation, to document the arrival and departure of passengers,
screening out those without visas or travel documents, or those with hold
departure orders;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Bureau of Customs,

to collect import duties or enforce the ban on prohibited importations;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The quarantine office

of the Department of Health, to enforce health measures against the
spread of infectious diseases into the country;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Department of

Agriculture, to enforce measures against the spread of plant and animal
diseases into the country;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Aviation Security

Command of the Philippine National Police, to prevent the entry of terrorists
and the escape of criminals, as well as to secure the airport premises from
terrorist attack or seizure;

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Air Traffic Office of the

Department of Transportation and Communications, to authorize aircraft to
enter or leave Philippine airspace, as well as to land on, or take off from, the
airport; and

࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The MIAA, to provide the

proper premises — such as runway and buildings — for the government
personnel, passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an
international airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its
revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The
terminal fees that MIAA charges every passenger are regulatory or administrative fees 47 and not income
from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code, which provides:

SEC. 2. General Terms Defined. — . . .

224
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Instrumentality refers to any agency
of the National Government, not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter.
. . . (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or
controlled corporation. Without a change in its capital structure, MIAA remains a government
instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code. More
importantly, as long as MIAA renders essential public services, it need not comply with the test of economic
viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled corporations"
under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled
corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit
conditions for the creation of "government-owned or controlled corporations." The Administrative Code defines
what constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or
illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the
Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the
1987 Constitutionbecause MIAA is not required to meet the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing essential public services pursuant to Section
2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not
subject to any kind oftax by local governments under Section 133(o) of the Local Government Code. The
exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity
under the Local Government Code. Such exception applies only if the beneficial use of real property owned by
the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties
of public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of
the Civil Code provides:

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

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Those intended for public use,

such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others ofsimilar character;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Those which belong to the State,

without being for public use, and are intended for some public service or for the
development of the national wealth. (Emphasis supplied)

The term "ports . . . constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and Buildings are properties of public dominion.
As propertiesof public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt
from real estate tax under Section 234(a) of the Local Government Code.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the
legal relation and status of government units, agencies and offices within the entire government machinery,
MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section
133(o)of the Local Government Code, MIAA as a government instrumentality is not a taxable person because
it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only exception is when
MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of
the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by
the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions "ports . . . constructed by the State," which includes public airports and seaports, as

225
propertiesof public dominion and owned by the Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real
estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that
properties of public dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of
5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and
Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of
Parañaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the Manila International
Airport Authority, except for the portions that the Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings
of the Manila International Airport Authority. ESHAcI

No costs.

SO ORDERED.

Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Corona, Carpio Morales, Chico-
Nazario, Garcia and Velasco, Jr., JJ., concur.

Austria-Martinez, J., agrees with separate opinion of J. Tinga.

Callejo, Sr., J., concurs with separate opinion of J. Tinga.

Azcuna, J., is on leave.

Tinga, J., please see dissenting opinion.

Separate Opinions

TINGA, J., dissenting:

The legally correct resolution of this petition would have had the added benefit of an utterly fair and equitable
result — a recognition of the constitutional and statutory power of the City of Parañaque to impose real
property taxes on the Manila International Airport Authority (MIAA), but at the same time, upholding a statutory
limitation that prevents the City of Parañaque from seizing and conducting an execution sale over the real
properties of MIAA. In the end, all that the City of Parañaque would hold over the MIAA is a limited lien,
unenforceable as it is through the sale or disposition of MIAA properties. Not only is this the legal effect of all
the relevant constitutional and statutory provisions applied to this case, it also leaves the room for negotiation
for a mutually acceptable resolution between the City of Parañaque and MIAA.

Instead, with blind but measured rage, the majority today veers wildly off-course, shattering statutes and
judicial precedents left and right in order to protect the precious Ming vase that is the Manila International
Airport Authority (MIAA). While the MIAA is left unscathed, it is surrounded by the wreckage that once was
the constitutional policy, duly enacted into law, that of local autonomy. Make no mistake, the majority has
virtually declared war on the seventy nine (79) provinces, one hundred seventeen (117) cities, and one
thousand five hundred (1,500) municipalities of the Philippines. 1

The icing on this inedible cake is the strained and purposely vague rationale used to justify the majority
opinion. Decisions of the Supreme Court are expected to provide clarity to the parties and to students of
jurisprudence, as to what the law of the case is, especially when the doctrines of long standing are modified or
clarified. With all due respect, the decision in this case is plainly so, so wrong on many levels. More
egregious, in the majority's resolve to spare the Manila International AirportAuthority (MIAA) from liability for
real estate taxes, no clear-cut rule emerges on the important question of the power of local government units
(LGUs) to tax government corporations, instrumentalities or agencies.

The majority would overturn sub silencio, among others, at least one dozen precedents enumerated below:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Mactan-Cebu International Airport Authority v. Hon.

Marcos, 2 the leading case penned in 1997 by recently retired Chief Justice Davide, which held that the
express withdrawal by the Local Government Code of previously granted exemptions from realty taxes
applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the Mactan-
Cebu International Airport Authority (MCIAA). The
226
majority invokes the ruling in Basco v. Pagcor, 3 a precedent discredited in Mactan, and a vanguard of a
doctrine so noxious to the concept of local government rule that the Local Government Code was drafted
precisely to counter such philosophy. The efficacy of several rulings that expressly rely on Mactan, such
as PHILRECA v. DILG Secretary, 4 City Government of San Pablo v. Hon. Reyes5 is now put in question.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The rulings in National Power Corporation v. City of

Cabanatuan, 6 wherein the Court, through Justice Puno, declared that the National Power Corporation, a
GOCC, is liable for franchise taxes under the Local Government Code, and succeeding cases that have relied
on it such as Batangas Power Corp. v. Batangas City 7 The majority now states that deems instrumentalities
as defined under the Administrative Code of 1987 as purportedly beyond the reach of any form of taxation by
LGUs, stating "[l]ocal governments are devoid of power to tax the national government, its agencies and
instrumentalities." 8 Unfortunately, using the definition employed by the majority, as provided by Section 2(d)
of the Administrative Code, GOCCs are also considered as instrumentalities, thus leading to the astounding
conclusion that GOCCs may not be taxed by LGUs under the Local Government Code.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Lung Center of the Philippines v. Quezon City, 9 wherein
a unanimous en banc Court held that the Lung Center of the Philippines may be liable for real property taxes.
Using the majority's reasoning, the Lung Center would be properly classified as an instrumentality which the
majority now holds as exempt from all forms of local taxation. 10

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ City of Davao v. RTC, 11 where the Court held that the
Government Service Insurance System (GSIS) was liable for real property taxes for the years 1992 to 1994,
its previous exemption having been withdrawn by the enactment of the Local Government Code. 12 This
decision, which expressly relied on Mactan, would be directly though silently overruled by the majority.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The common essence of the Court's rulings in the two
Philippine Ports Authority v. City of Iloilo, 13 cases penned by Justices Callejo and Azcuna respectively, which
relied in part on Mactan in holding the Philippine Ports Authority (PPA) liable for realty taxes, notwithstanding
the fact that it is a GOCC. Based on the reasoning of the majority, the PPA cannot be considered a GOCC.
The reliance of these cases on Mactan, and its rationale for holding governmental entities like the PPA liable
for local government taxation is mooted by the majority.

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The 1963 precedent of Social Security System Employees
Association v. Soriano, 14 which declared the Social Security Commission (SSC) as a GOCC performing
proprietary functions. Based on the rationale employed by the majority, the Social Security System is not a
GOCC. Or perhaps more accurately, "no longer" a GOCC.

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The decision penned by Justice (now Chief Justice)
Panganiban, Light Rail Transit Authority v. Central Board of Assessment. 15 The characterization therein of
the Light Rail Transit Authority (LRTA) as a "service-oriented commercial endeavor" whose patrimonial
property is subject to local taxation is now rendered inconsequential, owing to the majority's thinking that an
entity such as the LRTA is itself exempt from local government taxation 16 , irrespective of the functions it
performs. Moreover, based on the majority's criteria, LRTA is not a GOCC.

࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The cases of Teodoro v. National Airports Corporation 17

and Civil Aeronautics Administration v. Court of Appeals, 18 wherein the Court held that the predecessor agency of
the MIAA, which was similarly engaged in the operation, administration and management of the Manila International
Agency, was engaged in the exercise ofproprietary, as opposed to sovereign functions. The majority would hold
otherwise that the property maintained by MIAA is actually patrimonial, thus implying that MIAA is actually engaged
in sovereign functions.

࿿࿿࿿ )37桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ My own unanimous ponencia in Phividec Industrial

Authority v. Capitol Steel, 19 wherein the Court held that the Phividec Industrial Authority, a GOCC, was
required to secure the services of the Office of the Government Corporate Counsel for legal representation. 20
Based on the reasoning of the majority, Phividec would not be a GOCC, and the mandate of the Office of the
Government Corporate Counsel extends only to GOCCs.

࿿࿿࿿ )38桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Two decisions promulgated by the Court just last month
(June 2006), National Power Corporation v. Province of Isabela 21 and GSIS v. City Assessor of Iloilo City.22
In the former, the Court pronounced that "[a]lthough as a general rule, LGUs cannot impose taxes, fees, or
charges of any kind on the National Government, its agencies and instrumentalities, this rule admits of an
exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on
the aforementioned entities." Yet the majority now rules that the exceptions in the LGC no longer hold, since
"local governments are devoid of

227
power to tax the national government, its agencies and instrumentalities." 23 The ruling in the latter
case, which held the GSIS as liable for real property taxes, is now put in jeopardy by the majority ruling.

There are certainly many other precedents affected, perhaps all previous jurisprudence regarding local
government taxation vis-a-vis government entities, as well as any previous definitions of GOCCs, and previous
distinctions between the exercise of governmental and proprietary functions (a distinction laid down by this
Court as far back as 1916 24 ). What is the reason offered by the majority for overturning or modifying all these
precedents and doctrines? None is given, for the majority takes comfort instead in the pretense that these
precedents never existed. Only children should be permitted to subscribe to the theory that something bad will
go away if you pretend hard enough that it does not exist. ACSaHc

I.

Case Should Have Been Decided

Following Mactan Precedent

The core issue in this case, whether the MIAA is liable to the City of Parañaque for real property taxes
under the Local Government Code, has already been decided by this Court in the Mactan case, and should
have been resolved by simply applying precedent.

Mactan Explained

A brief recall of the Mactan case is in order. The Mactan-Cebu International Airport Authority (MCIAA)
claimed that it was exempt from payment of real property taxes to the City of Cebu, invoking the specific
exemption granted in Section 14 of its charter, Republic Act No. 6958, and its status as an instrumentality of
the government performing governmental functions. 25 Particularly, MCIAA invoked Section 133 of the Local
Government Code, precisely the same provision utilized by the majority as the basis for MIAA's exemption.
Section 133 reads:

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

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes, fees or

charges of any kind on the National Government, its agencies
and instrumentalities and local government units. (emphasis and
underscoring supplied).

However, the Court in Mactan noted that Section 133 qualified the exemption of the National Government,
its agencies and instrumentalities from local taxation with the phrase "unless otherwise provided herein." It
then considered the other relevant provisions of the Local Government Code, particularly the following:

SEC. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this Code,
tax exemption or incentives granted to, or enjoyed by all persons, whether natural or
juridical, including government-owned and controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.
26

SECTION 232. Power to Levy Real Property Tax. — A province or city or a municipality
within the Metropolitan Manila area may levy an annual ad valorem tax on real property such
as land, building, machinery, and other improvements not hereafter specifically exempted. 27

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

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Real property owned

by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Charitable institutions, churches,
parsonages or convents appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and

228
 improvements actually, directly, and exclusively used for religious charitable
or educational purposes;

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ All machineries and

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

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ All real property owned by

duly registered cooperatives as provided for under R.A. No. 6938; and

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Machinery and equipment used for

pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including all
government-owned or controlled corporations are hereby withdrawn upon the effectivity of this
Code. 28

Clearly, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to tax the
National Government, its agencies and instrumentalities, as evidenced by these cited provisions which
"otherwise provided." But what was the extent of the limitation under Section 133? This is how the Court,
correctly to my mind, defined the parameters in Mactan:

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local
government units and the exceptions to such limitations; and (b) the rule on tax exemptions
and the exceptions thereto. The use of exceptions or provisos in these sections, as shown
by the following clauses:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ "unless otherwise provided herein"

in the opening paragraph of Section 133;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ "Unless otherwise provided in this

Code" in Section 193;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ "not hereafter specifically exempted"

in Section 232; and

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ "Except as provided herein" in the

last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned
clause in Section 133 seems to be inaccurately worded. Instead of the clause "unless
otherwise provided herein," with the "herein" to mean, of course, the section, it should have
used the clause "unless otherwise provided in this Code." The former results in absurdity
since the section itself enumerates what are beyond the taxing powers of local government
units and, where exceptions were intended, the exceptions are explicitly indicated in the next.
For instance, in item (a) which excepts income taxes "when levied on banks and other
financial institutions"; item (d) which excepts "wharfage on wharves constructed and
maintained by the local government unit concerned"; and item (1) which excepts taxes, fees
and charges for the registration and issuance of licenses or permits for the driving of
"tricycles." It may also be observed that within the body itself of the section, there are
exceptions which can be found only in other parts of the LGC, but the section interchangeably
uses therein the clause, "except as otherwise provided herein" as in items (c) and (i), or the
clause "except as provided in this Code" in item (j). These clauses would be obviously
unnecessary or mere surplusages if the opening clause of the section were "Unless otherwise
provided in this Code" instead of "Unless otherwise provided herein." In any event, even if the
latter is used, since under Section 232 local government units have the power to levy real
property tax, except those exempted therefrom under Section 234, then Section 232 must be
deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in Section 133, the taxing powers of local government units
cannot extend to the levy of, inter alia, "taxes, fees and charges of any kind on the
National Government, its agencies and instrumentalities, and local government
units"; however, pursuant to Section 232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, "real
property owned by the Republic of the Philippines or any of its political subdivisions

229
 except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person," as provided in item (a) of the first paragraph of Section
234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or

judicial persons, including government-owned and controlled corporations, Section
193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity
of the LGC, except those granted to local water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions,
and unless otherwise provided in the LGC. The latter proviso could refer to Section 234
which enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption insofar as real property
taxes are concerned by limiting the retention only to those enumerated therein; all
others not included in the enumeration lost the privilege upon the effectivity of the
LGC. Moreover, even as to real property owned by the Republic of the Philippines or
any of its political subdivisions covered by item (a) of the first paragraph of Section
234, the exemption is withdrawn if the beneficial use ofsuch property has been granted
to a taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of
the LGC, exemptions from payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled corporations, except as provided
in the said section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in
Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary
can only be justified if the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now asserts, since, as shown
above, the said section is qualified by Sections 232 and 234. 29

The Court in Mactan acknowledged that under Section 133, instrumentalities were generally exempt from
all forms of local government taxation, unless otherwise provided in the Code. On the other hand, Section
232 "otherwise provided" insofar as it allowed LGUs to levy an ad valorem real property tax, irrespective of
who owned the property. At the same time, the imposition of real property taxes under Section 232 is in turn
qualified by the phrase "not hereinafter specifically exempted." The exemptions from real property taxes are
enumerated in Section 234, which specifically states that only real properties owned "by the Republic of the
Philippines or any of its political subdivisions" are exempted from the payment of the tax. Clearly,
instrumentalities or GOCCs do not fall within the exceptions under Section 234. 30

Mactan Overturned the

Precedents Now Relied

Upon by the Majority

But the petitioners in Mactan also raised the Court's ruling in Basco v. PAGCOR, 31 decided before the
enactment of the Local Government Code. The Court in Bascodeclared the PAGCOR as exempt from
local taxes, justifying the exemption in this wise:

Local governments have no power to tax instrumentalities of the National Government.

PAGCOR is a government owned or controlled corporation with an original charter, PD 1869.
All of its shares of stocks are owned by the National Government. In addition to its corporate
powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers . . .

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality ofthe
Government. Being an instrumentality of the Government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected
to control by a mere Local government. TIaCHA

"The states have no power by taxation or otherwise, to retard impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
230
 execution the powers vested in the federal government." (McCulloch v. Marland, 4 Wheat
316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over
local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power
on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision
can regulate a federal instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activates or enterprise using the power
to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. 32

Basco is as strident a reiteration of the old guard view that frowned on the principle of local autonomy,
especially as it interfered with the prerogatives and privileges ofthe national government. Also consider
the following citation from Maceda v. Macaraig, 33 decided the same year as Basco. Discussing the rule
of construction of tax exemptions on government instrumentalities, the sentiments are of a similar vein.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the
case of exemptions in favor of a government political subdivision or instrumentality.

The basis for applying the rule of strict construction to statutory provisions granting tax
exemptions or deductions, even more obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize differential treatment and foster
impartiality, fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the
benefit of the government itself or its agencies. In such case the practical effectof an
exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non tax-
liability of such agencies.

In the case of property owned by the state or a city or other public corporations, the express
exemption should not be construed with the same degree of strictness that applies to
exemptions contrary to the policy of the state, since as to such property "exemption is the
rule and taxation the exception." 34

Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This evinces the
perspective from which the majority is coming from. It is admittedly a viewpoint once shared by this Court,
and en vogue prior to the enactment of the Local Government Code of 1991.

However, the Local Government Code of 1991 ushered in a new ethos on how the art of governance should be
practiced in the Philippines, conceding greater powers once held in the private reserve of the national
government to LGUs. The majority might have private qualms about the wisdom of the policy of local
autonomy, but the members of the Court are not expected to substitute their personal biases for the legislative
will, especially when the 1987 Constitution itself promotes the principle oflocal autonomy.

Article II. Declaration of Principles and State Policies

xxx xxx xxx

Sec. 25. The State shall ensure the autonomy of local governments.

Article X. Local Government

xxx xxx xxx

231
 Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.

Section 3. The Congress shall enact a local government code which shall provide for a more
responsive and accountable local government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to the organization and
operation of the local units.

xxx xxx xxx

Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments.

xxx xxx xxx

The Court in Mactan recognized that a new day had dawned with the enactment of the 1987 Constitution and
the Local Government Code of 1991. Thus, it expressly rejected the contention of the MCIAA that Basco was
applicable to them. In doing so, the language of the Court was dramatic, if only to emphasize how
monumental the shift in philosophy was with the enactment of the Local Government Code:

Accordingly, the position taken by the [MCIAA] is untenable. Reliance on Basco v.

Philippine Amusement and Gaming Corporation is unavailing since it was decided
before the effectivity of the [Local Government Code]. Besides, nothing can prevent
Congress from decreeing that even instrumentalities or agencies of the Government
performing governmental functions may be subject to tax. Where it is done precisely to
fulfill a constitutional mandate and national policy, no one can doubt its wisdom. 35
(emphasis supplied)

The Court Has Repeatedly

Reaffirmed Mactan Over the

Precedents Now Relied Upon

By the Majority

Since then and until today, the Court has been emphatic in declaring the Basco doctrine as dead. The notion
that instrumentalities may be subjected to local taxation by LGUs was again affirmed in National Power
Corporation v. City of Cabanatuan, 36 which was penned by Justice Puno. NPC or Napocor, invoking its
continued exemption from payment of franchise taxes to the City of Cabanatuan, alleged that it was an
instrumentality of the National Government which could not be taxed by a city government. To that end, Basco
was cited by NPC. The Court had this to say about Basco.

. . . [T]he doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied
upon by the petitioner to support its claim no longer applies. To emphasize, the Basco
case was decided prior to the effectivity of the LGC, when no law empowering the local
government units to tax instrumentalities ofthe National Government was in effect.
However, as this Court ruled in the case of Mactan Cebu International Airport Authority
(MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions
may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit. Thus, after reviewing the
specific provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property tax. 37

In the 2003 case of Philippine Ports Authority v. City of Iloilo, 38 the Court, in the able ponencia of Justice
Azcuna, affirmed the levy of realty taxes on the PPA. Although the taxes were assessed under the old
Real Property Tax Code and not the Local Government Code, the Court again cited Mactan to refute
PPA's invocation of Basco as the basis of its exemption.
232
[Basco] did not absolutely prohibit local governments from taxing government instrumentalities. In fact
we stated therein:

The power of local government to "impose taxes and fees" is always subject to "limitations"
which Congress may provide by law. Since P.D. 1869 remains an "operative" law until
"amended, repealed or revoked". . . its "exemption clause" remains an exemption to the
exercise of the power of local governments to impose taxes and fees.AHDacC

Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos, where the
Basco case was similarly invoked for tax exemption, we stated: "[N]othing can prevent Congress from
decreeing that even instrumentalities or agencies of the Government performing governmental functions may
be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can
doubt its wisdom." The fact that tax exemptions of government-owned or controlled corporations have been
expressly withdrawn by the present Local Government Code clearly attests against petitioner's claim of
absolute exemption of government instrumentalities from local taxation. 39

Just last month, the Court in National Power Corporation v. Province of Isabela 40 again rejected Basco
in emphatic terms. Held the Court, through Justice Callejo, Sr.:

Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the
Court noted primarily that the Basco case was decided prior to the effectivity of the LGC, when no
law empowering the local government units to tax instrumentalities of the National Government
was in effect. It further explained that in enacting the LGC, Congress empowered the LGUs to
impose certain taxes even on instrumentalities of the National Government. 41

The taxability of the PPA recently came to fore in Philippine Ports Authority v. City of Iloilo 42 case, a decision
also penned by Justice Callejo, Sr., wherein the Courtaffirmed the sale of PPA's properties at public auction for
failure to pay realty taxes. The Court again reiterated that "it was the intention of Congress to withdraw the tax
exemptions granted to or presently enjoyed by all persons, including government-owned or controlled
corporations, upon the effectivity" of the Code. 43 The Court in the second Public Ports Authority case likewise
cited Mactan as providing the "raison d'etre for the withdrawal of the exemption," namely, "the State policy to
ensure autonomy to local governments and the objective of the [Local Government Code] that they enjoy
genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant
communities. . . ." 44

Last year, the Court, in City of Davao v. RTC, 45 affirmed that the legislated exemption from real property
taxes of the Government Service Insurance System (GSIS) was removed under the Local Government Code.
Again, Mactan was relied upon as the governing precedent. The removal of the tax exemption stood even
though the then GSIS law 46 prohibited the removal of GSIS' tax exemptions unless the exemption was
specifically repealed, "and a provision is enacted to substitute the declared policyof exemption from any and
all taxes as an essential factor for the solvency of the fund." 47 The Court, citing established doctrines in
statutory construction and Duarte v. Dade 48 ruled that such proscription on future legislation was itself
prohibited, as "the legislature cannot bind a future legislature to a particular mode of repeal." 49

And most recently, just less than one month ago, the Court, through Justice Corona in Government Service
Insurance System v. City Assessor of Iloilo 50 again affirmed that the Local Government Code removed
the previous exemption from real property taxes of the GSIS. Again Mactan was cited as having "expressly
withdrawn the [tax] exemption of the [GOCC]. 51

Clearly then, Mactanis not a stray or unique precedent, but the basis of a jurisprudential rule employed by the
Court since its adoption, the doctrine therein consistent with the Local Government Code. Corollarily, Basco,
the polar opposite of Mactan has been emphatically rejected and declared inconsistent with the Local
Government Code. cDTSHE

II.

Majority, in Effectively Overturning Mactan,

Refuses to Say Why Mactan Is Wrong

The majority cites Basco in support. It does not cite Mactan, other than an incidental reference that it is relied
upon by the respondents. 52 However, the ineluctable conclusion is that the majority rejects the rationale and
233
ruling in Mactan. The majority provides for a wildly different interpretation of Section 133, 193 and 234 of the
Local Government Code than that employed by the Court in Mactan. Moreover, the parties in Mactan and in
this case are similarly situated, as can be obviously deducted from the fact that both petitioners are airport
authorities operating under similarly worded charters. And the fact that the majority cites doctrines contrapuntal
to the Local Government Code as in Basco and Maceda evinces an intent to go against the Court's
jurisprudential trend adopting the philosophy ofexpanded local government rule under the Local Government
Code.

Before I dwell upon the numerous flaws of the majority, a brief comment is necessitated on the majority's
studied murkiness vis-à-vis the Mactan precedent. The majority is obviously inconsistent with Mactan and
there is no way these two rulings can stand together. Following basic principles in statutory construction,
Mactan will be deemed as giving way to this new ruling.

However, the majority does not bother to explain why Mactan is wrong. The interpretation in Mactan of the
relevant provisions of the Local Government Code is elegant and rational, yet the majority refuses to explain
why this reasoning of the Court in Mactan is erroneous. In fact, the majority does not even engage Mactan in
any meaningful way. If the majority believes that Mactan may still stand despite this ruling, it remains silent as
to the viable distinctions between these two cases.

The majority's silence on Mactan is baffling, considering how different this new ruling is with the ostensible
precedent. Perhaps the majority does not simply know how to dispense with the ruling in Mactan. If Mactan
truly deserves to be discarded as precedent, it deserves a more honorable end than death by amnesia or
ignonominous disregard. The majority could have devoted its discussion in explaining why it thinks Mactan is
wrong, instead of pretending that Mactan never existed at all. Such an approach might not have won the votes
of the minority, but at least it would provide some degree of intellectual clarity for the parties, LGUs and the
national government, students of jurisprudence and practitioners. A more meaningful debate on the matter
would have been possible, enriching the study of law and the intellectual dynamic of this Court.

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are
similarly situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of
operating an airport. They are the owners of airport properties they respectively maintain and hold title over
these properties in their name. 53 These entities are both owned by the State, and denied by their respective
charters the absolute right to dispose of their properties without prior approval elsewhere. 54 Both of them
are not empowered to obtain loans or encumber their properties without prior approval the prior approval of
the President.55

III.

Instrumentalities, Agencies

And GOCCs Generally

Liable for Real Property Tax

I shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my position lies with
Mactan, which will further demonstrate why the majority has found it inconvenient to even grapple with the
precedent that is Mactan in the first place.

Mactan held that the prohibition on taxing the national government, its agencies and instrumentalities under
Section 133 is qualified by Section 232 and Section 234, and accordingly, the only relevant exemption now
applicable to these bodies is as provided under Section 234(o), or on "real property owned by the Republic of
the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person."

It should be noted that the express withdrawal of previously granted exemptions by the Local Government
Code do not even make any distinction as to whether the exempt person is a governmental entity or not. As
Sections 193 and 234 both state, the withdrawal applies to "all persons, including [GOCCs]", thus
encompassing the two classes of persons recognized under our laws, natural persons 56 and juridical persons.

57

The fact that the Local Government Code mandates the withdrawal of previously granted exemptions evinces
certain key points. If an entity was previously granted an express exemption from real property taxes in the first
place, the obvious conclusion would be that such entity would ordinarily be liable for such taxes without the
exemption. If such entities were already deemed exempt due to some overarching principle of law, then it

234
would be a redundancy or surplusage to grant an exemption to an already exempt entity. This fact militates
against the claim that MIAA is preternaturally exempt from realty taxes, since it required the enactment of an
express exemption from such taxes in its charter.

Amazingly, the majority all but ignores the disquisition in Mactan and asserts that government instrumentalities
are not taxable persons unless they lease their properties to a taxable person. The general rule laid down in
Section 232 is given short shrift. In arriving at this conclusion, several leaps in reasoning are committed.

Majority's Flawed Definition

of GOCCs.

The majority takes pains to assert that the MIAA is not a GOCC, but rather an instrumentality.
However, and quite grievously, the supposed foundation ofthis assertion is an adulteration.

The majority gives the impression that a government instrumentality is a distinct concept from a government
corporation. 58 Most tellingly, the majority selectivelycites a portion of Section 2(10) of the Administrative
Code of 1987, as follows:

Instrumentality refers to any agency of the National Government not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. . . . 59 (emphasis omitted)

However, Section 2(10) of the Administrative Code, when read in full, makes an important clarification
which the majority does not show. The portions omitted by the majority are highlighted below:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Instrumentality refers to any agency

of the National Government not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter.
This term includes regulatory agencies, chartered institutions and government —
owned or controlled corporations. 60

Since Section 2(10) makes reference to "agency of the National Government," Section 2(4) is also worth citing
in full:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Agency of the Government refers to any of

the various units of the Government, including a department, bureau, office, instrumentality, or
government-owned or controlled corporation, or a local government or a distinct unit therein.
(emphasis supplied) 61

Clearly then, based on the Administrative Code, a GOCC may be an instrumentality or an agency of the
National Government. Thus, there actually is no point in the majority's assertion that MIAA is not a GOCC,
since based on the majority's premise of Section 133 as the key provision, the material question is whether
MIAA is either an instrumentality, an agency, or the National Government itself. The very provisions of the
Administrative Code provide that a GOCC can be either an instrumentality or an agency, so why even bother
to extensively discuss whether or not MIAA is a GOCC?

Indeed as far back as the 1927 case of Government of the Philippine Islands v. Springer, 62 the Supreme
Court already noted that a corporation of which the government is the majority stockholder "remains an
agency or instrumentality of government." 63

Ordinarily, the inconsequential verbiage stewing in judicial opinions deserve little rebuttal. However, the entire
discussion of the majority on the definition of a GOCC,obiter as it may ultimately be, deserves emphatic
refutation. The views of the majority on this matter are very dangerous, and would lead to absurdities,
perhaps unforeseen by the majority. For in fact, the majority effectively declassifies many entities
created and recognized as GOCCs and would give primacy to the Administrative Code of 1987 rather
than their respective charters as to the definition of these entities.

Majority Ignores the Power

Of Congress to Legislate and

Define Chartered Corporations

235
First, the majority declares that, citing Section 2(13) of the Administrative Code, a GOCC must be "organized
as a stock or non-stock corporation," as defined under the Corporation Code. To insist on this as an absolute
rule fails on bare theory. Congress has the undeniable power to create a corporation by legislative charter, and
has been doing so throughout legislative history. There is no constitutional prohibition on Congress as to what
structure these chartered corporations should take on. Clearly, Congress has the prerogative to create a
corporation in whatever form it chooses, and it is not bound by any traditional format. Even if there is a
definition ofwhat a corporation is under the Corporation Code or the Administrative Code, these laws are by no
means sacrosanct. It should be remembered that these two statutes fall within the same level of hierarchy as a
congressional charter, since they all are legislative enactments. Certainly, Congress can choose to disregard
either the Corporation Code or the Administrative Code in defining the corporate structure of a GOCC, utilizing
the same extent of legislative powers similarly vesting it the putative ability to amend or abolish the
Corporation Code or the Administrative Code. aATHES

These principles are actually recognized by both the Administrative Code and the Corporation Code. The
definition of GOCCs, agencies and instrumentalities under the Administrative Code are laid down in the
section entitled "General Terms Defined," which qualifies:

Sec. 2. General Terms Defined. — Unless the specific words of the text, or the context as
a whole, or a particular statute, shall require a different meaning: (emphasis supplied)

xxx xxx xxx

Similar in vein is Section 6 of the Corporation Code which provides:

SEC. 4. Corporations created by special laws or charters. — Corporations created by special

laws or charters shall be governed primarily by the provisions of the special law or charter
creating them or applicable to them, supplemented by the provisions of this Code, insofar as
they are applicable. (emphasis supplied)

Thus, the clear doctrine emerges — the law that governs the definition of a corporation or entity created
by Congress is its legislative charter. If the legislative enactment defines an entity as a corporation,
then it is a corporation, no matter if the Corporation Code or the Administrative Code seemingly
provides otherwise. In case of conflict between the legislative charter of a government corporation, on
one hand, and the Corporate Code and the Administrative Code, on the other, the former always
prevails.

Majority, in Ignoring the

Legislative Charters, Effectively

Classifies Duly Established GOCCs,

With Disastrous and Far Reaching

Legal Consequences

Second, the majority claims that MIAA does not qualify either as a stock or non-stock corporation, as defined
under the Corporation Code. It explains that the MIAA is not a stock corporation because it does not have
any capital stock divided into shares. Neither can it be considered as a non-stock corporation because it has
no members, and under Section 87, a non-stock corporation is one where no part of its income is
distributable as dividends to its members, trustees or officers.

This formulation of course ignores Section 4 of the Corporation Code, which again provides that corporations
created by special laws or charters shall be governed primarily by the provisions of the special law or
charter, and not the Corporation Code.

That the MIAA cannot be considered a stock corporation if only because it does not have a stock structure is
hardly a plausible proposition. Indeed, there is no point in requiring a capital stock structure for GOCCs
whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to
declare dividends or alienate their capital shares.

Admittedly, there are GOCCs established in such a manner, such as the National Power Corporation (NPC),
which is provided with authorized capital stock wholly subscribed and paid for by the Government of the
Philippines, divided into shares but at the same time, is prohibited from transferring, negotiating, pledging,
mortgaging or otherwise giving these shares as security for payment of any obligation. 64 However, based on
the Corporation Code definition relied upon by the majority, even the NPC cannot be considered as a stock

236
corporation. Under Section 3 of the Corporation Code, stock corporations are defined as being "authorized
to distribute to the holders of its shares dividends or allotments of the surplus profits on the basis of the
shares held." 65 On the other hand, Section 13 of the NPC's charter states that "the Corporation shall be
non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its
operation, for expansion." 66 Can the holder of the shares of NPC, the National Government, receive its
surplus profits on the basis of its shares held? It cannot, according to the NPC charter, and hence, following
Section 3 of the Corporation Code, the NPC is not a stock corporation, if the majority is to be believed.

The majority likewise claims that corporations without members cannot be deemed non-stock corporations.
This would seemingly exclude entities such as the NPC, which like MIAA, has no ostensible members.
Moreover, non-stock corporations cannot distribute any part of its income as dividends to its members, trustees
or officers. The majority faults MIAA for remitting 20% of its gross operating income to the national
government. How about the Philippine Health Insurance Corporation, created with the "status of a tax-exempt
government corporation attached to the Department of Health" under Rep. Act No. 7875. 67 It too cannot be
considered as a stock corporation because it has no capital stock structure. But using the criteria of the
majority, it is doubtful if it would pass muster as a non-stock corporation, since the PHIC or Philhealth, as it is
commonly known, is expressly empowered "to collect, deposit, invest, administer and disburse" the National
Health Insurance Fund. 68Or how about the Social Security System, which under its revised charter, Republic
Act No. 8282, is denominated as a "corporate body." 69 The SSS has no capital stock structure, but has
capital comprised of contributions by its members, which are eventually remitted back to its members. Does
this disqualify the SSS from classification as a GOCC, notwithstanding this Court's previous pronouncement in
Social Security System Employees Association v. Soriano? 70

In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs, whether stock or non-stock, 71
declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends
to the National Government. 72 But according to the majority, non-stock corporations are prohibited from
declaring any part of its income as dividends. But if Republic Act No. 7656 requires even non-stock
corporations to declare dividends from income, should it not follow that the prohibition against declaration of
dividends by non-stock corporations under the Corporation Code does not apply to government-owned or
controlled corporations? For if not, and the majority's illogic is pursued, Republic Act No. 7656, passed in 1993,
would be fatally flawed, as it would contravene the Administrative Code of 1987 and the Corporation Code.

In fact, the ruinous effects of the majority's hypothesis on the nature of GOCCs can be illustrated by Republic
Act No. 7656. Following the majority's definition of a GOCC and in accordance with Republic Act No. 7656,
here are but a few entities which are not obliged to remit fifty (50%) of its annual net earnings to the National
Government as they are excluded from the scope of Republic Act No. 7656:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Philippine Ports Authority 73 — has

no capital stock 74 , no members, and obliged to apply the balance of its income or revenue
at the end of each year in a general reserve. 75

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Bases Conversion Development Authority

76 — has no capital stock, 77 no members.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Philippine Economic Zone Authority 78 —

no capital stock, 79 no members.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Light Rail Transit Authority 80 — no capital

stock, 81 no members.

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Bangko Sentral ng Pilipinas 82 —

no capital stock, 83 no members, required to remit fifty percent (50%) of its net profits to
the National Treasury. 84

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ National Power Corporation 85 —

has capital stock but is prohibited from "distributing to the holders of its shares dividends or
allotments of the surplus profits on the basis of the shares held;" 86 no members.
 ࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Manila International Airport Authority — no
capital stock 87 , no members 88 , mandated to remit twenty percent (20%) of its annual gross
operating income to the National Treasury. 89

Thus, for the majority, the MIAA, among many others, cannot be considered as within the coverage of Republic
Act No. 7656. Apparently, President Fidel V. Ramos disagreed. How else then could Executive Order No. 483,
signed in 1998 by President Ramos, be explained? The issuance provides:

WHEREAS, Section 1 of Republic Act No. 7656 provides that:

237
 "Section 1. Declaration of Policy. — It is hereby declared the policy of the State that
in order for the National Government to realize additional revenues, government-
owned and/or controlled corporations, without impairing their viability and the
purposes for which they have been established, shall share a substantial amount of
their net earnings to the National Government."

WHEREAS, to support the viability and mandate of government-owned and/or

controlled corporations [GOCCs], the liquidity, retained earnings position and medium-
term plans and programs of these GOCCs were considered in the determination of the
reasonable dividend rates of such corporations on their 1997 net earnings.

WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance recommended

the adjustment on the percentage of annual net earnings that shall be declared by the
Manila International Airport Authority [MIAA] and Phividec Industrial Authority [PIA]
in the interest of national economy and general welfare.

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the

powers vested in me by law, do hereby order:

SECTION 1. The percentage of net earnings to be declared and remitted by the MIAA
and PIA as dividends to the National Government as provided for under Section 3 of
Republic Act No. 7656 is adjusted from at least fifty percent [50%] to the rates
specified hereunder:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Manila International Airport

Authority - 35% [cash]

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Phividec Industrial Authority - 25%

[cash]

SECTION 2. The adjusted dividend rates provided for under Section 1 are only applicable
on 1997 net earnings of the concerned government-owned and/or controlled corporations.

Obviously, it was the opinion of President Ramos and the Secretary of Finance that MIAA is a GOCC, for how
else could it have come under the coverage of Republic Act No. 7656, a law applicable only to GOCCs? But,
the majority apparently disagrees, and resultantly holds that MIAA is not obliged to remit even the reduced
rate of thirty five percent (35%) of its net earnings to the national government, since it cannot be covered by
Republic Act No. 7656. TCaSAH

All this mischief because the majority would declare the Administrative Code of 1987 and the Corporation
Code as the sole sources of law defining what a government corporation is. As I stated earlier, I find it illogical
that chartered corporations are compelled to comply with the templates of the Corporation Code, especially
when the Corporation Code itself states that these corporations are to be governed by their own charters.
This is especially true considering that the very provision cited by the majority, Section 87 of the Corporation
Code, expressly says that the definition provided therein is laid down "for the purposes of this [Corporation]
Code." Read in conjunction with Section 4 of the Corporation Code which mandates that corporations created
by charter be governed by the law creating them, it is clear that contrary to the majority, MIAA is not
disqualified from classification as a non-stock corporation by reason of Section 87, the provision not being
applicable to corporations created by special laws or charters. In fact, I see no real impediment why the MIAA
and similarly situated corporations such as the PHIC, the SSS, the Philippine Deposit Insurance Commission,
or maybe even the NPC could at the very least, be deemed as no stock corporations (as differentiated from
non-stock corporations).

The point, stripped to bare simplicity, is that entity created by legislative enactment is a corporation if the
legislature says so. After all, it is the legislature that dictates what a corporation is in the first place. This is
better illustrated by another set of entities created before martial law. These include the Mindanao
DevelopmentAuthority, 90 the Northern Samar Development Authority, 91 the Ilocos Sur Development
Authority, 92 the Southeastern Samar Development Authority 93 and the Mountain Province Development
Authority. 94 An examination of the first section of the statutes creating these entities reveal that they were
established "to foster accelerated and balanced growth" of their respective regions, and towards such end, the
charters commonly provide that "it is recognized that a government corporation should be created for the
purpose," and accordingly, these charters "hereby created a body corporate." 95 However, these
corporations do not have capital stock nor members, and are obliged to return the unexpended balances of
their appropriations and earnings to a revolving fund in the National Treasury. The majority effectively

declassifies these entities as GOCCs, never mind the fact that their very charters declare them to be GOCCs. 238
I mention these entities not to bring an element of obscurantism into the fray. I cite them as examples
to emphasize my fundamental point — that it is the legislative charters of these entities, and not the
Administrative Code, which define the class of personality of these entities created by Congress. To
adopt the view of the majority would be, in effect, to sanction an implied repeal of numerous
congressional charters for the purpose of declassifying GOCCs. Certainly, this could not have been
the intent of the crafters of the Administrative Code when they drafted the "Definition of Terms"
incorporated therein.

MIAA Is Without

Doubt, A GOCC

Following the charters of government corporations, there are two kinds of GOCCs, namely: GOCCs which
are stock corporations and GOCCs which are no stock corporations (as distinguished from non-stock
corporation). Stock GOCCs are simply those which have capital stock while no stock GOCCs are those
which have no capital stock. Obviously these definitions are different from the definitions of the terms in the
Corporation Code. Verily, GOCCs which are not incorporated with the Securities and Exchange Commission
are not governed by the Corporation Code but by their respective charters.

For the MIAA's part, its charter is replete with provisions that indubitably classify it as a GOCC. Observe
the following provisions from MIAA's charter:

SECTION 3. Creation of the Manila International Airport Authority. — There is hereby

established a body corporate to be known as the Manila InternationalAirport Authority
which shall be attached to the Ministry of Transportation and Communications. The
principal office of the Authority shall be located at the New Manila International Airport.
The Authority may establish such offices, branches, agencies or subsidiaries as it may
deem proper and necessary; Provided, That any subsidiary that may be organized shall
have the prior approval of the President.

The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to
the ownership and administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall undertake an actual
survey of the area transferred within one year from the promulgation of this Executive
Order and the corresponding title to be issued in the name of the Authority. Any portion
thereof shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines.

xxx xxx xxx

SECTION 5. Functions, Powers, and Duties. — The Authority shall have the following
functions, powers and duties:

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To sue and be sued in its corporate

name;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To adopt and use a corporate seal;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To succeed by its corporate name;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To adopt its by-laws, and to amend or

repeal the same from time to time;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To execute or enter into contracts of any

kind or nature;

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To acquire, purchase, own,

administer, lease, mortgage, sell or otherwise dispose of any land, building, airport
facility, or property of whatever kind and nature, whether movable or immovable, or
any interest therein;
࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To exercise the power of eminent domain in
the pursuit of its purposes and objectives;

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To exercise all the powers of a

corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order.

239
 xxx xxx xxx

SECTION 16. Borrowing Power. — The Authority may, after consultation with the
Minister of Finance and with the approval of the President of the Philippines, as
recommended by the Minister of Transportation and Communications, raise funds,
either from local or international sources, by way of loans, credits or securities, and
other borrowing instruments, with the power to create pledges, mortgages and other
voluntary liens or encumbrances on any of its assets or properties.

All loans contracted by the Authority under this Section, together with all interests and other
sums payable in respect thereof, shall constitute a charge upon all the revenues and assets
of the Authority and shall rank equally with one another, but shall have priority over any other
claim or charge on the revenue and assets of theAuthority: Provided, That this provision shall
not be construed as a prohibition or restriction on the power of the Authority to create
pledges, mortgages, and other voluntary liens or encumbrances on any assets or property of
the Authority.

Except as expressly authorized by the President of the Philippines the total outstanding
indebtedness of the Authority in the principal amount, in local and foreign currency, shall not
at any time exceed the net worth of the Authority at any given time.

xxx xxx xxx

The President or his duly authorized representative after consultation with the Minister of
Finance may guarantee, in the name and on behalf of the Republic of the Philippines, the
payment of the loans or other indebtedness of the Authority up to the amount herein
authorized.

These cited provisions establish the fitness of MIAA to be the subject of legal relations. 96 MIAA under its
charter may acquire and possess property, incur obligations, and bring civil or criminal actions. It has the
power to contract in its own name, and to acquire title to real or personal property. It likewise may exercise a
panoply ofcorporate powers and possesses all the trappings of corporate personality, such as a corporate
name, a corporate seal and by-laws. All these are contained in MIAA's charter which, as conceded by the
Corporation Code and even the Administrative Code, is the primary law that governs the definition and
organization of the MIAA.

In fact, MIAA itself believes that it is a GOCC represents itself as such. It said so itself in the very first
paragraph of the present petition before this Court. 97So does, apparently, the Department of Budget
and Management, which classifies MIAA as a "government owned & controlled corporation" on its
internet website. 98 There is also the matter of Executive Order No. 483, which evinces the belief of the
then-president of the Philippines that MIAA is a GOCC. And theCourt before had similarly
characterized MIAA as a government-owned and controlled corporation in the earlier MIAA case, Manila
International AirportAuthority v. Commission on Audit. 99

Why then the hesitance to declare MIAA a GOCC? As the majority repeatedly asserts, it is because MIAA is
actually an instrumentality. But the very definition relied upon by the majority of an instrumentality under the
Administrative Code clearly states that a GOCC is likewise an instrumentality or an agency. The question of
whether MIAA is a GOCC might not even be determinative of this Petition, but the effect of the
majority's disquisition on that matter may even be more destructive than the ruling that MIAA is
exempt from realty taxes. Is the majority ready to live up to the momentous consequences of its flawed
reasoning? ACaDTH

Novel Proviso in 1987 Constitution

Prescribing Standards in the

Creation of GOCCs Necessarily

Applies only to GOCCs Created

After 1987.
One last point on this matter on whether MIAA is a GOCC. The majority triumphantly points to Section 16,
Article XII of the 1987 Constitution, which mandates that the creation of GOCCs through special charters be "in

240
the interest of the common good and subject to the test of economic viability." For the majority, the test of
economic viability does not apply to government entities vested with corporate powers and performing
essential public services. But this test of "economic viability" is new to the constitutional framework. No such
test was imposed in previous Constitutions, including the 1973 Constitution which was the fundamental law in
force when the MIAA was created. How then could the MIAA, or any GOCC created before 1987 be expected
to meet this new precondition to the creation of a GOCC? Does the majority seriously suggest that GOCCs
created before 1987 may be declassified on account of their failure to meet this "economic viability test"?

Instrumentalities and Agencies

Also Generally Liable For

Real Property Taxes

Next, the majority, having bludgeoned its way into asserting that MIAA is not a GOCC, then argues that MIAA is an
instrumentality. It cites incompletely, as earlier stated, the provision of Section 2(10) of the Administrative Code. A
more convincing view offered during deliberations, but which was not adopted by the ponencia, argued that MIAA
is not an instrumentality but an agency, considering the fact that under the Administrative Code, the MIAA is
attached within the department framework of the Department of Transportation and Communications. 100
Interestingly, Executive Order No. 341, enacted by President Arroyo in 2004, similarly calls MIAA an agency. Since
instrumentalities are expressly defined as "an agency not integrated within the department framework," that view
concluded that MIAA cannot be deemed an instrumentality.

Still, that distinction is ultimately irrelevant. Of course, as stated earlier, the Administrative Code considers
GOCCs as agencies, 101 so the fact that MIAA is an agency does not exclude it from classification as a
GOCC. On the other hand, the majority justifies MIAA's purported exemption on Section 133 of the Local
Government Code, which similarly situates "agencies and instrumentalities" as generally exempt from the
taxation powers of LGUs. And on this point, the majority again evades Mactanand somehow concludes that
Section 133 is the general rule, notwithstanding Sections 232 and 234(a) of the Local Government Code. And
the majority's ultimate conclusion? "By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national government instrumentalities like the MIAA.
Local governments are devoid of power to tax the national government, its agencies and
instrumentalities." 102

The Court's interpretation of the Local Government Code in Mactan renders the law integrally harmonious and
gives due accord to the respective prerogatives of the national government and LGUs. Sections 133 and
234(a) ensure that the Republic of the Philippines or its political subdivisions shall not be subjected to any
form oflocal government taxation, except realty taxes if the beneficial use of the property owned has been
granted for consideration to a taxable entity or person. On the other hand, Section 133 likewise assures that
government instrumentalities such as GOCCs may not be arbitrarily taxed by LGUs, since they could be
subjected to local taxation if there is a specific proviso thereon in the Code. One such proviso is Section 137,
which as the Court found in National Power Corporation, 103 permits the imposition of a franchise tax on
businesses enjoying a franchise, even if it be a GOCC such as NPC. And, as the Court acknowledged in
Mactan, Section 232 provides another exception on the taxability of instrumentalities.

The majority abjectly refuses to engage Section 232 of the Local Government Code although it provides the
indubitable general rule that LGUs "may levy an annual ad valorem tax on real property such as land, building,
machinery, and other improvements not hereafter specifically exempted." The specific exemptions are
provided by Section 234. Section 232 comes sequentially after Section 133(o), 104 and even if the sequencing
is irrelevant, Section 232 would fall under the qualifying phrase ofSection 133, "Unless otherwise provided
herein." It is sad, but not surprising that the majority is not willing to consider or even discuss the general rule,
but only the exemptions under Section 133 and Section 234. After all, if the majority is dead set in ruling for
MIAA no matter what the law says, why bother citing what the law does say.

Constitution, Laws and

Jurisprudence Have Long

Explained the Rationale

Behind the Local Taxation

Of GOCCs.
This blithe disregard of precedents, almost all of them unanimously decided, is nowhere more evident than in
the succeeding discussion of the majority, which asserts that the power of local governments to tax national
241
government instrumentalities be construed strictly against local governments. The Maceda case, decided
before the Local Government Code, is cited, as is Basco. This section of the majority employs deliberate
pretense that the Code never existed, or that the fundamentals of local autonomy are of limited effect in our
country. Why is it that the Local Government Code is barely mentioned in this section of the majority?
Because Section 5 of the Code, purposely omitted by the majority provides for a different rule of interpretation
than that asserted:

Section 5. Rules of Interpretation. — In the interpretation of the provisions of this Code, the
following rules shall apply:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Any provision on a power of a

local government unit shall be liberally interpreted in its favor, and in case of doubt,
any question thereon shall be resolved in favor of devolution of powers and of the
lower local government unit. Any fair and reasonable doubt as to the existence of the
power shall be interpreted in favor of the local government unit concerned;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In case of doubt, any tax ordinance

or revenue measure shall be construed strictly against the local government unit enacting it,
and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by
any local government unit pursuant to the provisions of this Code shall be construed
strictly against the person claiming it; . . .

Yet the majority insists that "there is no point in national and local governments taxing each other, unless
a sound and compelling policy requires such transfer of public funds from one government pocket to
another." 105 I wonder whether the Constitution satisfies the majority's desire for "a sound and compelling
policy." To repeat:

Article II. Declaration of Principles and State Policies

xxx xxx xxx

Sec. 25. The State shall ensure the autonomy of local governments.

Article X. Local Government

xxx xxx xxx

Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.

xxx xxx xxx

Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments.

Or how about the Local Government Code, presumably an expression of sound and compelling policy
considering that it was enacted by the legislature, that veritable source of all statutes:

SEC. 129. Power to Create Sources of Revenue. — Each local government unit shall exercise
its power to create its own sources of revenue and to levy taxes, fees, and charges subject to
the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local government units.

Justice Puno, in National Power Corporation v. City of Cabanatuan, 106 provides a more "sound and
compelling policy considerations" that would warrant sustaining the taxability of government-owned entities by
local government units under the Local Government Code.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Courtobserved in the Mactan case, "the original
reasons for the withdrawal of tax exemption privileges granted to government-owned or
controlled corporations and all other units of government were that such privilege resulted in
serious tax base erosion and distortions in the tax treatment of similarly situated enterprises."

242
 With the added burden of devolution, it is even more imperative for government entities
to share in the requirements of development, fiscal or otherwise, by paying taxes or other
charges due from them. 107

I dare not improve on Justice Puno's exhaustive disquisition on the statutory and jurisprudential shift
brought about the acceptance of the principles of local autonomy:

In recent years, the increasing social challenges of the times expanded the scope of state
activity, and taxation has become a tool to realize social justice and the equitable distribution
of wealth, economic progress and the protection of local industries as well as public welfare
and similar objectives. Taxation assumes even greater significance with the ratification of the
1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to levy taxes, fees and other charges
pursuant to Article X, section 5 of the 1987 Constitution, viz:

"Section 5. Each Local Government unit shall have the power to create its own
sources of revenue, to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments."

This paradigm shift results from the realization that genuine development can be achieved
only by strengthening local autonomy and promoting decentralization ofgovernance. For a
long time, the country's highly centralized government structure has bred a culture of
dependence among local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in matters of local
development on the part of local government leaders." The only way to shatter this culture of
dependence is to give the LGUs a wider role in the delivery of basic services, and confer
them sufficient powers to generate their own sources for the purpose. To achieve this goal,
section 3 of Article X of the 1987 Constitution mandates Congress to enact a local
government code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers, viz:

"Section 3. The Congress shall enact a local government code which shall provide
for a more responsive and accountable local government structure instituted through
a system of decentralization with effective mechanisms of recall, initiative, and
referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions and duties of local
officials, and all other matters relating to the organization and operation of the local
units."

To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local
Government Code of 1991 (LGC), various measures have been enacted to promote local
autonomy. These include the Barrio Charter of 1959, the Local Autonomy Act of 1959, the
Decentralization Act of 1967 and the Local Government Code of 1983. Despite these
initiatives, however, the shackles of dependence on the national government remained. Local
government units were faced with the same problems that hamper their capabilities to
participate effectively in the national development efforts, among which are: (a) inadequate tax
base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize
and approve development projects, (d) heavy dependence on external sources of income, and
(e) limited supervisory control over personnel of national line agencies.

Considered as the most revolutionary piece of legislation on local autonomy, the LGC
effectively deals with the fiscal constraints faced by LGUs. It widens the tax baseof LGUs to
include taxes which were prohibited by previous laws such as the imposition of taxes on forest
products, forest concessionaires, mineral products, mining operations, and the like. The LGC
likewise provides enough flexibility to impose tax rates in accordance with their needs and
capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and
maximum tax rates and leaves the determination of the actual rates to the respective
sanggunian. 108
243
And the Court's ruling through Justice Azcuna in Philippine Ports Authority v. City of Iloilo 109 ,
provides especially clear and emphatic rationale:

In closing, we reiterate that in taxing government-owned or controlled corporations, the

State ultimately suffers no loss. In National Power Corp. v. Presiding Judge, RTC, Br. XXV,
38 we elucidated:

Actually, the State has no reason to decry the taxation of NPC's properties, as
and by way of real property taxes. Real property taxes, after all, form part and
parcel of the financing apparatus of the Government in development and nation-
building, particularly in the local government level.

xxx xxx xxx

To all intents and purposes, real property taxes are funds taken by the State with one
hand and given to the other. In no measure can the government be said to have lost
anything.

Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax
exemption privileges granted to government-owned and controlled corporations and all other
units of government was that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises, hence resulting in the need for
these entities to share in the requirements of development, fiscal or otherwise, by paying the
taxes and other charges due from them. 110

How does the majority counter these seemingly valid rationales which establish the soundness of a policy
consideration subjecting national instrumentalities to local taxation? Again, by simply ignoring that these
doctrines exist. It is unfortunate if the majority deems these cases or the principles of devolution and local
autonomy as simply too inconvenient, and relies instead on discredited precedents. Of course, if the majority
faces the issues squarely, and expressly discusses why Basco was right and Mactan was wrong, then this
entire endeavor of the Court would be more intellectually satisfying. But, this is not a game the majority wants
to play.

Mischaracterization of this Writer's

Views on the Tax Exemption

Enjoyed by the National Government

Instead, the majority engages in an extended attack pertaining to Section 193, mischaracterizing my views on
that provision as if I had been interpreting the provision as making "the national government, which itself is a
juridical person, subject to tax by local governments since the national government is not included in the
enumeration of exempt entities in Section 193." 111

Nothing is farther from the truth. I have never advanced any theory of the sort imputed in the majority. My main
thesis on the matter merely echoes the explicit provision of Section 193 that unless otherwise provided in the
Local Government Code (LGC) all tax exemptions enjoyed by all persons, whether natural or juridical,
including GOCCs, were withdrawn upon the effectivity of the Code. Since the provision speaks of withdrawal
of tax exemptions of persons, it follows that the exemptions theretofore enjoyed by MIAA which is definitely a
person are deemed withdrawn upon the advent of the Code. aSDCIE

On the other hand, the provision does not address the question of who are beyond the reach of the taxing
power of LGUs. In fine, the grant of tax exemption or the withdrawal thereof assumes that the person or entity
involved is subject to tax. Thus, Section 193 does not apply to entities which were never given any tax
exemption. This would include the national government and its political subdivisions which, as a general rule,
are not subjected to tax in the first place. 112 Corollarily, the national government and its political
subdivisions do not need tax exemptions. And Section 193 which ordains the withdrawal of tax exemptions is
obviously irrelevant to them.

Section 193 is in point for the disposition of this case as it forecloses dependence for the grant of tax
exemption to MIAA on Section 21 of its charter. Even the majority should concede that the charter section is
now ineffectual, as Section 193 withdraws the tax exemptions previously enjoyed by all juridical persons.
244
With Section 193 mandating the withdrawal of tax exemptions granted to all persons upon the effectivity of the
LGC, for MIAA to continue enjoying exemption from realty tax, it will have to rely on a basis other than Section
21 of its charter.

Lung Center of the Philippines v. Quezon City 113 provides another illustrative example of the jurisprudential
havoc wrought about by the majority. Pursuant to its charter, the Lung Center was organized as a trust
administered by an eponymous GOCC organized with the SEC. 114 There is no doubt it is a GOCC, even by
the majority's reckoning. Applying the Administrative Code, it is also considered as an agency, the term
encompassing even GOCCs. Yet since the Administrative Code definition of "instrumentalities" encompasses
agencies, especially those not attached to a line department such as the Lung Center, it also follows that the
Lung Center is an instrumentality, which for the majority is exempt from all local government taxes, especially
real estate taxes. Yet just in 2004, the Court unanimously held that the Lung Center was not exempt from real
property taxes. Can the majority and Lung Center be reconciled? I do not see how, and no attempt is made to
demonstrate otherwise.

Another key point. The last paragraph of Section 234 specifically asserts that any previous exemptions from
realty taxes granted to or enjoyed by all persons, including all GOCCs, are thereby withdrawn. The majority's
interpretation of Sections 133 and 234(a) however necessarily implies that all instrumentalities, including
GOCCs, can never be subjected to real property taxation under the Code. If that is so, what then is the sense
of the last paragraph specifically withdrawing previous tax exemptions to all persons, including GOCCs when
juridical persons such as MIAA are anyway, to his view, already exempt from such taxes under Section 133?
The majority's interpretation would effectively render the express and emphatic withdrawal of previous
exemptions to GOCCs inutile. Ut magis valeat quam pereat. Hence, where a statute is susceptible of more
than one interpretation, the court should adopt such reasonable and beneficial construction which will render
the provision thereof operative and effective, as well as harmonious with each other. 115

But, the majority seems content rendering as absurd the Local Government Code, since it does not have
much use anyway for the Code's general philosophy of fiscal autonomy, as evidently seen by the continued
reliance on Basco or Maceda. Local government rule has never been a grant of emancipation from the
national government. This is the favorite bugaboo of the opponents of local autonomy — the fallacy that
autonomy equates to independence.

Thus, the conclusion of the majority is that under Section 133(o), MIAA as a government instrumentality is
beyond the reach of local taxation because it is not subject to taxes, fees or charges of any kind. Moreover, the
taxation of national instrumentalities and agencies by LGUs should be strictly construed against the LGUs,
citingMaceda and Basco. No mention is made of the subsequent rejection of these cases in jurisprudence
following the Local Government Code, including Mactan. The majority is similarly silent on the general rule
under Section 232 on real property taxation or Section 5 on the rules of construction of the Local Government
Code.

V.

MIAA, and not the National Government

Is the Owner of the Subject Taxable Properties

Section 232 of the Local Government Code explicitly provides that there are exceptions to the general rule on
rule property taxation, as "hereafter specifically exempted." Section 234, certainly "hereafter," provides
indubitable basis for exempting entities from real property taxation. It provides the most viable legal support for
any claim that an governmental entity such as the MIAA is exempt from real property taxes. To repeat:

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

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Real property owned

by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person:
The majority asserts that the properties owned by MIAA are owned by the Republic of the Philippines, thus
placing them under the exemption under Section 234. To arrive at this conclusion, the majority employs four
main arguments. DTSaHI

MIAA Property Is Patrimonial

245
 And Not Part of Public Dominion

The majority claims that the Airport Lands and Buildings are property of public dominion as defined by the Civil
Code, and therefore owned by the State or the Republicof the Philippines. But as pointed out by Justice
Azcuna in the first PPA case, if indeed a property is considered part of the public dominion, such property is
"owned by the general public and cannot be declared to be owned by a public corporation, such as [the PPA]."

Relevant on this point are the following provisions of the MIAA charter:

Section 3. Creation of the Manila International Airport Authority. — . . .

The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to
the ownership and administration of the Authority, subject to existing rights, if any. . . .

Any portion thereof shall not be disposed through sale or through any other
mode unless specifically approved by the President of the Philippines.

Section 22. Transfer of Existing Facilities and Intangible Assets. — All existing public
airport facilities, runways, lands, buildings and other property, movable or immovable,
belonging to the Airport, and all assets, powers rights, interests and privileges
belonging to the Bureau of Air Transportation relating toairport works or air operations,
including all equipment which are necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority.

Clearly, it is the MIAA, and not either the State, the Republic of the Philippines or the national government
that asserts legal title over the Airport Lands and Buildings. There was an express transfer of ownership
between the MIAA and the national government. If the distinction is to be blurred, as the majority does,
between the State/Republic/Government and a body corporate such as the MIAA, then the MIAA charter
showcases the remarkable absurdity of an entity transferring property to itself.

Nothing in the Civil Code or the Constitution prohibits the State from transferring ownership over property of
public dominion to an entity that it similarly owns. It is just like a family transferring ownership over the
properties its members own into a family corporation. The family exercises effective control over the
administration and disposition of these properties. Yet for several purposes under the law, such as taxation, it
is the corporation that is deemed to own those properties. A similar situation obtains with MIAA, the State,
and the Airport Lands and Buildings.

The second Public Ports Authority case, penned by Justice Callejo, likewise lays down useful doctrines in this
regard. The Court refuted the claim that the properties ofthe PPA were owned by the Republic of the
Philippines, noting that PPA's charter expressly transferred ownership over these properties to the PPA, a
situation which similarly obtains with MIAA. The Court even went as far as saying that the fact that the PPA
"had not been issued any torrens title over the port and port facilities and appurtenances is of no legal
consequence. A torrens title does not, by itself, vest ownership; it is merely an evidence of title over
properties. . . . It has never been recognized as a mode of acquiring ownership over real properties." 116

The Court further added:

. . . The bare fact that the port and its facilities and appurtenances are accessible to the
general public does not exempt it from the payment of real property taxes. It must be
stressed that the said port facilities and appurtenances are the petitioner's corporate
patrimonial properties, not for public use, and that the operation of the port and its facilities
and the administration of its buildings are in the nature of ordinary business. The petitioner is
clothed, under P.D. No. 857, with corporate status and corporate powers in the furtherance of
its proprietary interests . . . The petitioner is even empowered to invest its funds in such
government securities approved by the Board of Directors, and derives its income from rates,
charges or fees for the use by vessels of the port premises, appliances or equipment. . . .

Clearly then, the petitioner is a profit-earning corporation; hence, its patrimonial properties are
subject to tax. 117

There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for public use. A similar
argument was propounded by the Light Rail Transit Authorityin Light Rail Transit Authority v. Central Board of
Assessment, 118 which was cited in Philippine Ports Authority and deserves renewed emphasis. The Light Rail
TransitAuthority (LRTA), a body corporate, "provides valuable transportation facilities to the paying public."

246
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ It claimed that its carriage-ways and terminal stations
are immovably attached to government-owned national roads, and to impose real property taxes thereupon
would be to impose taxes on public roads. This view did not persuade the Court, whose decision was
penned by Justice (now Chief Justice) Panganiban. It was noted:

Though the creation of the LRTA was impelled by public service — to provide mass
transportation to alleviate the traffic and transportation situation in Metro Manila — its
operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status
and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much
like any private corporation engaged in the mass transport industry. Given that it is engaged in
a service-oriented commercial endeavor, its carriageways and terminal stations are
patrimonial property subject to tax, notwithstanding its claim of being a government-owned or
controlled corporation.

xxx xxx xxx

Petitioner argues that it merely operates and maintains the LRT system, and that the
actual users of the carriageways and terminal stations are the commuting public. It adds
that the public use character of the LRT is not negated by the fact that revenue is obtained
from the latter's operations.

We do not agree. Unlike public roads which are open for use by everyone, the LRT is
accessible only to those who pay the required fare. It is thus apparent that petitioner does not
exist solely for public service, and that the LRT carriageways and terminal stations are not
exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-earning.
It actually uses those carriageways and terminal stations in its public utility business and
earns money therefrom. 120

xxx xxx xxx

Even granting that the national government indeed owns the carriageways and terminal
stations, the exemption would not apply because their beneficial use has been granted to
petitioner, a taxable entity. 121

There is no substantial distinction between the properties held by the PPA, the LRTA, and the MIAA. These
three entities are in the business of operating facilities that promote public transportation.

The majority further asserts that MIAA's properties, being part of the public dominion, are outside the
commerce of man. But if this is so, then why does Section 3 ofMIAA's charter authorize the President of the
Philippines to approve the sale of any of these properties? In fact, why does MIAA's charter in the first place
authorize the transfer of these airport properties, assuming that indeed these are beyond the commerce of
man?

No Trust Has Been Created

Over MIAA Properties For

The Benefit of the Republic

The majority posits that while MIAA might be holding title over the Airport Lands and Buildings, it is holding it
in trust for the Republic. A provision of the Administrative Code is cited, but said provision does not expressly
provide that the property is held in trust. Trusts are either express or implied, and only those situations
enumerated under the Civil Code would constitute an implied trust. MIAA does not fall within this enumeration,
and neither is there a provision in MIAA's charter expressly stating that these properties are being held in
trust. In fact, under its charter, MIAA is obligated to retain up to eighty percent (80%) of its gross operating
income, not an inconsequential sum assuming that the beneficial owner of MIAA's properties is actually the
Republic, and not the MIAA.

Also, the claim that beneficial ownership over the MIAA remains with the government and not MIAA is
ultimately irrelevant. Section 234(a) of the Local Government Code provides among those exempted from
paying real property taxes are "[r]eal property owned by the [Republic] . . . except when the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person." In the context of Section 234(a),
the identity of the beneficial owner over the properties is not determinative as to whether the exemption
247
avails. It is the identity of the beneficial user of the property owned by the Republic or its political
subdivisions that is crucial, for if said beneficial user is a taxable person, then the exemption does not lie.

I fear the majority confuses the notion of what might be construed as "beneficial ownership" of the Republic
over the properties of MIAA as nothing more than what arises as a consequence of the fact that the capital of
MIAA is contributed by the National Government. 122 If so, then there is no difference between the State's
ownership rights over MIAA properties than those of a majority stockholder over the properties of a
corporation. Even if such shareholder effectively owns the corporation and controls the disposition of its assets,
the personality of the stockholder remains separately distinct from that of the corporation. A brief recall of the
entrenched rule in corporate law is in order:

The first consequence of the doctrine of legal entity regarding the separate identity of the
corporation and its stockholders insofar as their obligations and liabilities are concerned, is
spelled out in this general rule deeply entrenched in American jurisprudence:

Unless the liability is expressly imposed by constitutional or statutory provisions, or by

the charter, or by special agreement of the stockholders, stockholders are not
personally liable for debts of the corporation either at law or equity. The reason is that
the corporation is a legal entity or artificial person, distinct from the members who
compose it, in their individual capacity; and when it contracts a debt, it is the debt of
the legal entity or artificial person — the corporation — and not the debt of the
individual members. (13A Fletcher Cyc. Corp. Sec. 6213) AaSIET

The entirely separate identity of the rights and remedies of a corporation itself and its
individual stockholders have been given definite recognition for a long time. Applying said
principle, the Supreme Court declared that a corporation may not be made to answer for acts
or liabilities of its stockholders or those of legal entities to which it may be connected, or vice
versa. (Palay Inc. v. Clave et al. 124 SCRA 638) It was likewise declared in a similar case that
a bonafide corporation should alone be liable for corporate acts duly authorized by its officers
and directors. (Caram Jr. v. Court of Appeals et.al. 151 SCRA, p. 372) 123

It bears repeating that MIAA under its charter, is expressly conferred the right to exercise all the powers of a
corporation under the Corporation Law, including the right to corporate succession, and the right to sue and be
sued in its corporate name. 124 The national government made a particular choice to divest ownership and
operation of the Manila International Airport and transfer the same to such an empowered entity due to
perceived advantages. Yet such transfer cannot be deemed consequence free merely because it was the
State which contributed the operating capital of this body corporate.

The majority claims that the transfer the assets of MIAA was meant merely to effect a reorganization. The
imputed rationale for such transfer does not serve to militate against the legal consequences of such
assignment. Certainly, if it was intended that the transfer should be free of consequence, then why was it
effected to a body corporate, with a distinct legal personality from that of the State or Republic? The stated
aims of the MIAA could have very well been accomplished by creating an agency without independent
juridical personality.

VI.

MIAA Performs Proprietary Functions

Nonetheless, Section 234(f) exempts properties owned by the Republic of the Philippines or its political
subdivisions from realty taxation. The obvious question is what comprises "the Republic of the Philippines." I
think the key to understanding the scope of "the Republic" is the phrase "political subdivisions." Under the
Constitution, political subdivisions are defined as "the provinces, cities, municipalities and barangays." 125 In
correlation, the Administrative Code of 1987 defines "local government" as referring to "the political
subdivisions established by or in accordance with the Constitution."

Clearly then, these political subdivisions are engaged in the exercise of sovereign functions and are
accordingly exempt. The same could be said generally of the national government, which would be similarly
exempt. After all, even with the principle of local autonomy, it is inherently noxious and self-defeatist for local
taxation to interfere with the sovereign exercise of functions. However, the exercise of proprietary functions is a
different matter altogether.

Sovereign and Proprietary

248
 Functions Distinguished

Sovereign or constituent functions are those which constitute the very bonds of society and are compulsory in
nature, while ministrant or proprietary functions are those undertaken by way of advancing the general
interests of society and are merely optional. 126 An exhaustive discussion on the matter was provided by the
Court inBacani v. NACOCO: 127

. . . This institution, when referring to the national government, has reference to what our
Constitution has established composed of three great departments, the legislative, executive,
and the judicial, through which the powers and functions of government are exercised. These
functions are twofold: constituent and ministrant. The former are those which constitute the
very bonds of society and are compulsory in nature; the latter are those that are undertaken
only by way of advancing the general interests of society, and are merely optional. President
Wilson enumerates the constituent functions as follows:

"'(1) The keeping of order and providing for the protection of persons and property
from violence and robbery.

'(2) The fixing of the legal relations between man and wife and between parents
and children.

'(3) The regulation of the holding, transmission, and interchange of property, and
the determination of its liabilities for debt or for crime.

'(4) The determination of contract rights between individuals.

'(5) The definition and punishment of crime.

'(6) The administration of justice in civil cases.

'(7) The determination of the political duties, privileges, and relations of citizens.

'(8) Dealings of the state with foreign powers: the preservation of the state from
external danger or encroachment and the advancement of its internationalinterests.'"
(Malcolm, The Government of the Philippine Islands, p. 19.)

The most important of the ministrant functions are: public works, public education, public
charity, health and safety regulations, and regulations of trade and industry. The principles
determining whether or not a government shall exercise certain of these optional functions
are: (1) that a government should do for the public welfare those things which private capital
would not naturally undertake and (2) that a government should do these things which by its
very nature it is better equipped to administer for the public welfare than is any private
individual or group of individuals. (Malcolm, The Government of the Philippine Islands, pp. 19-
20.)

From the above we may infer that, strictly speaking, there are functions which our
government is required to exercise to promote its objectives as expressed in our
Constitution and which are exercised by it as an attribute of sovereignty, and those
which it may exercise to promote merely the welfare, progress and prosperity of the
people. To this latter class belongs the organization of those corporations owned or
controlled by the government to promote certain aspects of the economic life of our
people such as the National Coconut Corporation. These are what we call government-owned
or controlled corporations which may take on the form of a private enterprise or one organized
with powers and formal characteristics of a private corporations under the Corporation Law.

128

The Court in Bacani rejected the proposition that the National Coconut Corporation exercised
sovereign functions:

Does the fact that these corporations perform certain functions of government make them a
part of the Government of the Philippines?
249
 The answer is simple: they do not acquire that status for the simple reason that they do not
come under the classification of municipal or public corporation. Take for instance the National
Coconut Corporation. While it was organized with the purpose of "adjusting the coconut
industry to a position independent of trade preferences in the United States" and of
providing "Facilities for the better curing of copra products and the proper utilization of
coconut by-products," a function which our government has chosen to exercise to
promote the coconut industry, however, it was given a corporate power separate and
distinct from our government, for it was made subject to the provisions of our
Corporation Law in so far as its corporate existence and the powers that it may
exercise are concerned (sections 2 and 4, Commonwealth Act No. 518). It may sue and
be sued in the same manner as any other private corporations, and in this sense it is an
entity different from our government. As this Court has aptly said, "The mere fact that the
Government happens to be a majority stockholder does not make it a public corporation"
(National Coal Co. vs. Collector of Internal Revenue, 46 Phil., 586-587). "By becoming a
stockholder in the National Coal Company, the Government divested itself of its
sovereign character so far as respects the transactions of the corporation. . . . Unlike
the Government, the corporation may be sued without its consent, and is subject to
taxation. Yet the National Coal Company remains an agency or instrumentality
ofgovernment." (Government of the Philippine Islands vs. Springer, 50 Phil., 288.)

The following restatement of the entrenched rule by former SEC Chairperson Rosario Lopez bears noting:

The fact that government corporations are instrumentalities of the State does not divest them
with immunity from suit. (Malong v. PNR, 138 SCRA p. 63) It is settled that when the
government engages in a particular business through the instrumentality of a
corporation, it divests itself pro hoc vice of its sovereign character so as to subject
itself to the rules governing private corporations, (PNB v. Pabolan 82 SCRA 595) and is
to be treated like any other corporation. (PNR v. Union de Maquinistas Fogonero y
Motormen, 84 SCRA 223)

In the same vein, when the government becomes a stockholder in a corporation, it does not
exercise sovereignty as such. It acts merely as a corporator and exercises no other power in
the management of the affairs of the corporation than are expressly given by the incorporating
act. Nor does the fact that the government may own all or a majority of the capital stock take
from the corporation its character as such, or make the government the real party in interest.
(Amtorg Trading Corp. v. US 71 F2d 524, 528) 129

MIAA Performs Proprietary

Functions No Matter How

Vital to the Public Interest

The simple truth is that, based on these accepted doctrinal tests, MIAA performs proprietary functions. The
operation of an airport facility by the State may be imbued with public interest, but it is by no means
indispensable or obligatory on the national government. In fact, as demonstrated in other countries, it makes
a lot ofeconomic sense to leave the operation of airports to the private sector.

The majority tries to becloud this issue by pointing out that the MIAA does not compete in the marketplace as
there is no competing international airport operated by the private sector; and that MIAA performs an essential
public service as the primary domestic and international airport of the Philippines. This premise is false, for
one. On a local scale, MIAA competes with other international airports situated in the Philippines, such as
Davao International Airport and MCIAA. More pertinently, MIAA also competes with other international airports
in Asia, at least. International airlines take into account the quality and conditions of various international
airports in determining the number of flights it would assign to a particular airport, or even in choosing a hub
through which destinations necessitating connecting flights would pass through. cTDaEH

Even if it could be conceded that MIAA does not compete in the market place, the example of the Philippine
National Railways should be taken into account. The PNR does not compete in the marketplace, and performs an
essential public service as the operator of the railway system in the Philippines. Is the PNR engaged in sovereign
functions? The Court, in Malong v. Philippine National Railways, 130 held that it was not. 131

250
Even more relevant to this particular case is Teodoro v. National Airports Corporation, 132 concerning the
proper appreciation of the functions performed by the Civil Aeronautics Administration (CAA), which had
succeeded the defunction National Airports Corporation. The CAA claimed that as an unincorporated
agency of the Republic of the Philippines, it was incapable of suing and being sued. The Court noted:

Among the general powers of the Civil Aeronautics Administration are, under Section 3, to
execute contracts of any kind, to purchase property, and to grant concession rights, and under
Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline,
accessories and supplies, and rentals for the use of any property under its management.

These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power
to sue and be sued. The power to sue and be sued is implied from the power to transact
private business. And if it has the power to sue and be sued on its behalf, the Civil
Aeronautics Administration with greater reason should have the power to prosecute and
defend suits for and against the National Airports Corporation, having acquired all the
properties, funds and choses in action and assumed all the liabilities of the latter. To deny the
National Airports Corporation's creditors access to the courts of justice against the Civil
Aeronautics Administration is to say that the government could impair the obligation of its
corporations by the simple expedient of converting them into unincorporated agencies. 133

xxx xxx xxx

Eventually, the charter of the CAA was revised, and it among its expanded functions was "[t]o administer,
operate, manage, control, maintain and develop the ManilaInternational Airport." 134 Notwithstanding this
expansion, in the 1988 case of CAA v. Court of Appeals 135 the Court reaffirmed the ruling that the CAA was
engaged in "private or non-governmental functions." 136 Thus, the Court had already ruled that the
predecessor agency of MIAA, the CAA was engaged in private or non-governmental functions. These are more
precedents ignored by the majority. The following observation from the Teodoro case very well applies to
MIAA.

The Civil Aeronautics Administration comes under the category of a private entity.
Although not a body corporate it was created, like the National Airports Corporation,
not to maintain a necessary function of government, but to run what is essentially a
business, even if revenues be not its prime objective but rather the promotion of travel
and the convenience of the traveling public. It is engaged in an enterprise which, far
from being the exclusive prerogative ofstate, may, more than the construction of public
roads, be undertaken by private concerns. 137

If the determinative point in distinguishing between sovereign functions and proprietary functions is the vitality
of the public service being performed, then it should be noted that there is no more important public service
performed than that engaged in by public utilities. But notably, the Constitution itself authorizes private
persons to exercise these functions as it allows them to operate public utilities in this country. 138 If indeed
such functions are actually sovereign and belonging properly to the government, shouldn't it follow that the
exercise of these tasks remain within the exclusive preserve of the State?

There really is no prohibition against the government taxing itself, 139 and nothing obscene with allowing
government entities exercising proprietary functions to be taxed for the purpose of raising the coffers of
LGUs. On the other hand, it would be an even more noxious proposition that the government or the
instrumentalities that it owns are above the law and may refuse to pay a validly imposed tax. MIAA, or any
similar entity engaged in the exercise of proprietary, and not sovereign functions, cannot avoid the adverse-
effects of tax evasion simply on the claim that it is imbued with some of the attributes of government.

VII.

MIAA Property Not Subject to

Execution Sale Without Consent

Of the President.

Despite the fact that the City of Parañaque ineluctably has the power to impose real property taxes over the
MIAA, there is an equally relevant statutory limitation on this power that must be fully upheld. Section 3 of the
MIAA charter states that "[a]ny portion [of the [lands transferred, conveyed and assigned to the ownership and
251
administration of the MIAA] shall not be disposed through sale or through any other mode
unless specifically approved by the President of the Philippines." 140

Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can be deemed as
repealing this prohibition under Section 3, even if it effectively forecloses one possible remedy of the LGU in
the collection of delinquent real property taxes. While the Local Government Code withdrew all previous local
tax exemptions of the MIAA and other natural and juridical persons, it did not similarly withdraw any previously
enacted prohibitions on properties owned by GOCCs, agencies or instrumentalities. Moreover, the resulting
legal effect, subjecting on one hand the MIAA to local taxes but on the other hand shielding its properties from
any form of sale or disposition, is not contradictory or paradoxical, onerous as its effect may be on the LGU. It
simply means that the LGU has to find another way to collect the taxes due from MIAA, thus paving the way
for a mutually acceptable negotiated solution. 141

There are several other reasons this statutory limitation should be upheld and applied to this case. It is at this
juncture that the importance of the Manila Airport to our national life and commerce may be accorded proper
consideration. The closure of the airport, even by reason of MIAA's legal omission to pay its taxes, will have an
injurious effect to our national economy, which is ever reliant on air travel and traffic. The same effect would
obtain if ownership and administration of the airport were to be transferred to an LGU or some other entity
which were not specifically chartered or tasked to perform such vital function. It is for this reason that the MIAA
charter specifically forbids the sale or disposition of MIAA properties without the consent of the President. The
prohibition prevents the peremptory closure of the MIAA or the hampering of its operations on account of the
demands of its creditors. The airport is important enough to be sheltered by legislation from ordinary legal
processes.

Section 3 of the MIAA charter may also be appreciated as within the proper exercise of executive control by
the President over the MIAA, a GOCC which despite its separate legal personality, is still subsumed within the
executive branch of government. The power of executive control by the President should be upheld so long as
such exercise does not contravene the Constitution or the law, the President having the corollary duty to
faithfully execute the Constitution and the laws of the land. 142In this case, the exercise of executive control is
precisely recognized and authorized by the legislature, and it should be upheld even if it comes at the expense
of limiting the power of local government units to collect real property taxes.

Had this petition been denied instead with Mactan as basis, but with the caveat that the MIAA properties
could not be subject of execution sale without the consent ofthe President, I suspect that the parties would
feel little distress. Through such action, both the Local Government Code and the MIAA charter would have
been upheld. The prerogatives of LGUs in real property taxation, as guaranteed by the Local Government
Code, would have been preserved, yet the concerns about the ruinous effects of having to close the Manila
International Airport would have been averted. The parties would then be compelled to try harder at working
out a compromise, a task, if I might add, they are all too willing to engage in. 143 Unfortunately, the majority
will cause precisely the opposite result of unremitting hostility, not only to the Cityof Parañaque, but to the
thousands of LGUs in the country.

VIII.

Summary of Points

My points may be summarized as follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Mactan and a long line of succeeding cases have already
settled the rule that under the Local Government Code, enacted pursuant to the constitutional mandateof
local autonomy, all natural and juridical persons, even those GOCCs, instrumentalities and agencies, are no
longer exempt from local taxes even if previously granted an exemption. The only exemptions from local taxes
are those specifically provided under the Local Government Code itself, or those enacted through subsequent
legislation. CcEHaI

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Under the Local Government Code, particularly Section
232, instrumentalities, agencies and GOCCs are generally liable for real property taxes. The only
exemptions therefrom under the same Code are provided in Section 234, which include real property owned
by the Republic of the Philippines or any of its political subdivisions.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The subject properties are owned by MIAA, a GOCC,
holding title in its own name. MIAA, a separate legal entity from the Republic of the Philippines, is the legal
owner of the properties, and is thus liable for real property taxes, as it does not fall within the exemptions
under Section 234 of the Local Government Code.

252
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The MIAA charter expressly bars the sale or disposition of
MIAA properties. As a result, the City of Parañaque is prohibited from seizing or selling these properties by
public auction in order to satisfy MIAA's tax liability. In the end, MIAA is encumbered only by a limited lien
possessed by the City of Parañaque.

On the other hand, the majority's flaws are summarized as follows:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The majority deliberately ignores all precedents which
run counter to its hypothesis, including Mactan. Instead, it relies and directly cites those doctrines and
precedents which were overturned by Mactan. By imposing a different result than that warranted by the
precedents without explaining why Mactan or the other precedents are wrong, the majority attempts to
overturn all these ruling sub silencio and without legal justification, in a manner that is not sanctioned by the
practices and traditions of this Court.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The majority deliberately ignores the policy and philosophy
of local fiscal autonomy, as mandated by the Constitution, enacted under the Local Government Code, and
affirmed by precedents. Instead, the majority asserts that there is no sound rationale for local governments to
tax national government instrumentalities, despite the blunt existence of such rationales in the Constitution, the
Local Government Code, and precedents.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The majority, in a needless effort to justify itself, adopts
an extremely strained exaltation of the Administrative Code above and beyond the Corporation Code and the
various legislative charters, in order to impose a wholly absurd definition of GOCCs that effectively
declassifies innumerable existing GOCCs, to catastrophic legal consequences.

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The majority asserts that by virtue of Section 133(o) of the
Local Government Code, all national government agencies and instrumentalities are exempt from any form of
local taxation, in contravention of several precedents to the contrary and the proviso under Section 133,
"unless otherwise provided herein [the Local Government Code]."

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The majority erroneously argues that MIAA holds its
properties in trust for the Republic of the Philippines, and that such properties are patrimonial in character.
No express or implied trust has been created to benefit the national government. The legal distinction
between sovereign and proprietary functions, as affirmed by jurisprudence, likewise preclude the
classification of MIAA properties as patrimonial.

IX.

Epilogue

If my previous discussion still fails to convince on how wrong the majority is, then the following points are
well-worth considering. The majority cites the Bangko Sentral ng Pilipinas (Bangko Sentral) as a government
instrumentality that exercises corporate powers but not organized as a stock or non-stock corporation.
Correspondingly for the majority, the Bangko ng Sentral is exempt from all forms of local taxation by LGUs by
virtue of the Local Government Code.

Section 125 of Rep. Act No. 7653, The New Central Bank Act, states:

SECTION 125. Tax Exemptions. — The Bangko Sentral shall be exempt for a period of five

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ years from the approval of

this Act from all national, provincial, municipal and city taxes, fees, charges and
assessments.

The New Central Bank Act was promulgated after the Local Government Code. If the BSP is already preternaturally
exempt from local taxation owing to its personality as an "government instrumentality," why then the need to make a
new grant of exemption, which if the majority is to be believed, is actually a redundancy. But even more tellingly,
does not this provision evince a clear intent that after the lapse of five (5) years, that the Bangko Sentral will be
liable for provincial, municipal and city taxes? This is the clear congressional intent, and it is Congress, not this
Court which dictates which entities are subject to taxation and which are exempt.
Perhaps this notion will offend the majority, because the Bangko Sentral is not even a government owned
corporation, but a government instrumentality, or perhaps "loosely", a "government corporate entity." How
could such an entity like the Bangko Sentral, which is not even a government owned corporation, be subjected
to local taxation like any mere mortal? But then, see Section 1 of the New Central Bank Act:

SECTION 1. Declaration of Policy. — The State shall maintain a central monetary authority
that shall function and operate as an independent and accountable body corporate in the
discharge of its mandated responsibilities concerning money, banking and credit. In line with

253
 this policy, and considering its unique functions and responsibilities, the central monetary
authority established under this Act, while being a government-owned corporation,
shall enjoy fiscal and administrative autonomy.

Apparently, the clear legislative intent was to create a government corporation known as the Bangko Sentral
ng Pilipinas. But this legislative intent, the sort that is evident from the text of the provision and not the one that
needs to be unearthed from the bowels of the archival offices of the House and the Senate, is for naught to
the majority, as it contravenes the Administrative Code of 1987, which after all, is "the governing law defining
the status and relationship of government agencies and instrumentalities" and thus superior to the legislative
charter in determining the personality of a chartered entity. Its like saying that the architect who designed a
school building is better equipped to teach than the professor because at least the architect is familiar with the
geometry of the classroom.

Consider further the example of the Philippine Institute of Traditional and Alternative Health Care (PITAHC),
created by Republic Act No. 8243 in 1997. It has similar characteristics as MIAA in that it is established as a
body corporate, 144 and empowered with the attributes of a corporation, 145 including the power to purchase
or acquire real properties. 146 However the PITAHC has no capital stock and no members, thus following the
majority, it is not a GOCC.

The state policy that guides PITAHC is the development of traditional and alternative health care, 147 and its
objectives include the promotion and advocacy ofalternative, preventive and curative health care modalities
that have been proven safe, effective and cost effective. 148 "Alternative health care modalities" include
"other forms of non-allophatic, occasionally non-indigenous or imported healing methods" which include,
among others "reflexology, acupuncture, massage, acupressure" and chiropractics. 149

Given these premises, there is no impediment for the PITAHC to purchase land and construct thereupon a
massage parlor that would provide a cheaper alternative to the opulent spas that have proliferated around the
metropolis. Such activity is in line with the purpose of the PITAHC and with state policy. Is such massage
parlor exempt from realty taxes? For the majority, it is, for PITAHC is an instrumentality or agency exempt from
local government taxation, which does not fall under the exceptions under Section 234 of the Local
Government Code. Hence, this massage parlor would not just be a shelter for frazzled nerves, but for taxes as
well. CAHaST

Ridiculous? One might say, certainly a decision of the Supreme Court cannot be construed to promote an
absurdity. But precisely the majority, and the faulty reasoning it utilizes, opens itself up to all sorts of
mischief, and certainly, a tax-exempt massage parlor is one of the lesser evils that could arise from the
majority ruling. This is indeed a very strange and very wrong decision.

I dissent.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Manila International Airport Authority v. Court of

Appeals, G.R. No. 155650, [July 20, 2006], 528 PHIL 181-309)

Planters Products, Inc. v. Fertiphil Corp., G.R. No. 166006, [March 14, 2008], 572 PHIL 270-302

THIRD DIVISION

[G.R. No. 166006. March 14, 2008.]

PLANTERS PRODUCTS, INC., petitioner,vs.FERTIPHIL CORPORATION, respondent.

DECISION

REYES, R.T., J p:
254
 THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the constitutionality of
statutes, executive orders, presidential decrees and other issuances. The Constitution vests that power not
only in the Supreme Court but in all Regional Trial Courts.

The principle is relevant in this petition for review on certiorari of the Decision 1 of the Court of
Appeals (CA) affirming with modification that of the RTC in Makati City, 2 finding petitioner Planters Products,
Inc. (PPI) liable to private respondent Fertiphil Corporation (Fertiphil) for the levies it paid under Letter of
Instruction (LOI) No. 1465.

The Facts

Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine
laws. 3 They are both engaged in the importation and distribution of fertilizers, pesticides and agricultural
chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI No.
1465 which provided, among others, for the imposition of a capital recovery component (CRC) on the
domestic sale of all grades of fertilizers in the Philippines. 4 The LOI provides:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Administrator of the Fertilizer

Pesticide Authority to include in its fertilizer pricing formula a capital contribution
component of not less than P10 per bag. This capital contribution shall be
collected until adequate capital is raised to make PPI viable.Such capital
contribution shall be applied by FPA to all domestic sales of fertilizers in the
Philippines. 5 (Underscoring supplied)

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the
Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the Far East Bank and
Trust Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January
24, 1986. 6

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the
return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465, but
PPI refused to accede to the demand. 7

Fertiphil filed a complaint for collection and damages 8 against FPA and PPI with the RTC in Makati.
It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid and an
unlawful imposition that amounted to a denial of due process of law. 9 Fertiphil alleged that the LOI solely
favored PPI, a privately owned corporation, which used the proceeds to maintain its monopoly of the fertilizer
industry.

In its Answer, 10 FPA, through the Solicitor General, countered that the issuance of LOI No. 1465
was a valid exercise of the police power of the State in ensuring the stability of the fertilizer industry in the
country. It also averred that Fertiphil did not sustain any damage from the LOI because the burden imposed
by the levy fell on the ultimate consumer, not the seller. SIDEaA

RTC Disposition

On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as follows:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against the defendant Planters Product, Inc.,ordering the latter to pay the former:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the sum of P6,698,144.00

with interest at 12% from the time of judicial demand;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the sum of P100,000 as attorney's

fees;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the cost of suit.

SO ORDERED. 11
 Ruling that the imposition of the P10 CRC was an exercise of the State's inherent power of taxation,
the RTC invalidated the levy for violating the basic principle that taxes can only be levied for public purpose,
viz.:

It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is
purportedly in the exercise of the power of taxation. It is a settled principle that the power of
taxation by the state is plenary. Comprehensive and supreme, the principal check upon its

255
 abuse resting in the responsibility of the members of the legislature to their constituents.
However, there are two kinds of limitations on the power of taxation: the inherent limitations and
the constitutional limitations.

One of the inherent limitations is that a tax may be levied only for public purposes:

The power to tax can be resorted to only for a constitutionally valid public purpose. By
the same token, taxes may not be levied for purely private purposes, for building up of
private fortunes, or for the redress of private wrongs. They cannot be levied for the
improvement of private property, or for the benefit, and promotion of private enterprises,
except where the aid is incident to the public benefit. It is well-settled principle of
constitutional law that no general tax can be levied except for the purpose of raising
money which is to be expended for public use. Funds cannot be exacted under the guise
of taxation to promote a purpose that is not of public interest. Without such limitation, the
power to tax could be exercised or employed as an authority to destroy the economy of
the people. A tax, however, is not held void on the ground of want of public interest
unless the want of such interest is clear. (71 Am. Jur. pp. 371-372)

In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and Pesticide
Authority pursuant to the P10 per bag of fertilizer sold imposition underLOI 1465 which, in turn,
remitted the amount to the defendant Planters Products, Inc. thru the latter's depository bank,
Far East Bank and Trust Co. Thus, by virtue ofLOI 1465 the plaintiff, Fertiphil Corporation,
which is a private domestic corporation, became poorer by the amount of P6,698,144.00 and
the defendant, PlantersProduct, Inc., another private domestic corporation, became richer by
the amount of P6,698,144.00. aHSCcE

Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is

quite evident that LOI 1465 insofar as it imposes the amount of P10 per fertilizer bag sold in the
country and orders that the said amount should go to the defendant Planters Product, Inc. is
unlawful because it violates the mandate that a tax can be levied only for a public purpose and
not to benefit, aid and promote a private enterprise such as Planters Product, Inc. 12

PPI moved for reconsideration but its motion was denied. 13 PPI then filed a notice of appeal with the
RTC but it failed to pay the requisite appeal docket fee. In a separate but related proceeding, this Court 14
allowed the appeal of PPI and remanded the case to the CA for proper disposition.

CA Decision

On November 28, 2003, the CA handed down its decision affirming with modification that of the

RTC, with the following fallo:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby

AFFIRMED,subject to the MODIFICATION that the award of attorney's fees is hereby

DELETED.15

In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection was the
constitutionality of LOI No. 1465, thus:

The question then is whether it was proper for the trial court to exercise its power to judicially
determine the constitutionality of the subject statute in the instant case.

As a rule, where the controversy can be settled on other grounds, the courts will not resolve the
constitutionality of a law (Lim v. Pacquing, 240 SCRA 649 [1995]).The policy of the courts is to
avoid ruling on constitutional questions and to presume that the acts of political departments are
valid, absent a clear and unmistakable showing to the contrary.

However, the courts are not precluded from exercising such power when the following requisites
are obtaining in a controversy before it: First, there must be before the court an actual case
calling for the exercise of judicial review. Second, the question must be ripe for adjudication.
Third, the person challenging the validity of the act must have standing to challenge. Fourth, the
question of constitutionality must have been raised at the earliest opportunity; and lastly, the
issue of constitutionality must be the very lis mota of the case (Integrated Bar of the Philippines
v. Zamora, 338 SCRA 81 [2000]).

256
 Indisputably, the present case was primarily instituted for collection and damages. However, a
perusal of the complaint also reveals that the instant action is founded on the claim that the levy
imposed was an unlawful and unconstitutional special assessment. Consequently, the requisite
that the constitutionality of the law in question be the very lis mota of the case is present,
making it proper for the trial court to rule on the constitutionality of LOI 1465. 16

The CA held that even on the assumption that LOI No. 1465 was issued under the police power of the
state, it is still unconstitutional because it did not promote public welfare. The CA explained:

In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said
law was an invalid exercise of the State's power of taxation inasmuch asit violated the inherent
and constitutional prescription that taxes be levied only for public purposes. It reasoned out that
the amount collected under the levy was remitted to the depository bank of PPI, which the latter
used to advance its private interest.

On the other hand, appellant submits that the subject statute's passage was a valid exercise of
police power. In addition, it disputes the court a quo's findings arguing that the collections under
LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a foundation created
by law to hold in trust for millions of farmers, the stock ownership of PPI.

Of the three fundamental powers of the State, the exercise of police power has been
characterized as the most essential, insistent and the least limitable of powers, extending as it
does to all the great public needs. It may be exercised as long as the activity or the property
sought to be regulated has some relevance to public welfare (Constitutional Law, by Isagani A.
Cruz, p. 38, 1995 Edition).

Vast as the power is, however, it must be exercised within the limits set by the Constitution,
which requires the concurrence of a lawful subject and a lawful method. Thus, our courts have
laid down the test to determine the validity of a police measure as follows: (1) the interests of
the public generally, as distinguished from those of a particular class, requires its exercise; and
(2) the means employed are reasonably necessary for the accomplishment of the purpose and
not unduly oppressive upon individuals (National Development Company v. Philippine Veterans
Bank, 192 SCRA 257 [1990]).

It is upon applying this established tests that We sustain the trial court's holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will promote the public welfare. The
government's commitment to support the successful rehabilitation and continued viability of PPI,
a private corporation, is an unmistakable attempt to mask the subject statute's impartiality.
There is no way to treat the self-interest of a favored entity, like PPI, as identical with the
general interest of the country's farmers or even the Filipino people in general. Well to stress,
substantive due process exacts fairness and equal protection disallows distinction where none
is needed.When a statute's public purpose is spoiled by private interest, the use of police power
becomes a travesty which must be struck down for being an arbitrary exercise of government
power. To rule in favor of appellant would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or for the exclusive benefit of
private individuals. 17

The CA did not accept PPI's claim that the levy imposed under LOI No. 1465 was for the benefit of

Planters Foundation, Inc., a foundation created to hold in trust the stock ownership of PPI. The CA stated:

Appellant next claims that the collections under LOI 1465 was for the benefit of Planters
Foundation, Incorporated (PFI), a foundation created by law to hold in trust for millions of
farmers, the stock ownership of PFI on the strength of Letter of Undertaking (LOU) issued by
then Prime Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justice in
an Opinion dated October 12, 1987, to wit:

"2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to
include in its fertilizer pricing formula a capital recovery component, the proceeds of
which will be used initially for the purpose of funding the unpaid portion of the
outstanding capital stock of Planters presently held in trust byPlanters Foundation, Inc.
257
 (Planters Foundation),which unpaid capital is estimated at approximately P206 million
(subject to validation by Planters and PlantersFoundation) (such unpaid portion of the
outstanding capital stock of Planters being hereafter referred to as the 'Unpaid
Capital'),and subsequently for such capital increases as may be required for the
continuing viability of Planters.

The capital recovery component shall be in the minimum amount of P10 per bag, which
will be added to the price of all domestic sales of fertilizer in the Philippines by any
importer and/or fertilizer mother company. In this connection, the Republic hereby
acknowledges that the advances by Planters to PlantersFoundation which were applied
to the payment of the Planters shares now held in trust by Planters Foundation, have
been assigned to, among others, the Creditors. Accordingly, the Republic, through FPA,
hereby agrees to deposit the proceeds of the capital recovery component in the special
trust account designated in the notice dated April 2, 1985, addressed by counsel for the
Creditors to Planters Foundation. Such proceeds shall be deposited by FPA on or before
the 15th day of each month.

The capital recovery component shall continue to be charged and collected until
payment in full of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the
Subsidy Receivables, (c) any carrying cost accruing from the date hereof on the
amounts which may be outstanding from time to time of the Unpaid Capital and/or the
Subsidy Receivables and (d) the capital increases contemplated in paragraph 2 hereof.
For the purpose of the foregoing clause (c),the 'carrying cost' shall be at such rate as will
represent the full and reasonable cost to Planters of servicing its debts, taking into
account both its peso and foreign currency-denominated obligations." (Records, pp. 42-
43)

Appellant's proposition is open to question, to say the least. The LOU issued by then Prime
Minister Virata taken together with the Justice Secretary's Opinion does not preponderantly
demonstrate that the collections made were held in trust in favor of millions of farmers.
Unfortunately for appellant, in the absence of sufficient evidence to establish its claims, this
Court is constrained to rely on what is explicitly provided in LOI 1465 — that one of the primary
aims in imposing the levy is to support the successful rehabilitation and continued viability of
PPI. 18

PPI moved for reconsideration but its motion was denied. 19 It then filed the present petition with this
Court.

Issues

Petitioner PPI raises four issues for Our consideration, viz.:

THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED AND BE

DECREED VIA A DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION AND
DAMAGES WHERE THE ISSUE OF CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF
THE CASE. NEITHER CAN LOI 1465 BE
CHALLENGED BY ANY PERSON OR ENTITY WHICH HAS NO STANDING TO DO SO.

II

LOI 1465,BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE

FERTILIZER SUPPLY AND DISTRIBUTION IN THE COUNTRY, AND FOR BENEFITING A
FOUNDATION CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF FARMERS
THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT TO
THE EXERCISE OF TAXATION AND POLICE POWER FOR PUBLIC PURPOSES. TaCDIc

III

THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS

REMITTED TO THE GOVERNMENT, AND BECAME GOVERNMENT FUNDS PURSUANT TO
AN EFFECTIVE AND VALIDLY ENACTED LAW WHICH IMPOSED DUTIES AND
258
 CONFERRED RIGHTS BY VIRTUE OF THE PRINCIPLE OF "OPERATIVE FACT" PRIOR TO
ANY DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.

IV

THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO

APPLICATION IN THE INSTANT CASE. 20 (Underscoring supplied)

Our Ruling

We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to resolve
constitutional issues.

Fertiphil has locus standi because it

suffered direct injury; doctrine of

standing is a mere procedural

technicality which may be waived.

PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465 because
it does not have a "personal and substantial interest in the case or will sustain direct injury as a result of its
enforcement". 21 It asserts that Fertiphil did not suffer any damage from the CRC imposition because
"incidence of the levy fell on the ultimate consumer or the farmers themselves, not on the seller fertilizer
company". 22 Cdpr

We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has
been adequately discussed by this Court in a catena of cases. Succinctly put, the doctrine requires a litigant
to have a material interest in the outcome of a case. In private suits, locus standi requires a litigant to be a
"real party in interest", which is defined as "the party who stands to be benefited or injured by the judgment in
the suit or the party entitled to the avails of the suit". 23

In public suits, this Court recognizes the difficulty of applying the doctrine especially when plaintiff
asserts a public right on behalf of the general public because of conflicting public policy issues. 24 On one
end, there is the right of the ordinary citizen to petition the courts to be freed from unlawful government
intrusion and illegal official action. At the other end, there is the public policy precluding excessive judicial
interference in official acts, which may unnecessarily hinder the delivery of basic public services.

In this jurisdiction, We have adopted the "direct injury test" to determine locus standi in public suits. In
People v. Vera, 25 it was held that a person who impugns the validity of a statute must have "a personal and
substantial interest in the case such that he has sustained, or will sustain direct injury as a result." The "direct
injury test" in public suits is similar to the "real party in interest" rule for private suits under Section 2, Rule 3
of the 1997 Rules of Civil Procedure. 26 IaDTES

Recognizing that a strict application of the "direct injury" test may hamper public interest, this Court
relaxed the requirement in cases of "transcendental importance" or with "far reaching implications." Being a
mere procedural technicality, it has also been held that locus standi may be waived in the public interest.

27

Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil has
locus standi to file it. Fertiphil suffered a direct injury from the enforcement of LOI No. 1465. It was required,
and it did pay, the P10 levy imposed for every bag of fertilizer sold on the domestic market. It may be true
that Fertiphil has passed some or all of the levy to the ultimate consumer, but that does not disqualify it from
attacking the constitutionality of the LOI or from seeking a refund. As seller, it bore the ultimate burden of
paying the levy. It faced the possibility of severe sanctions for failure to pay the levy. The fact of payment is
sufficient injury to Fertiphil.

Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled to factor
in its product the levy. The levy certainly rendered the fertilizer products of Fertiphil and other domestic
sellers much more expensive. The harm to their business consists not only in fewer clients because of the
increased price, but also in adopting alternative corporate strategies to meet the demands of LOI No. 1465.
Fertiphil and other fertilizer sellers may have shouldered all or part of the levy just to be competitive in the
market. The harm occasioned on the business of Fertiphil is sufficient injury for purposes of locus standi.
259
 Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently
adopted by this Court on locus standi must apply. The issues raised by Fertiphil are of paramount public
importance. It involves not only the constitutionality of a tax law but, more importantly, the use of taxes for
public purpose. Former President Marcos issued LOI No. 1465 with the intention of rehabilitating an ailing
private company. This is clear from the text of the LOI. PPI is expressly named in the LOI as the direct
beneficiary of the levy. Worse, the levy was made dependent and conditional upon PPI becoming financially
viable. The LOI provided that "the capital contribution shall be collected until adequate capital is raised to
make PPI viable".

The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our
constitutional duty to squarely resolve the issue as the final arbiter of all justiciable controversies. The
doctrine of standing, being a mere procedural technicality, should be waived, if at all, to adequately thresh
out an important constitutional issue.

RTC may resolve constitutional

issues; the constitutional issue was

adequately raised in the complaint; it

is the lis mota of the case.

PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It asserts that
the constitutionality of the LOI cannot be collaterally attacked in a complaint for collection. 28 Alternatively,
the resolution of the constitutional issue is not necessary for a determination of the complaint for collection.

29

Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint. It
claims that the constitutionality of LOI No. 1465 is the very lis mota of the case because the trial court cannot
determine its claim without resolving the issue. 30

It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential
decree or an executive order. This is clear from Section 5, Article VIII of the 1987 Constitution, which
provides:

SECTION 5. The Supreme Court shall have the following powers:

30167782400 xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Review, revise, reverse, modify, or affirm on

appeal or certiorari,as the law or the Rules of Court may provide, final judgments and orders of
lower courts in:

All cases in which the constitutionality or validity of any treaty, international or

executive agreement, law, presidential decree, proclamation, order,

instruction,ordinance, or regulation is in question. (Underscoring supplied)

In Mirasol v. Court of Appeals, 31 this Court recognized the power of the RTC to resolve
constitutional issues, thus:

On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to
consider the constitutionality of a statute, presidential decree, or executive order. The
Constitution vests the power of judicial review or the power to declare a law, treaty, international
or executive agreement, presidential decree, order, instruction, ordinance, or regulation not only
in this Court, but in all Regional Trial Courts. 32

In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs, 33 this Court
reiterated:

There is no denying that regular courts have jurisdiction over cases involving the validity or
constitutionality of a rule or regulation issued by administrative agencies. Such jurisdiction,
however, is not limited to the Court of Appeals or to this Court alone for even the regional trial
courts can take cognizance of actions assailing a specific rule or set of rules promulgated by
administrative bodies. Indeed, the Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts, including the regional trial courts. 34

260
 Judicial review of official acts on the ground of unconstitutionality may be sought or availed of through
any of the actions cognizable by courts of justice, not necessarily in a suit for declaratory relief. Such review
may be had in criminal actions, as in People v. Ferrer 35 involving the constitutionality of the now defunct
Anti-Subversion law, or in ordinary actions, as in Krivenko v. Register of Deeds 36 involving the
constitutionality of laws prohibiting aliens from acquiring public lands. The constitutional issue, however, (a)
must be properly raised and presented in the case, and (b) its resolution is necessary to a determination of
the case, i.e., the issue of constitutionality must be the very lis mota presented. 37

Contrary to PPI's claim, the constitutionality of LOI No. 1465 was properly and adequately raised in
the complaint for collection filed with the RTC. The pertinent portions of the complaint allege:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The CRC of P10 per bag levied under LOI
1465 on domestic sales of all grades of fertilizer in the Philippines, is unlawful, unjust, uncalled
for, unreasonable, inequitable and oppressive because:

30167782400 xxx xxx

It favors only one private domestic corporation,i.e.,defendant PPPI, and imposed at the
expense and disadvantage of the other fertilizer importers/distributors who were
themselves in tight business situation and were then exerting all efforts and maximizing
management and marketing skills to remain viable;

30167782401 xxx xxx

It was a glaring example of crony capitalism,a forced program through which the PPI,
having been presumptuously masqueraded as "the" fertilizer industry itself, was the sole
and anointed beneficiary;

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The CRC was an unlawful; and

unconstitutional special assessment and its imposition is tantamount to illegal exaction
amounting to a denial of due process since the persons of entities which had to bear the burden
of paying the CRC derived no benefit therefrom;that on the contrary it was used by PPI in trying
to regain its former despicable monopoly of the fertilizer industry to the detriment of other
distributors and importers. 38 (Underscoring supplied)

The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection. Fertiphil
filed the complaint to compel PPI to refund the levies paid under the statute on the ground that the law
imposing the levy is unconstitutional. The thesis is that an unconstitutional law is void. It has no legal effect.
Being void, Fertiphil had no legal obligation to pay the levy. Necessarily, all levies duly paid pursuant to an
unconstitutional law should be refunded under the civil code principle against unjust enrichment. The refund
is a mere consequence of the law being declared unconstitutional. The RTC surely cannot order PPI to
refund Fertiphil if it does not declare the LOI unconstitutional. It is the unconstitutionality of the LOI which
triggers the refund. The issue of constitutionality is the very lis mota of the complaint with the RTC.

The P10 levy under LOI No. 1465 is

an exercise of the power of taxation.

At any rate, the Court holds that the RTC and the CA did not err in ruling against the constitutionality
of the LOI.

PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of taxation. It
claims that the LOI was implemented for the purpose of assuring the fertilizer supply and distribution in the
country and for benefiting a foundation created by law to hold in trust for millions of farmers their stock
ownership in PPI.

Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a private
company. The levy was imposed to pay the corporate debt of PPI. Fertiphil also argues that, even if the LOI
is enacted under the police power, it is still unconstitutional because it did not promote the general welfare of
the people or public interest.

Police power and the power of taxation are inherent powers of the State. These powers are distinct
and have different tests for validity. Police power is the power of the State to enact legislation that may
interfere with personal liberty or property in order to promote the general welfare, 39 while the power of
taxation is the power to levy taxes to be used for public purpose. The main purpose of police power is the

261
regulation of a behavior or conduct, while taxation is revenue generation. The "lawful subjects" and "lawful
means" tests are used to determine the validity of a law enacted under the police power. 40 The power of
taxation, on the other hand, is circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation
power. While it is true that the power of taxation can be used as an implement of police power, 41 the
primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at
least, one of the real and substantial purposes, then the exaction is properly called a tax. 42

In Philippine Airlines, Inc. v. Edu, 43 it was held that the imposition of a vehicle registration fee is not
an exercise by the State of its police power, but of its taxation power, thus:

It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the
Land Transportation and Traffic Code that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency....Fees may be properly regarded as taxes even though
they also serve as an instrument of regulation.

Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148).If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. Such is the case of motor vehicle
registration fees. The same provision appears as Section 59(b) in the Land Transportation
Code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to
the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee." . .
. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in
Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees" such
as the special permit fees for certain types of motor vehicles (Sec.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ and additional fees for change of

registration (Sec. 11). These are not to be understood as taxes because such fees are very
minimal to be revenue-raising.Thus, they are not mentioned by Sec. 59(b) of the Code as taxes
like the motor vehicle registration fee and chauffeurs' license fee. Such fees are to go into the
expenditures of the Land Transportation Commission as provided for in the last proviso of Sec.
61. 44 (Underscoring supplied)

The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no
doubt, was a big burden on the seller or the ultimate consumer. It increased the price of a bag of fertilizer by
as much as five percent. 45 A plain reading of the LOI also supports the conclusion that the levy was for
revenue generation. The LOI expressly provided that the levy was imposed "until adequate capital is raised
to make PPI viable".

Taxes are exacted only for a public

purpose. The P10 levy is

unconstitutional because it was not

for a public purpose. The levy was

imposed to give undue benefit to PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public
purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. 46
The reason for this is simple. The power to tax exists for the general welfare; hence, implicit in its power is
the limitation that it should be used only for a public purpose. It would be a robbery for the State to tax its
citizens and use the funds generated for a private purpose. As an old United States case bluntly put it: "To
lay with one hand, the power of the government on the property of the citizen, and with the other to bestow it
upon favored individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery
because it is done under the forms of law and is called taxation". 47

The term "public purpose" is not defined. It is an elastic concept that can be hammered to fit modern
standards. Jurisprudence states that "public purpose" should be given a broad interpretation. It does not only
pertain to those purposes which are traditionally viewed as essentially government functions, such as
building roads and delivery of basic services, but also includes those purposes designed to promote social
justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and urban
or agrarian reform.

262
 While the categories of what may constitute a public purpose are continually expanding in light of the
expansion of government functions, the inherent requirement that taxes can only be exacted for a public
purpose still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to exact funds
from the public when its true intent is to give undue benefit and advantage to a private enterprise, that law
will not satisfy the requirement of "public purpose".

The purpose of a law is evident from its text or inferable from other secondary sources. Here, We
agree with the RTC and that CA that the levy imposed underLOI No. 1465 was not for a public purpose.

First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company. The
purpose is explicit from Clause 3 of the law, thus:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The Administrator of the Fertilizer

Pesticide Authority to include in its fertilizer pricing formula a capital contribution
component of not less than P10 per bag. This capital contribution shall be
collected until adequate capital is raised to make PPI viable.Such capital
contribution shall be applied by FPA to all domestic sales of fertilizers in the
Philippines. 48 (Underscoring supplied)

It is a basic rule of statutory construction that the text of a statute should be given a literal meaning. In
this case, the text of the LOI is plain that the levy was imposed in order to raise capital for PPI. The framers
of the LOI did not even hide the insidious purpose of the law. They were cavalier enough to name PPI as the
ultimate beneficiary of the taxes levied under the LOI. We find it utterly repulsive that a tax law would
expressly name a private company as the ultimate beneficiary of the taxes to be levied from the public. This
is a clear case of crony capitalism.

Second, the LOI provides that the imposition of the P10 levy was conditional and dependent upon
PPI becoming financially "viable." This suggests that the levy was actually imposed to benefit PPI. The LOI
notably does not fix a maximum amount when PPI is deemed financially "viable".Worse, the liability of
Fertiphil and other domestic sellers of fertilizer to pay the levy is made indefinite. They are required to
continuously pay the levy until adequate capital is raised for PPI.

Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and
deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI. 49 This proves that PPI
benefited from the LOI. It is also proves that the main purpose of the law was to give undue benefit and
advantage to PPI.

Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of Understanding
50 dated May 18, 1985 signed by then Prime Minister Cesar Virata reveals that PPI was in deep financial
problem because of its huge corporate debts. There were pending petitions for rehabilitation against PPI
before the Securities and Exchange Commission. The government guaranteed payment of PPI's debts to its
foreign creditors. To fund the payment, President Marcos issuedLOI No. 1465. The pertinent portions of the
letter of understanding read: EICSDT

Republic of the Philippines

Office of the Prime Minister

Manila

LETTER OF UNDERTAKING

May 18, 1985

TO: THE BANKING AND FINANCIAL INSTITUTIONS

LISTED IN ANNEX A HERETO WHICH ARE

CREDITORS (COLLECTIVELY, THE "CREDITORS")

OF PLANTERS PRODUCTS, INC. ("PLANTERS")

Gentlemen:

This has reference to Planters which is the principal importer and distributor of fertilizer,
pesticides and agricultural chemicals in the Philippines. As regards Planters, the Philippine
Government confirms its awareness of the following: (1) that Planters has outstanding
obligations in foreign currency and/or pesos, to the Creditors,(2) that Planters is currently

263
 experiencing financial difficulties,and (3) that there are presently pending with the Securities and
Exchange Commission of the Philippines a petition filed at Planters' own behest for the
suspension of payment of all its obligations,and a separate petition filed by Manufacturers
Hanover Trust Company, Manila Offshore Branch for the appointment of a rehabilitation
receiver for Planters.

In connection with the foregoing, the Republic of the Philippines (the "Republic") confirms that it
considers and continues to consider Planters as a major fertilizer distributor. Accordingly, for
and in consideration of your expressed willingness to consider and participate in the effort to
rehabilitate Planters, the Republic hereby manifests its full and unqualified support of the
successful rehabilitation and continuing viability of Planters, and to that end, hereby binds and
obligates itself to the creditors and Planters, as follows:

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Upon the effective date of this Letter of

Undertaking, the Republic shall cause FPA to include in its fertilizer pricing formula a capital
recovery component,the proceeds of which will be used initially for the purpose of funding the
unpaid portion of the outstanding capital stock of Planters presently held in trust by
PlantersFoundation, Inc. ("Planters Foundation"),which unpaid capital is estimated at
approximately P206 million (subject to validation by Planters and Planters Foundation) such
unpaid portion of the outstanding capital stock of Planters being hereafter referred to as the
"Unpaid Capital"),and subsequently for such capital increases as may be required for the
continuing viability of Planters.

xxx xxx

The capital recovery component shall continue to be charged and collected until payment in full
of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables, (c)
any carrying cost accruing from the date hereof on the amounts which may be outstanding from
time to time of the Unpaid Capital and/or the Subsidy Receivables, and

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the capital increases contemplated in

paragraph 2 hereof. For the purpose of the foregoing clause (c),the "carrying cost" shall be at
such rate as will represent the full and reasonable cost to Planters of servicing its debts, taking
into account both its peso and foreign currency-denominated obligations. ICHDca

REPUBLIC OF THE PHILIPPINES

By:

(signed)

CESAR E. A. VIRATA

Prime Minister and Minister of Finance 51

It is clear from the Letter of Understanding that the levy was imposed precisely to pay the corporate
debts of PPI. We cannot agree with PPI that the levy was imposed to ensure the stability of the fertilizer
industry in the country. The letter of understanding and the plain text of the LOI clearly indicate that the levy
was exacted for the benefit of a private corporation.

All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465 was not
for a public purpose. LOI No. 1465 failed to comply with the public purpose requirement for tax laws.

The LOI is still unconstitutional even

if enacted under the police power; it

did not promote public interest.

Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid
for failing to comply with the test of "lawful subjects" and "lawful means". Jurisprudence states the test as
follows: (1) the interest of the public generally, as distinguished from those of particular class, requires its
exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and
not unduly oppressive upon individuals. 52

264
 For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a private corporation. We quote with approval the
CA ratiocination on this point, thus:

It is upon applying this established tests that We sustain the trial court's holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will promote the public welfare. The
government's commitment to support the successful rehabilitation and continued viability of PPI,
a private corporation, is an unmistakable attempt to mask the subject statute's impartiality.
There is no way to treat the self-interest of a favored entity, like PPI, as identical with the
general interest of the country's farmers or even the Filipino people in general.Well to stress,
substantive due process exacts fairness and equal protection disallows distinction where none
is needed. When a statute's public purpose is spoiled by private interest, the use of police
power becomes a travesty which must be struck down for being an arbitrary exercise of
government power.To rule in favor of appellant would contravene the general principle that
revenues derived from taxes cannot be used for purely private purposes or for the exclusive
benefit of private individuals. (Underscoring supplied)

The general rule is that an

unconstitutional law is void; the

doctrine of operative fact is

inapplicable.

PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared unconstitutional.
It banks on the doctrine of operative fact, which provides that an unconstitutional law has an effect before
being declared unconstitutional. PPI wants to retain the levies paid under LOI No. 1465 even if it is
subsequently declared to be unconstitutional.

We cannot agree. It is settled that no question, issue or argument will be entertained on appeal,
unless it has been raised in the court a quo. 53 PPI did not raise the applicability of the doctrine of operative
fact with the RTC and the CA. It cannot belatedly raise the issue with Us in order to extricate itself from the
dire effects of an unconstitutional law.

At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is void.
It produces no rights, imposes no duties and affords no protection. It has no legal effect. It is, in legal
contemplation, inoperative as if it has not been passed. 54 Being void, Fertiphil is not required to pay the
levy. All levies paid should be refunded in accordance with the general civil code principle against unjust
enrichment. The general rule is supported by Article 7 of the Civil Code, which provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance
shall not be excused by disuse or custom or practice to the contrary.

When the courts declare a law to be inconsistent with the Constitution, the former shall be void
and the latter shall govern.

The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity
and fair play. 55 It nullifies the effects of an unconstitutional law by recognizing that the existence of a statute
prior to a determination of unconstitutionality is an operative fact and may have consequences which cannot
always be ignored. The past cannot always be erased by a new judicial declaration. 56

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on
those who have relied on the invalid law. Thus, it was applied to a criminal case when a declaration of
unconstitutionality would put the accused in double jeopardy 57 or would put in limbo the acts done by a
municipality in reliance upon a law creating it. 58

Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil under
LOI No. 1465. It unduly benefited from the levy. It was proven during the trial that the levies paid were
remitted and deposited to its bank account. Quite the reverse, it would be inequitable and unjust not to order
a refund. To do so would unjustly enrich PPI at the expense of Fertiphil. Article 22 of the Civil Code explicitly
provides that "every person who, through an act of performance by another comes into possession of
something at the expense of the latter without just or legal ground shall return the same to

265
 him". We cannot allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPI must
refund the amounts paid by Fertiphil.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28, 2003 is
AFFIRMED. TEDaAc

SO ORDERED.

Ynares-Santiago, Austria-Martinez, Chico-Nazario and Nachura, JJ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Planters Products, Inc. v. Fertiphil Corp., G.R. No.
166006, [March 14, 2008], 572 PHIL 270-302)

Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, [September 11, 1996], 330 PHIL
392-420

THIRD DIVISION

[G.R. No. 120082. September 11, 1996.]

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. HON.

FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional
Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor,
HON. TOMAS R. OSMEÑA, and EUSTAQUIO B. CESA,respondents.

The Solicitor General for petitioner.

The Office of the City Attorney for City of Cebu.

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ POLITICAL LAW; GOVERNMENT;

POWER OF TAXATION; CONSTRUED. — As a general rule, the power to tax is an incident of sovereignty
and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is
to be found only in the responsibility of the legislature which imposes the tax on the constituency who are
to pay it. Nevertheless, effective limitations thereon may be imposed by the people through their
Constitution. Our Constitution,for instance, provides that the rule of taxation shall be uniform and equitable
and Congress shall evolve a progressive system of taxation. So potent indeed is the power that it was once
opined that "the power to tax involves the power to destroy." Verily, taxation is a destructive power which
interferes with the personal and property rights of the people and takes from them a portion of their
property for the support of the government. Accordingly, tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or
are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting the
exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. A claim of exemption from tax payments must be clearly shown and based on language in the
law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception.
However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of
construction does not apply because the practical effect of the exemption is merely to reduce the amount of
money that has to be handled by the government in the course of its operation.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID., ID.; ID.; MAYBE EXERCISED BY

THE LOCAL LEGISLATIVE BODIES. — The power to tax is primarily vested in the Congress; however, in
our jurisdictions, it may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution.
Under the latter, the exercise of the power may be subject to such guidelines and limitations as the
Congress may provide which, however, must be consistent with the basic policy of local autonomy. The
LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by local
government units of their power to tax, the scope thereof or its limitations, and the exemptions from
taxation. Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units.

266
 ID.; ID .; ID.; EXEMPTION FROM PAYMENT OF TAX MAYBE WITHDRAWN AT THE
PLEASURE OF THE TAXING AUTHORITY; EXCEPTION. — There can be no question that under Section
14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National
Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation
is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of
the taxing authority. The only exception to this rule is where the exemption was granted to private parties
based on material consideration of a mutual nature, which then becomes contractual and is thus covered by
the non-impairment claim of the Constitution.

ID.; LOCAL GOVERNMENT CODE; SEC. 234 PROVIDES FOR THE EXEMPTION FROM THE
PAYMENT OF REAL PROPERTY TAX; BASIS THEREOF. — Section 234 of the LGC provides for the
exemptions from payment of real property taxes and withdraws previous exemptions therefrom granted to
natural and juridical persons, including government-owned and controlled corporations, except as provided
therein. These exemptions are based on the ownership, character, and use of the property. Thus: (a)
Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties
owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, (vi) registered
cooperatives. (b) character exemptions. Exempted from real property taxes on the basis of their character
are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents
appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries. (c) Usage exemptions. Exempted
from real property taxes on the basis of the actual, direct and exclusive use to which they are devoted are:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ all lands, buildings and improvements which are actually,
directly and exclusively used for religious, charitable or educational purposes; (ii) all machineries and
equipment actually, directly and exclusively used by local water districts or by government-owned or
controlled corporations engaged in the supply and distribution of water and/or generation and transmission of
electric power; and (iii) all machinery and equipment used for pollution control and environmental protection.
To help provide a healthy environment in the midst of the modernization of the country, all machinery and
equipment for pollution control and environmental protection may not be taxed by local governments. 2.
Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons
including government-owned or controlled corporations are withdrawn upon effectivity of the Code.

ID.; REPUBLIC OF THE PHILIPPINES AS DISTINGUISHED FROM NATIONAL

GOVERNMENT. — The terms "Republic of the Philippines" and "National Government" are not
interchangeable. The former is broader and synonymous with "Government of the Republic of the
Philippines" which the Administrative Code of 1987 defines as the "corporate governmental entity through
which the functions of government are exercised throughout the Philippines, including, save as the contrary
appears from the context, the various arms through which political authority is made effective in the
Philippines, whether pertaining to the autonomous regions, the provincial, city, municipal or barangay
subdivisions or other forms of local government." (Section 2[1], Introductory Provisions, Administrative Code
of 1987.) These "autonomous regions, provincial, city, municipal or barangay subdivisions" are the political
subdivisions. (Section 1, Article X, 1987 Constitution.) On the other hand, "National Government" refers "to
the entire machinery of the central government, as distinguished from the different forms of local
government." (Section 2[2], Introductory Provisions, Administrative Code of 1987. The National Government
then is composed of the three great departments: the executive, the legislative and the judicial.

ID.; GOVERNMENT; AGENCY AS DISTINGUISHED FROM INSTRUMENTALITY. — An

"agency" of the Government refers to "any of the various units of the Government, including a department,
bureau, office, instrumentality, or government-owned or controlled corporation, or a local government or a
distinct unit therein," while an "instrumentality" refers to "any agency of the National Government, not
integrated within the department framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually, through a charter. This term includes regulatory agencies, chartered institutions and government-
owned and controlled corporations."

DECISION

DAVIDE, JR., J p:
267
 For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22
March 1995 1 of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the petition for
declaratory relief in Civil Case No. CEB-16900, entitled "Mactan Cebu International Airport Authority vs. City
of Cebu," and its order of 4 May 1995 2 denying the motion to reconsider the decision.

We resolved to give due course to this petition for it raises issues dwelling on the scope of the taxing
power of local government units and the limits of tax exemption privileges of government-owned and
controlled corporations.

The uncontradicted factual antecedents are summarized in the instant petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act
No. 6958, mandated to "principally undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in
CebuCity, . . . and such other airports as may be established in the Province of Cebu . . ." (Sec. 3, RA 6958).
It is also mandated to:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ encourage, promote and develop

international and domestic air traffic in the Central Visayas and Mindanao regions
as a means of making the regions centers ofinternational trade and tourism, and
accelerating the development of the means of transportation and communication
in the country; and,

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ upgrade the services and facilities of

the airports and to formulate internationally acceptable standards of airport
accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of
realty taxes in accordance with Section 14 of its Charter:

Sec. 14. Tax Exemptions. — The Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and instrumentalities . . ..

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of
the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner
(Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd.,
746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of
P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the
aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also asserted that it
is an instrumentality of the government performing governmental functions, citing Section 133 of the Local
Government Code of 1991 which puts limitations on the taxing powers of local government units:

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

a) . . .

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes, fees or charges of any kind on the

National Government, its agencies and instrumentalities, and local government units. (italics
supplied)

Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue
of Sections 193 and 234 of the Local Government Code that took effect on January 1, 1992:

Section 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code. (italics supplied)

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ xxx

xxx

Section 234. Exemptions from Real Property Taxes. — . . .

268
 (a) . . .

xxx xxx xxx

(e) . . .

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

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the
latter was compelled to pay its tax account "under protest" and thereafter filed a Petition for
Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on December 29, 1994.
MCIAA basically contended that the taxing powers of local government units do not extend to
the levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner
insisted that while it is indeed a government-owned corporation, it nonetheless stands on the
same footing as an agency or instrumentality of the national government by the very nature of
its powers and functions.

Respondent City, however, asserted that MCIAA is not an instrumentality of the government but
merely a government-owned corporation performing proprietary functions. As such, all
exemptions previously granted to it were deemed withdrawn by operation of law, as provided
under Sections 193 and 234 of the Local Government Code when it took effect on January 1,
1992. 3

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.

In its decision of 22 March 1995, 4 the trial court dismissed the petition in light of its findings, to wit:

A close reading of the New Local Government Code of 1991 or RA 7160 provides the express
cancellation and withdrawal of exemption of taxes by government-owned and controlled
corporation per Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds
to quote Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government of Cebu
are exempted from paying realty taxes in view of the exemption granted under RA 6958 to pay
the same (citing Section 14 of RA 6958).

However, RA 7160 expressly provides that "All general and special laws,
acts, city charters, decrees [sic], 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." (/f/, Section 534, RA 7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption
provided for in RA 6958 creating petitioner had been expressly repealed by the provisions of the
New Local Government Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties effective after
January 1, 1992 until the present.

This Court's ruling finds expression to give impetus and meaning to the overall objectives of the
New Local Government Code of 1991, RA 7160. "It is hereby declared the policy of the State
that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities and
make them more effective partners in the attainment of national goals. Toward this end, the
State shall provide for a more responsive and accountable local government structure instituted
through a system of decentralization whereby local government units shall be given more
powers, authority, responsibilities, and resources. The process of decentralization shall proceed
from the national government to the local government units. . . ." 5

Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the
petitioner filed the instant petition based on the following assignment of errors:
269
 I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS
VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT
IN THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ RESPONDENT JUDGE ERRED IN

RULING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES TO
THE CITY OF CEBU.

Anent the first assigned error, the petitioner asserts that although it is a government-owned or
controlled corporation, it is mandated to perform functions in the same category as an instrumentality of
Government. An instrumentality of Government is one created to perform governmental functions primarily to
promote certain aspects of the economic life of the people. 6 Considering its task "not merely to efficiently
operate and manage the Mactan-Cebu International Airport, but more importantly, to carry out the
Government policies of promoting and developing the Central Visayas and Mindanao regions as centers of
international trade and tourism, and accelerating the development of the means of transportation and
communication in the country," 7 and that it is an attached agency of the Department of Transportation and
Communication (DOTC), 8 the petitioner "may stand in [sic] the same footing as an agency or instrumentality
of the national government." Hence, its tax exemption privilege under Section 14 of its Charter "cannot be
considered withdrawn with the passage of the Local Government Code of
1991(hereinafter LGC) because Section 133 thereof specifically states that the 'taxing powers of local
government units shall not extend to the levy of taxes or fees or charges of any kind on the national
government, its agencies and instrumentalities.'"

As to the second assigned error, the petitioner contends that being an instrumentality of the National
Government, respondent City of Cebu has no power norauthority to impose realty taxes upon it in
accordance with the aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine Amusement and
Gaming Corporation: 9

Local governments have no power to tax instrumentalities of the National Government.

PAGCOR is a government owned or controlled corporation with an original charter, PD 1869.

All of its shares of stock are owned by the National Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to
control by a mere Local government. cdtai

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local
governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of
the United States (Johnson v. Maryland, 254 USA 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously burden it in the accomplishment
of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or enterprise using the power to tax as
"a tool for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by
Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the inherent power to wield it.
(italics supplied)
 It then concludes that the respondent Judge "cannot therefore correctly say that the questioned
provisions of the Code do not contain any distinction between a government corporation performing
governmental functions as against one performing merely proprietary ones such that the exemption

270
privilege withdrawn under the said Code would apply to all government corporations." For it is clear from
Section 133, in relation to Section 234, of the LGC that the legislature meant to exclude instrumentalities of
the national government from the taxing powers of the local government units. cdasia

In its comment, respondent City of Cebu alleges that as a local government unit and a political
subdivision, it has the power to impose, levy, assess, and collect taxes within its jurisdiction. Such power is
guaranteed by the Constitution 10 and enhanced further by the LGC. While it may be true that under its
Charter thepetitioner was exempt from the payment of realty taxes, 11 this exemption was withdrawn by
Section 234 of the LGC. In response to the petitioner's claim that such exemption was not repealed because
being an instrumentality of the National Government, Section 133 of the LGC prohibits local government
units from imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and Section 234 thereof does not distinguish between
government-owned or controlled corporations performing governmental and purely proprietary functions.
Respondent City of Cebuurges this Court to apply by analogy its ruling that the Manila International Airport
Authority is a government-owned corporation, 12 and to reject the application ofBasco because it was
"promulgated . . . before the enactment and the signing into law of R.A. No. 7160," and was not, therefore,
decided "in the light of the spirit and intention of the framers of" the said law.

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the constituency who are to pay it. Nevertheless,
effective limitations thereon may be imposed by the people through their Constitutions. 13 Our
Constitution,for instance, provides that the rule of taxation shall be uniform and equitable and Congress shall
evolve a progressive system of taxation. 14 So potent indeed is the power that it was once opined that "the
power to tax involves the power to destroy." 15 Verily, taxation is a destructive power which interferes with
the personal and property rights of the people and takes from them a portion of their property for the support
of the government. Accordingly, tax statutes must be construed strictly against the government and liberally
in favor of the taxpayer. 16 But since taxes are what we pay for civilized society, 17 or are the lifeblood of the
nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 18 A claim of
exemption from tax payments must be clearly shown and based on language in the law too plain to be
mistaken. 19 Elsewise stated, taxation is the rule, exemption therefrom is the exception. 20 However, if the
grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not
apply because the practical effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations. 21

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised
by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the Constitution. 22 Under the latter, the exercise of the power
may be subject to such guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the
payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies,
and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the
exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is
where the exemption was granted to private parties based on material consideration of a mutual nature,
which then becomes contractual and is thus covered by the non-impairment clause of the Constitution. 23

The LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by
local government units of their power to tax, the scope thereof or its limitations, and the exemptions from
taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government
units as follows:

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

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Income tax, except when levied on

banks and other financial institutions;
࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Documentary stamp tax;

271
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes on estates,
inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Customs duties, registration

fees of vessel and wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges and dues except wharfage on wharves
constructed and maintained by the local government unit concerned;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes, fees and charges and

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

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes, fees or charges on

agricultural and aquatic products when sold by marginal farmers or
fishermen;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes on business

enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the
date of registration;

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Excise taxes on articles

enumerated under the National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;

࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Percentage or value-added

tax (VAT) on sales, barters or exchanges or similar transactions on goods
or services except as otherwise provided herein;

࿿࿿࿿ )37桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes on the gross receipts

of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code;

࿿࿿࿿ )38桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes on premiums paid by way of

reinsurance or retrocession;

࿿࿿࿿ )39桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes, fees or charges for

the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except, tricycles;

࿿࿿࿿ )40桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes, fees, or other charges

on Philippine products actually exported, except as otherwise provided
herein;

࿿࿿࿿ )41桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Taxes, fees, or charges, on

Countryside and Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine
hundred thirty-eight (R.A. No. 6938) otherwise known as the
"Cooperatives Code of the 'Philippines' respectively; and

࿿࿿࿿ )42桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ TAXES, FEES OR

CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS
AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT
UNITS. (italics supplied)
Needless to say, the last item (item o) is pertinent to this case. The "taxes, fees or charges" referred to are
"of any kind"; hence, they include all of these, unless otherwise provided by the LGC. The term "taxes" is well
understood so as to need no further elaboration, especially in light of the above enumeration. The term "fees"
means charges fixed by law or ordinance for the regulation or inspection of business or activity, 24 while
"charges" are pecuniary liabilities such as rents or fees against persons or property. 25

Among the "taxes" enumerated in the LGC is real property tax, which is governed by Section 232. It
reads as follows:

SEC. 232. Power to Levy Real Property Tax. — A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvements not hereafter specifically exempted.

272
 Section 234 of the LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions therefrom granted to natural and juridical persons, including government-
owned and controlled corporations, except as provided therein. It provides:

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

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Real property owned by the

Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof had been granted, for consideration or
otherwise, to a taxable person;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Charitable institutions,

churches, parsonages or convents appurtenant thereto, mosques, non-
profit or religious cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable or
educational purposes;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ All machineries and

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

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ All real property owned by

duly registered cooperatives as provided for under R.A. No. 6938; and

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Machinery and equipment

used for pollution control and environmental protection.

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

These exemptions are based on the ownership, character, and use of the property. Thus:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Ownership Exemptions. Exemptions

from real property taxes on the basis of ownership are real properties owned by:
(i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and
(vi) registered cooperatives.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Character Exemptions. Exempted

from real property taxes on the basis of their character are: (i) charitable
institutions, (ii) houses and temples of prayer like churches, parsonages or
convents appurtenant thereto, mosques, and (iii) non-profit or religious
cemeteries.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Usage exemptions. Exempted from

real property taxes on the basis of the actual, direct and exclusive use to which
they are devoted are: (i) all lands, buildings and improvements which are actually
directly and exclusively used for religious, charitable or educational purposes; (ii)
all machineries and equipment actually, directly and exclusively used by local
water districts or by government-owned or controlled corporations engaged in the
supply and distribution of water and/or generation and transmission of electric
power; and (iii) all machinery and equipment used for pollution control and
environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all
machinery and equipment for pollution control and environmental protection may not be taxed
by local governments.
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Other Exemptions Withdrawn. All
other exemptions previously granted to natural or juridical persons including
government-owned or controlled corporations are withdrawn upon the effectivity
of the Code. 26

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It provides:

SEC. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether

273
 natural or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.

On the other hand, the LGC authorizes local government units to grant tax exemption privileges.

Thus, Section 192 thereof provides:

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

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local
government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the
exceptions thereto. The use of exceptions or provisos in these sections, as shown by the following clauses:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ "unless otherwise provided herein" in the

opening paragraph of Section 133;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ "Unless otherwise provided in this Code" in

Section 193;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ "not hereafter specifically exempted" in

Section 232; and

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ "Except as provided herein" in the last

paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in Section
133 seems to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the
"herein" to mean, of course, the section, it should have used the clause "unless otherwise provided in this
Code." The former results in absurdity since the section itself enumerates what are beyond the taxing powers
of local government units and, where exceptions were intended, the exceptions are explicitly indicated in the
next. For instance, in item (a) which excepts income taxes "when levied on banks and other financial
institutions"; item (d) which excepts "wharfage on wharves constructed and maintained by the local
government unit concerned"; and item (1) which excepts taxes, fees and charges for the registration and
issuance of licenses or permits for the driving of "tricycles." It may also be observed that within the body itself
of the section, there are exceptions which can be found only in other parts of the LGC, but the section
interchangeably uses therein the clause, "except as otherwise provided herein" as in items (c) and (i), or the
clause "except as provided in this Code" in item (j). These clauses would be obviously unnecessary or mere
surplusages if the opening clause of the section were "Unless otherwise provided in this Code" instead of
"Unless otherwise provided herein." In any event, even if the latter is used, since under Section 232 local
government units have the power to levy real property tax, except those exempted therefrom under Section
234, then Section 232 must be deemed to qualify Section 133.

Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule,
as laid down in Section 133, the taxing powers of local government units cannot extend to the levy of, inter
alia, "taxes, fees and charges of any kind on the National Government, its agencies and instrumentalities,
and local government units"; however, pursuant to Section 232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the
Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person," as provided in item (a) of the first
paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons,

including government-owned and controlled corporations,Section 193 of the LGC prescribes the general rule,
viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234 which
enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further
qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the retention
only to those enumerated therein; all others not included in the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as to real property owned by the Republic of the Philippines or any of
its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn
if the beneficial use of such property has been granted to a taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including

274
government-owned or controlled corporations, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax
granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only
be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but not
under Section 133, as it now asserts, since, as shown above, the said section is qualified by Sections 232
and 234. LLphil

In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of
the local government units cannot extend to the levy of:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ taxes, fees or charges of any kind on

the National Government, its agencies or instrumentalities, and local government
units.

It must show that the parcels of land in question, which are real property, are any one of those
enumerated in Section 234, either by virtue of ownership, character, or use of the property. Most likely, it
could only be the first, but not under any explicit provision of the said section, for none exists. In light of
thepetitioner's theory that it is an "instrumentality of the Government," it could only be within the first item of
the first paragraph of the section by expanding the scope of the term "Republic of the Philippines" to
embrace its "instrumentalities" and "agencies." For expediency, we quote:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ real property owned by the Republic

of the Philippines, or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable
person.

This view does not persuade us. In the first place, the petitioner's claim that it is an instrumentality of
the Government is based on Section 133(o), which expressly mentions the word "instrumentalities"; and, in
the second place, it fails to consider the fact that the legislature used the phrase "National Government, its
agencies and instrumentalities" in Section 133(o), but only the phrase "Republic of the Philippines or any of
its political subdivisions" in Section 234(a).

The terms "Republic of the Philippines" and "National Government" are not interchangeable. The
former is broader and synonymous with "Government of the Republic of the Philippines" which the
Administrative Code of 1987 defines as the "corporate governmental entity through which the functions of
government are exercised throughout the Philippines, including, save as the contrary appears from the
context, the various arms through which political authority is made effective in the Philippines, whether
pertaining to the autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms
of local government." 27These "autonomous regions, provincial, city, municipal or barangay subdivisions" are
the political subdivisions. 28

On the other hand, "National Government" refers "to the entire machinery of the central government,
as distinguished from the different forms of local governments." 29 The National Government then is
composed of the three great departments: the executive, the legislative and the judicial. 30

An "agency" of the Government refers to "any of the various units of the Government, including a
department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local
government or a distinct unit therein;" 31 while an "instrumentality" refers to "any agency of the National
Government, not integrated within the department framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and
government-owned and controlled corporations." 32

If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from
payment of real property taxes under the last sentence of the said section to the agencies and
instrumentalities of the National Government mentioned in Section 133(o), then it should have restated the
wording of the latter. Yet, it did not. Moreover, that Congress did not wish to expand the scope of the
exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the
government including government-owned and controlled corporations is further borne out by the fact that the
source of this exemption is Section 40(a) of P.D. No. 464, otherwise known as The Real Property Tax Code,
which reads:

SEC. 40. Exemptions from Real Property Tax. — The exemption shall be as follows:
࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Real property owned by the
Republic of the Philippines or any of its political subdivisions and any
government-owned or controlled corporation so exempt

275
 by its charter: Provided, however, That this exemption shall not apply to real
property of the above-mentioned entities the beneficial use of which has been
granted, for consideration or otherwise, to a taxable person.

Note that as reproduced in Section 234(a), the phrase "and any government-owned or controlled corporation
so exempt by its charter" was excluded. The justification for this restricted exemption in Section 234(a)
seems obvious: to limit further tax exemption privileges, especially in light of the general provision on
withdrawal of tax exemption privileges in Section 193 and the special provision on withdrawal of exemption
from payment of real property taxes in the last paragraph of Section 234. These policy considerations are
consistent with the State policy to ensure autonomy to local governments 33 and the objective of the
LGCthat they enjoy genuine and meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities and make them effective partners in the attainment of national
goals. 34 The power to tax is the most effective instrument to raise needed revenues to finance and support
myriad activities of local government units for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and prosperity of the people. It may also be
relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to
government-owned and controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and
there was a need for these entities to share in the requirements of development, fiscal or otherwise, by
paying the taxes and other charges due from them. 35

The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the
Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the
petitioner is a "taxable person."

Section 15 of the petitioner's Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing public
airport facilities, runways, lands, buildings and other properties, movable or immovable,
belonging to or presently administered by the airports, and all assets, powers, rights, interests
and privileges relating on airport works or air operations, including all equipment which are
necessary for the operations of air navigation, aerodrome control towers, crash, fire, and
rescue facilities are hereby transferred to the Authority: Provided, however, that the operations
control of all equipment necessary for the operation of radio aids to air navigation, airways
communication, the approach control office, and the area control center shall be retained by
the Air Transportation Office. No equipment, however, shall be removed by the Air
Transportation Office from Mactan without the concurrence of the Authority. The Authority
may assist in the maintenance of the Air Transportation Office equipment.

The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International Airport
in the Province of Cebu," 36 which belonged to the Republic of the Philippines, then under the Air
Transportation Office (ATO). 37

It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then administered
by the Lahug Air Port and included the parcels of land the respondent City of Cebu seeks to levy on for real
property taxes. This section involves a "transfer" of the "lands," among other things, to the petitioner and not
just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the
Philippines.

This "transfer" is actually an absolute conveyance of the ownership thereof because the petitioner's
authorized capital stock consists of, inter alia, "the value of such real estate owned and/or administered by
the airports." 38 Hence, the petitioner is now the owner of the land in question and the exception in Section
234(c) of the LGC is inapplicable.

Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter. It was
only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property
tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in
light of the foregoing disquisitions, it had already become, even if it be conceded to be an "agency" or
"instrumentality" of the Government, a taxable person for such purpose in view of the withdrawal in the last
276
 paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted
to, applies to the petitioner.

Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine
Amusement and Gaming Corporation 39 is unavailing since it was decided before the effectivity of the
LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the
Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a
constitutional mandate and national policy, no one can doubt its wisdom.

WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional
Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Narvasa, C .J . , Melo, Francisco and Panganiban, JJ ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Mactan Cebu International Airport Authority v. Marcos,

G.R. No. 120082, [September 11, 1996], 330 PHIL 392-420)

Casanovas v. Hord, G.R. No. L-3473, [March 22, 1907], 8 PHIL 125-134

FIRST DIVISION

[G.R. No. L-3473. March 22, 1907.]

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ CASANOVAS, plaintiff-appellant, vs. JNO.

S. HORD, defendant-appellee.

F.G. Waite, for appellant.

Attorney-General Araneta, for appellee.

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ TAXATION; CONTRACT BY

GOVERNMENT. — A government may make a valid contract with an individual in respect to taxation,
which contract can be enforced against it.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ INTERNAL REVENUE LAW;

OBLIGATION OF CONTRACTS. — Section 134 of the Internal Revenue Law of 1904 (Act No. 1189) is
void because it impairs the obligation of the contracts contained in the concessions of mines made by the
Spanish Government.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; ID. — Section 134 of the Internal

Revenue Law of 1904 (Act No. 1189) is void because it is in conflict with section 60 of the act of Congress
of July 1, 1902.

DECISION

WILLARD, J p:

The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover
the sum of P9,600, paid by him under protest as taxes on certain mining claims owned by him in the
Province of Ambos Camarines. Judgment was rendered in the court below in favor of the defendant, and
from that judgment the plaintiff appealed.
 There is no dispute about the facts.

In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of
the 14th of May, 1867, granted to the plaintiff certain mines in the said Province of Ambos Camarines, of
which mines the plaintiff is now the owner.
277
 That these were valid perfected mining concessions granted prior to the 11th of April, 1899, is
conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within
the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act. That section is as follows:

"SEC. 134. On all valid perfected mining concessions granted prior to April eleventh,
eighteen hundred and ninety-nine, there shall be levied and collected on the after January first,
nineteen hundred and five, the following taxes:

"1. (a) On each claim containing an area of sixty thousand square meters, an annual tax
of one hundred pesos; (b) and at the same rate proportionately on each claim containing an
area in excess of, or less than, sixty thousand square meters.

"2. (a) On the gross output of each mine an ad valorem tax equal to three per centum of
the actual market value of such output."

The defendant accordingly imposed upon these properties the tax mentioned in section 134, which
tax, as has before been stated, plaintiff paid under protest.

The only question in the case is whether this section 134 is void or valid.

I. It is claimed by the plaintiff that it is void because it comes within the provision of section 5 of the
act of Congress of July 1, 1902 1 (32 U.S. Stat. L., 691), which provides "that no law impairing the obligation
of contracts shall be enacted." The royal decree of the 14th of May, 1867, provided, among other things, as
follows:

"ART. 76. On each pertenencia minera (mining claim) of the area prescribed in the first
paragraph of article 13 (sixty thousand square meters) there shall be paid annually a fixed tax of
forty escudos (about P20.00). The pertenencias referred to in the second paragraph of the
same article, though of greater area than the others (one hundred and fifty thousand square
meters), shall pay only twenty escudos (about P10.00)."

"ART. 78. Pertenencias of iron mines and mines of combustible minerals shall be
exempt from the annual tax for a period of thirty years from the date of publication of this
decree."

"ART. 80. A further tax of three per centum on the gross earnings shall be paid without
deduction of costs of any kind whatsoever. All substances enumerated in section one shall be
exempt from said tax of three per centum for a period of thirty years.

"ART. 81. No other taxes than those herein mentioned shall be imposed upon mining
and metallurgical industries."

The royal decree and regulation for its enforcement provided that the deeds granted by the
Government should be in a particular form, which form was inserted in the regulations. It must be presumed
that the deeds granted to the plaintiff were made as provided by law, and, in fact, one of such concessions
was exhibited during the argument in this court, and was found to be in exact conformity with the form
prescribed by law. The deed is as follows:

"Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente General de los

Ejercitos Nacionales, Caballero Gran Cruz de la Real y Militar Orden de San Hermenegildo, de
la Real y distinguida de Isabel la Catolica, de la del Merito Militar Roja, de la de la Corona de
Italia, Comendador de Carlos Tercero, Bennemerito de la Patria en grado eminente,
condecorado con varias cruses de distincion por meritos de guerra, Capitan General y
Gobernador General de Filipinas.

"Whereas I have granted to Don Joaquin Casanovas y Llovet and to Don Martin Buck
the concession of a gold mine entitled "Nueva California Segunda" in the jurisdiction of
Paracale, Province of Ambos Camarines: Now, therefore, in the name of His Majesty the King
(whom God preserve), and pursuant to the provisions of article 37 of the royal decree of May
14, 1867, regulating mining in these Islands, I issue, this fifth day of November, eighteen
hundred and ninety-six, this title deed to four pertenencias, comprising an area of two hundred
and forty thousand square meters, as shown in the attached sketch map drafted by the engineer
Don Enrique Abella y Casariego, and dated at Manila December sixteenth of the said year,
subject to the following general terms and conditions:
278
 "1. That the mine shall be worked in conformity with the rules in mining, the grantee and
his laborers to be governed by the police rules established by existing regulations.

"2. That the grantee shall be liable for all damages to third parties that may be caused by
his operations.

"3. That the grantee shall likewise indemnify his neighbors for any damage they may
suffer by reason of water accumulated on his works, if, upon being requested, he fail to drain
the same within the time indicated.

"4. That he shall contribute for the drainage of the adjacent mines and for the general
galleries for drainage or haulage in proportion to the benefit he derives therefrom, whenever, by
authority of the Governor-General, such works shall be opened for a group of pertenencias or
for the entire mining locality in which the mine is situated.

"5. That he shall commence work on the mine immediately upon receipt of this
concession unless prevented by force majeure.

"6. That he shall keep the mine in active operation by employing at the rate of at least
four laborers for each pertenencia for at least six months of each year.

"7. That he shall strengthen the walls of the mine within the time indicated whenever, by
reason of mismanagement of the work, it threatens to cave in, unless he be prevented by force
majeure.

"8. That he shall not render further profitable development of the mine difficult or
impossible by avaricious operation.

"9. That he shall not suspend the operation of the mine with the intention of abandoning
the same without first informing the Governor of his intention, in which case he must leave the
mine in a good state of timbering.

"10. That he shall pay taxes on the mine and its output as prescribed in the royal decree.

"11. Finally, that he shall comply with all the requirements contained in the royal decree
and in the regulations for concessions of the same nature as the present.

"Without special conditions.

"Now, therefore, by virtue of this title deed, I grant to Don Joaquin Casanovas y Llovet
and to Don Martin Buck the ownership of the said mine for an unlimited period of time so long
as they shall comply with the foregoing terms and conditions, to the end that they may develop
the same and make free use and disposition of the output thereof, with the right to alienate the
said mine subject to the provisions of existing laws, and to enjoy all the rights and benefits
conceded to such grantees by the royal decree and by the mining regulations. And for the
prompt fulfillment and observance of the said conditions, both on the part of the said grantees
and by all authorities, courts, corporations, and private persons whom it may concern, I have
ordered this title deed to be issued — given under my hand and the proper seal and
countersigned by the undersigned Director-General of Civil Administration."

It seems very clear to us that this deed constituted a contract between the Spanish Government and
the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the Internal
Revenue Law above cited, thereby infringing the provisions above quoted from section 5 of the act of
Congress of July 1, 1902. This conclusion seems necessarily to result from the decisions of the Supreme
Court of the United States in similar cases. In the case of McGee vs. Mathis (4 Wallace, 143), it appeared
that the State of Arkansas, by an act of the legislature of 1851, provided for the sale of certain swamp lands
granted to it by the United States; for the issue of transferable scrip receivable for any lands not already
taken up at the time of selection by the holder; for contracts for the making of levees and drains, and for the
payment of contractors in scrip and otherwise. In the fourteenth section of this act it was provided that —

"To encourage by all just means the progress and completion of the reclaiming of such
lands by offering inducements to purchasers and contractors to take up said lands, all said
swamp and overflowed lands shall be exempt from taxation for the term of ten years or until
they shall be reclaimed."
279
 In 1855 this section was repealed and provision was made by law for the taxation of swamp and
overflowed lands, sold or to be sold, precisely as other lands. McGee, before this appeal, had become the
owner by transfer from contractors of a large amount of scrip issued under the Act of 1851, and with this
scrip, after the repeal, took up and paid for many sections and parts of sections of the granted lands. Taxes
were levied by the State on the lands so taken up by McGee. The Supreme Court held that these taxes could
not be collected. The Court said at page 156:

"It seems quite clear that the Act of 1851 authorizing the issue of land scrip constituted a
contract between the State and the holders of the land scrip issued under the act."

In the case of the Home of the Friendless vs. Rouse (8 Wallace, 430), it appeared that on the 3d day
of February, 1853, the legislature of Missouri passed on act to incorporate the Home of the Friendless in the
city of St. Louis. Section 1 of the act provided that —

"All property of said corporation shall be exempt from taxation."

The court held that the State had no power afterwards to pass laws providing for the levying of taxes
upon this institution. The Court said among other things at page 438:

"The validity of this contract is questioned at the bar on the ground that the legislature
had no authority to grant away the power of taxation. The answer to this position is, that the
question is no longer open for argument here, for it is settled by the repeated adjudications of
this court, that a State may be contract based on a consideration exempt the property of an
individual or corporation from taxation, either for a specified period or permanently. And it is
equally well settled that the exemption is presumed to be on sufficient consideration, and binds
the State if the charter containing it is accepted."

In the case of The Asylum vs. The City of New Orleans (105 U.S., 362), it appears that St. Ariva's
Asylum was incorporated by an act of the legislature of Louisiana, approved April 29, 1853. The law
incorporating it provided that it should enjoy the same exemption from taxation which was enjoyed by the
Orphan Boys' Asylum of New Orleans. The law relating to the last named institution provided (page 364):

"That, from and after the passage of this act, all the property, real and personal,
belonging to the Orphan Boys' Asylum of New Orleans be, and the same is hereby exempted
from all taxation, either by the State, parish, or city in which it is situated, any law to the contrary
notwithstanding."

It was held that the State had no power by subsequent legislation to impose taxes upon the property
of this institution.

That the doctrine announced in these cases is still maintained in that court is apparent from the case
of Powers vs. The Detroit, Grand Haven and Milwaukee Railway which was decided on the 16th of April,
1906, and reported in 201 U. S., 543. Section 9 of the act of the legislature of Michigan, incorporating the
railway company, provided:

"Said company shall, on or before the 1st day of July, pay to the State treasurer, an
annual tax of one per cent on the capital stock of said company, pain in, which tax shall be in
lieu of all other taxation."

The court said at page 556:

"It has often been decided by this court, so often that a citation on authorities in
unnecessary, that the legislature of a State may, in the absence of special restrictions in its
constitution, make a valid contract with a corporation in respect to taxation, and that such
contract can be enforced against the State at the instance of the corporation."

The case at bar falls within the cases hereinbefore cited. It is to be distinguished from the case of the
Metropolitan Street Railway Company vs. The New York State Board of Tax Commissioners (199 U.S., 1). In
that case it was provided by various acts of the legislature, that the companies therein referred to, should pay
annually to the city of New York, a fixed amount or percentage, varying from 2 to 8 per cent of their gross
earnings additional taxes was sustained by the court. It was sustained on the ground that the prior legislation
did not expressly say that the taxes thus provided for should be in lieu of all other taxes. The court said at
page 37:
 "Applying these well-established rules to the several contracts, it will be perceived that
there was no express relinquishment of the right of taxation. The plaintiff in error must rely

280
 upon some implication, and not upon any direct stipulation. In each contract there was a grant
of privileges, but the grant was specifically or privileges in respect to the construction,
operation and maintenance of the street railroad. These were all that in terms were granted.
As consideration for this grant, the grantees were to pay something, and such payment is
nowhere said to be in lieu of, or as an equivalent or substitute of taxes. All that can be
extracted from the language used, was a grant of privileges and a payment therefor. Other
words must be written into the contract before there can be found any relinquishment of the
power of taxation."

But in the case at bar, there is found not only the provisions for the payment of certain taxes
annually, but there is also found the provision contained in article 81, above quoted, which expressly
declares that no other taxes shall be imposed upon these mines.

The present case is to be distinguished also from that class of cases of which Grands Lodge vs.
The City of New Orleans (166 U.S., 143) is a type, and which includes Salt Company vs. East Saginaw (13
Wall., 373) and Welch vs. Cook (97 U.S., 541). In these cases the exemption was a mere bounty and did
not form a part of any contract.

The fact that this concession was made by the Government of Spain, and not by the Government of
the United States, is not important. (Trustees of Dartmouth College vs. Woodward, 4 Wheaton, 518.)

Our conclusion is that the concessions granted by the Government of Spain to the plaintiff,
constitute contracts between the parties; that section 134 of the Internal Revenue Law impairs the
obligation of these contracts, and is therefore void as to them.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ We think that this section is also void

because in conflict with section 60 of the act of Congress of July 1, 1902. This section is as follows:

"That nothing in this Act shall be construed to effect the rights of any person,
partnership, or corporation, having a valid, perfected mining concession granted prior to April
eleventh, eighteen hundred and ninety-nine, but all such concessions shall be conducted
under the provisions of the law in force at the time they were granted, subject at all times to
cancellation by reason of illegality in the procedure by which they were obtained, or for failure
to comply with the conditions prescribed as requisite to their retention in the laws under which
they were granted: Provided, That the owner or owners of every such concession shall cause
the corners made by its boundaries to be distinctly marked with permanent monuments within
six months after this act has been promulgated in the Philippine Islands, and that any
concessions, the boundaries of which are not so marked within this period shall be free and
open to explorations and purchase under the provisions of this act." 1

This section seems to indicate that concessions, like those in question, can be canceled only by
reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions
prescribed as requisite for their retention in the laws under which they were granted. There is nothing in the
section which indicates that they can be canceled for failure to comply with the conditions prescribed by
subsequent legislation. In fact, the real intention of the act seems to be that such concession should be
subject to the former legislation and not to any subsequent legislation. There is no claim in this case that
there was any illegality in the procedure by which these concessions were obtained, nor is there any claim
that the plaintiff has not complied with the conditions prescribed in the said royal decree of 1867.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In view of the result at which we have

arrived, it is not necessary to consider the further claim made by the plaintiff that the taxes imposed by
article 134 above quoted, are in violation of the part of section 5 of the act of July 1, 1902, which declares
"that the rule of taxation in said Islands shall be uniform."

The judgment of the court below is reversed, and judgment is ordered in favor of the plaintiff and
against the defendant for P9,600, with interest thereon, at 6 per cent, from the 21st day of February, 1906,
and the costs of the Court of First Instance. No costs will be allowed to either party in this court.

After the expiration of twenty days let judgment be entered in accordance herewith and ten days
thereafter let the case be remanded to the court from whence it came for proper action. So ordered.

Arellano, C.J., Torres, Mapa, and Tracey, JJ., concur.

 Johnson, J., dissents.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Casanovas v. Hord, G.R. No. L-3473, [March 22, 1907], 8
PHIL 125-134)

281
Gerochi v. Department of Energy, G.R. No. 159796, [July 17, 2007], 554 PHIL 563-590

EN BANC

[G.R. No. 159796. July 17, 2007.]

ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST

CONSUMERS NETWORK, INC. (ECN), petitioners, vs. DEPARTMENT OFENERGY (DOE),

ENERGY REGULATORY COMMISSION (ERC), NATIONAL POWER CORPORATION

(NPC), POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT GROUP (PSALM
Corp.), STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC
COMPANY INC. (PECO), respondents.

DECISION

NACHURA, J p:

Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers Network, Inc.
(ECN) (petitioners), come before this Court in this original action praying that Section 34 of Republic Act (RA)
9136, otherwise known as the "Electric Power Industry Reform Act of 2001" (EPIRA), imposing the Universal
Charge, 1 and Rule 18 of the Rules and Regulations (IRR) 2 which seeks to implement the said imposition, be
declared unconstitutional. Petitioners also pray that the Universal Charge imposed upon the consumers be
refunded and that a preliminary injunction and/or temporary restraining order (TRO) be issued directing the
respondents to refrain from implementing, charging, and collecting the said charge. 3 The assailed provision of
law reads:

SECTION 34. Universal Charge. — Within one (1) year from the effectivity of this Act, a
universal charge to be determined, fixed and approved by the ERC, shall be imposed on all
electricity end-users for the following purposes:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Payment for the stranded

debts 4 in excess of the amount assumed by the National Government and
stranded contract costs of NPC 5 and as well as qualified stranded contract
costs of distribution utilities resulting from the restructuring of the industry;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Missionary electrification; 6

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The equalization of the taxes

and royalties applied to indigenous or renewable sources of energy vis-à-vis
imported energy fuels;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ An environmental charge

equivalent to one-fourth of one centavo per kilowatt-hour (P0.0025/kWh), which
shall accrue to an environmental fund to be used solely for watershed
rehabilitation and management. Said fund shall be managed by NPC under
existing arrangements; and

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ A charge to account for all

forms of cross-subsidies for a period not exceeding three (3) years.

The universal charge shall be a non-bypassable charge which shall be passed on and
collected from all end-users on a monthly basis by the distribution utilities. Collections by the
distribution utilities and the TRANSCO in any given month shall be remitted to the PSALM
Corp. on or before the fifteenth (15th) of the succeeding month, net of any amount due to the
distribution utility. Any end-user or self-generating entity not connected to a distribution utility
shall remit its corresponding universal charge directly to the TRANSCO. The PSALM Corp.,
as administrator of the fund, shall create a Special Trust Fund which shall be disbursed only
for the purposes specified herein in an open and transparent manner. All amount collected for
the universal charge shall be distributed to the respective beneficiaries within a reasonable
period to be provided by the ERC.

282
 The Facts

Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect. 7

On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities Group 8 (NPC-SPUG) filed
with respondent Energy Regulatory Commission (ERC) a petition for the availment from the Universal Charge
of its share for Missionary Electrification, docketed as ERC Case No. 2002-165. 9

On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002-194, praying that the
proposed share from the Universal Charge for the Environmental charge of P0.0025 per kilowatt-hour (/kWh),
or a total of P119,488,847.59, be approved for withdrawal from the Special Trust Fund (STF) managed by
respondent Power Sector Assets and Liabilities Management Group (PSALM) 10 for the rehabilitation and
management of watershed areas. 11

On December 20, 2002, the ERC issued an Order 12 in ERC Case No. 2002-165 provisionally approving the
computed amount of P0.0168/kWh as the share of the NPC-SPUG from the Universal Charge for Missionary
Electrification and authorizing the National Transmission Corporation (TRANSCO) and Distribution Utilities to
collect the same from its end-users on a monthly basis.

On June 26, 2003, the ERC rendered its Decision 13 (for ERC Case No. 2002-165) modifying its Order of

December 20, 2002, thus:

WHEREFORE, the foregoing premises considered, the provisional authority granted to

petitioner National Power Corporation-Strategic Power Utilities Group (NPC-SPUG) in the
Order dated December 20, 2002 is hereby modified to the effect that an additional amount of
P0.0205 per kilowatt-hour should be added to the P0.0168 per kilowatt-hour provisionally
authorized by the Commission in the said Order. Accordingly, a total amount of P0.0373 per
kilowatt-hour is hereby APPROVED for withdrawal from the Special Trust Fund managed by
PSALM as its share from the Universal Charge for Missionary Electrification (UC-ME) effective
on the following billing cycles:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ June 26-July 25,

2003 for National Transmission Corporation (TRANSCO); and

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ July 2003 for Distribution

Utilities (Dus).

Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in the amount of
P0.0373 per kilowatt-hour and remit the same to PSALM on or before the 15th day of the
succeeding month.

In the meantime, NPC-SPUG is directed to submit, not later than April 30, 2004, a detailed
report to include Audited Financial Statements and physical status (percentage of completion)
of the projects using the prescribed format.

Let copies of this Order be furnished petitioner NPC-SPUG and all distribution utilities (Dus).

SO ORDERED.

On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC, among others, 14 to set
aside the above-mentioned Decision, which the ERC granted in its Order dated October 7, 2003, disposing:

WHEREFORE, the foregoing premises considered, the "Motion for Reconsideration" filed by
petitioner National Power Corporation-Small Power Utilities Group (NPC-SPUG) is hereby
GRANTED. Accordingly, the Decision dated June 26, 2003 is hereby modified accordingly.

Relative thereto, NPC-SPUG is directed to submit a quarterly report on the following:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Projects for CY 2002

undertaken;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Location

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Actual amount utilized to
complete the project;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Period of completion;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Start of Operation; and

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Explanation of the

reallocation of UC-ME funds, if any.

283
 SO ORDERED. 15

Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC to draw up to
P70,000,000.00 from PSALM for its 2003 Watershed Rehabilitation Budget subject to the availability of funds
for the Environmental Fund component of the Universal Charge. 16

On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO) charged petitioner
Romeo P. Gerochi and all other end-users with the Universal Charge as reflected in their respective electric
bills starting from the month of July 2003. 17

Hence, this original action.

Petitioners submit that the assailed provision of law and its IRR which sought to implement the same are
unconstitutional on the following grounds:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The universal charge

provided for under Sec. 34 of the EPIRA and sought to be implemented under
Sec. 2, Rule 18 of the IRR of the said law is a tax which is to be collected from
all electric end-users and self-generating entities. The power to tax is strictly a
legislative function and as such, the delegation of said power to any executive
or administrative agency like the ERC is unconstitutional, giving the same
unlimited authority. The assailed provision clearly provides that the Universal
Charge is to be determined, fixed and approved by the ERC, hence leaving to
the latter complete discretionary legislative authority.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The ERC is also empowered

to approve and determine where the funds collected should be used.

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ The imposition of the

Universal Charge on all end-users is oppressive and confiscatory and amounts
to taxation without representation as the consumers were not given a chance to
be heard and represented. 18

Petitioners contend that the Universal Charge has the characteristics of a tax and is collected to fund the
operations of the NPC. They argue that the cases 19 invoked by the respondents clearly show the regulatory
purpose of the charges imposed therein, which is not so in the case at bench. In said cases, the respective
funds 20 were created in order to balance and stabilize the prices of oil and sugar, and to act as buffer to
counteract the changes and adjustments in prices, peso devaluation, and other variables which cannot be
adequately and timely monitored by the legislature. Thus, there was a need to delegate powers to
administrative bodies. 21 Petitionersposit that the Universal Charge is imposed not for a similar purpose.

On the other hand, respondent PSALM through the Office of the Government Corporate Counsel (OGCC)
contends that unlike a tax which is imposed to provide income for public purposes, such as support of the
government, administration of the law, or payment of public expenses, the assailed Universal Charge is levied
for a specific regulatory purpose, which is to ensure the viability of the country's electric power industry. Thus,
it is exacted by the State in the exercise of its inherent police power. On this premise, PSALM submits that
there is no undue delegation of legislative power to the ERC since the latter merely exercises a limited
authority or discretion as to the execution and implementation of the provisions of the EPIRA. 22

Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the Solicitor General (OSG),
share the same view that the Universal Charge is not a tax because it is levied for a specific regulatory
purpose, which is to ensure the viability of the country's electric power industry, and is, therefore, an exaction
in the exerciseof the State's police power. Respondents further contend that said Universal Charge does not
possess the essential characteristics of a tax, that its imposition would redound to the benefit of the electric
power industry and not to the public, and that its rate is uniformly levied on electricity end-users, unlike a tax
which is imposed based on the individual taxpayer's ability to pay. Moreover, respondents deny that there is
undue delegation of legislative power to the ERC since the EPIRA sets forth sufficient determinable standards
which would guide the ERC in the exercise of the powers granted to it. Lastly, respondents argue that the
imposition of the Universal Charge is not oppressive and confiscatory since it is an exercise of the police power
of the State and it complies with the requirements of due process. 23
284
On its part, respondent PECO argues that it is duty-bound to collect and remit the amount pertaining to the
Missionary Electrification and Environmental Fund components of the Universal Charge, pursuant to Sec. 34 of
the EPIRA and the Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could be held
liable under Sec. 46 24 of the EPIRA, which imposes fines and penalties for any violation of its provisions or its
IRR. 25

The Issues

The ultimate issues in the case at bar are:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Whether or not, the Universal

Charge imposed under Sec. 34 of the EPIRA is a tax; and

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Whether or not there is

undue delegation of legislative power to tax on the part of the ERC. 26

Before we discuss the issues, the Court shall first deal with an obvious procedural lapse.

Petitioners filed before us an original action particularly denominated as a Complaint assailing the
constitutionality of Sec. 34 of the EPIRA imposing the Universal Charge and Rule 18 of the EPIRA's IRR. No
doubt, petitioners have locus standi. They impugn the constitutionality of Sec. 34 of the EPIRA because they
sustained a direct injury as a result of the imposition of the Universal Charge as reflected in their electric bills.

However, petitioners violated the doctrine of hierarchy of courts when they filed this "Complaint" directly with
us. Furthermore, the Complaint is bereft of any allegationof grave abuse of discretion on the part of the ERC or
any of the public respondents, in order for the Court to consider it as a petition for certiorari or prohibition.

Article VIII, Section 5 (1) and (2) of the 1987 Constitution 27 categorically provides that:

SECTION 5. The Supreme Court shall have the following powers:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Exercise original jurisdiction

over cases affecting ambassadors, other public ministers and consuls, and
over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas
corpus.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Review, revise, reverse,

modify, or affirm on appeal or certiorari, as the law or the rules of court may
provide, final judgments and orders of lower courts in:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ All cases in which the

constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question.

But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, and habeas
corpus, while concurrent with that of the regional trial courts and the Court of Appeals, does not give litigants
unrestrained freedom of choice of forum from which to seek such relief. 28 It has long been established that
this Court will not entertain direct resort to it unless the redress desired cannot be obtained in the appropriate
courts, or where exceptional and compelling circumstances justify availment of a remedy within and call for
the exercise of our primary jurisdiction. 29 This circumstance alone warrants the outright dismissal of the
present action.

This procedural infirmity notwithstanding, we opt to resolve the constitutional issue raised herein. We are
aware that if the constitutionality of Sec. 34 of the EPIRA is not resolved now, the issue will certainly resurface
in the near future, resulting in a repeat of this litigation, and probably involving the same parties. In the public
interest and to avoid unnecessary delay, this Court renders its ruling now.

The instant complaint is bereft of merit.

The First Issue

To resolve the first issue, it is necessary to distinguish the State's power of taxation from the police power.
The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no
limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes
the tax on the constituency that is to pay it. 30 It is based on the principle that taxes are the lifeblood of the
government, and their prompt and certain availability is an imperious need. 31 Thus, the theory behind the
exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people. 32

285
On the other hand, police power is the power of the state to promote public welfare by restraining and
regulating the use of liberty and property. 33 It is the most pervasive, the least limitable, and the most
demanding of the three fundamental powers of the State. The justification is found in the Latin maxims salus
populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum non laedas
(so use your property as not to injure the property of others). As an inherent attribute of sovereignty which
virtually extends to all public needs, police power grants a wide panoply of instruments through which the
State, as parens patriae, gives effect to a host of its regulatory powers. 34 We have held that the power to
"regulate" means the power to protect, foster, promote, preserve, and control, with due regard for the interests,
first and foremost, of the public, then of the utility and of its patrons. 35

The conservative and pivotal distinction between these two powers rests in the purpose for which the charge is
made. If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the
imposition a tax. 36

In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power, particularly
its regulatory dimension, is invoked. Such can be deduced from Sec. 34 which enumerates the purposes for
which the Universal Charge is imposed 37 and which can be amply discerned as regulatory in character. The
EPIRAresonates such regulatory purposes, thus:

SECTION 2. Declaration of Policy. — It is hereby declared the policy of the State:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To ensure and accelerate the total

electrification of the country;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To ensure the quality,

reliability, security and affordability of the supply of electric power;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To ensure transparent and

reasonable prices of electricity in a regime of free and fair competition and full
public accountability to achieve greater operational and economic efficiency
and enhance the competitiveness of Philippine products in the global market;

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To enhance the inflow of

private capital and broaden the ownership base of the power generation,
transmission and distribution sectors;

࿿࿿࿿ )34桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To ensure fair and non-

discriminatory treatment of public and private sector entities in the process of
restructuring the electric power industry;

࿿࿿࿿ )35桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To protect the public interest

as it is affected by the rates and services of electric utilities and other providers
of electric power;

࿿࿿࿿ )36桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To assure socially and

environmentally compatible energy sources and infrastructure;

࿿࿿࿿ )37桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To promote the utilization of

indigenous and new and renewable energy resources in power generation in
order to reduce dependence on imported energy;

࿿࿿࿿ )38桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To provide for an orderly and

transparent privatization of the assets and liabilities of the National Power
Corporation (NPC);

࿿࿿࿿ )39桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To establish a strong and

purely independent regulatory body and system to ensure consumer protection
and enhance the competitive operation of the electricity market; and
 ࿿࿿࿿ )40桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To encourage the efficient
use of energy and other modalities of demand side management.

From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not a tax, but an
exaction in the exercise of the State's police power. Public welfare is surely promoted.

Moreover, it is a well-established doctrine that the taxing power may be used as an implement of police power.
38 In Valmonte v. Energy Regulatory Board, et al. 39 and inGaston v. Republic Planters Bank, 40 this Court
held that the Oil Price Stabilization Fund (OPSF) and the Sugar Stabilization Fund (SSF) were exactions made
in the exercise of the police power. The doctrine was reiterated in Osmeña v. Orbos 41 with respect to the
OPSF. Thus, we disagree with petitioners that the instant case is different from the aforementioned cases.

286
With the Universal Charge, a Special Trust Fund (STF) is also created under the administration of PSALM. 42

The STF has some notable characteristics similar to the OPSF and the SSF, viz.:

1)In the implementation of stranded cost recovery, the ERC shall conduct a review to
determine whether there is under-recovery or over recovery and adjust (true-
up) the level of the stranded cost recovery charge. In case of an over-recovery,
the ERC shall ensure that any excess amount shall be remitted to the STF. A
separate account shall be created for these amounts which shall be held in
trust for any future claims of distribution utilities for stranded cost recovery. At
the end of the stranded cost recovery period, any remaining amount in this
account shall be used to reduce the electricity rates to the end-users. 43

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ With respect to the assailed

Universal Charge, if the total amount collected for the same is greater than the
actual availments against it, the PSALM shall retain the balance within the STF
to pay for periods where a shortfall occurs. 44

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Upon expiration of the term

of PSALM, the administration of the STF shall be transferred to the DOF or any
of the DOF attached agencies as designated by the DOF Secretary. 45

The OSG is in point when it asseverates:

Evidently, the establishment and maintenance of the Special Trust Fund, under the last
paragraph of Section 34, R.A. No. 9136, is well within the pervasive and non-waivable power
and responsibility of the government to secure the physical and economic survival and well-
being of the community, that comprehensive sovereign authority we designate as the police
power of the State. 46

This feature of the Universal Charge further boosts the position that the same is an exaction imposed primarily
in pursuit of the State's police objectives. The STF reasonably serves and assures the attainment and
perpetuity of the purposes for which the Universal Charge is imposed, i.e., to ensure the viability of the
country's electric power industry.

The Second Issue

The principle of separation of powers ordains that each of the three branches of government has exclusive
cognizance of and is supreme in matters falling within its own constitutionally allocated sphere. A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in
the Latin maxim potestas delegata non delegari potest (what has been delegated cannot be delegated). This is
based on the ethical principle that such delegated power constitutes not only a right but a duty to be performed
by the delegate through the instrumentality of his own judgment and not through the intervening mind
ofanother. 47

In the face of the increasing complexity of modern life, delegation of legislative power to various specialized
administrative agencies is allowed as an exception to this principle. 48 Given the volume and variety of
interactions in today's society, it is doubtful if the legislature can promulgate laws that will deal adequately with
and respond promptly to the minutiae of everyday life. Hence, the need to delegate to administrative bodies —
the principal agencies tasked to execute laws in their specialized fields — the authority to promulgate rules and
regulations to implement a given statute and effectuate its policies. All that is required for the valid exerciseof
this power of subordinate legislation is that the regulation be germane to the objects and purposes of the law
and that the regulation be not in contradiction to, but in conformity with, the standards prescribed by the law.
These requirements are denominated as the completeness test and the sufficient standard test.

Under the first test, the law must be complete in all its terms and conditions when it leaves the legislature such
that when it reaches the delegate, the only thing he will have to do is to enforce it. The second test mandates
adequate guidelines or limitations in the law to determine the boundaries of the delegate's authority and
prevent the delegation from running riot. 49

The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34 thereof, is complete
in all its essential terms and conditions, and that it contains sufficient standards.
287
Although Sec. 34 of the EPIRA merely provides that "within one (1) year from the effectivity thereof, a
Universal Charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity end-
users," and therefore, does not state the specific amount to be paid as Universal Charge, the amount
nevertheless is made certain by the legislative parameters provided in the law itself. For one, Sec. 43 (b) (ii) of
the EPIRA provides:

SECTION 43. Functions of the ERC. — The ERC shall promote competition, encourage
market development, ensure customer choice and penalize abuse of market power in the
restructured electricity industry. In appropriate cases, the ERC is authorized to issue cease
and desist order after due notice and hearing. Towards this end, it shall be responsible for the
following key functions in the restructured industry:

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Within six (6) months from the

effectivity of this Act, promulgate and enforce, in accordance with law, a National Grid Code
and a Distribution Code which shall include, but not limited to the following:

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Financial capability standards for the

generating companies, the TRANSCO, distribution utilities and suppliers: Provided, That in the
formulation of the financial capability standards, the nature and function of the entity shall be
considered: Provided, further, That such standards are set to ensure that the electric power
industry participants meet the minimum financial standards to protect the public interest.
Determine, fix, and approve, after due notice and public hearings the universal charge, to be
imposed on all electricity end-users pursuant to Section 34 hereof;

Moreover, contrary to the petitioners' contention, the ERC does not enjoy a wide latitude of discretion in the
determination of the Universal Charge. Sec. 51 (d) and (e) ofthe EPIRA 50 clearly provides:

SECTION 51. Powers. — The PSALM Corp. shall, in the performance of its functions and for
the attainment of its objective, have the following powers:

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To calculate the amount of

the stranded debts and stranded contract costs of NPC which shall form the
basis for ERC in the determination of the universal charge;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ To liquidate the NPC

stranded contract costs, utilizing the proceeds from sales and other property
contributed to it, including the proceeds from the universal charge.

Thus, the law is complete and passes the first test for valid delegation of legislative power.

As to the second test, this Court had, in the past, accepted as sufficient standards the following: "interest of law
and order;" 51 "adequate and efficient instruction;" 52"public interest;" 53 "justice and equity;" 54 "public
convenience and welfare;" 55 "simplicity, economy and efficiency;" 56 "standardization and regulation of
medical education;" 57 and "fair and equitable employment practices." 58 Provisions of the EPIRA such as,
among others, "to ensure the total electrification of the country and the quality, reliability, security and
affordability of the supply of electric power" 59 and "watershed rehabilitation and management" 60 meet the
requirements for valid delegation, as they provide the limitations on the ERC's power to formulate the IRR.
These are sufficient standards.

It may be noted that this is not the first time that the ERC's conferred powers were challenged. In Freedom
from Debt Coalition v. Energy Regulatory Commission, 61 the Court had occasion to say:

In determining the extent of powers possessed by the ERC, the provisions of the EPIRA must
not be read in separate parts. Rather, the law must be read in its entirety, because a statute is
passed as a whole, and is animated by one general purpose and intent. Its meaning cannot to
be extracted from any single part thereof but from a general consideration of the statute as a
whole. Considering the intent of Congress in enacting the EPIRA and reading the statute in its
entirety, it is plain to see that the law has expanded the jurisdiction of the regulatory body, the

288
 ERC in this case, to enable the latter to implement the reforms sought to be accomplished by
the EPIRA. When the legislators decided to broaden the jurisdiction of the ERC, they did not
intend to abolish or reduce the powers already conferred upon ERC's predecessors. To
sustain the view that the ERC possesses only the powers and functions listed under Section
43 of the EPIRA is to frustrate the objectives of the law.

In his Concurring and Dissenting Opinion 62 in the same case, then Associate Justice, now Chief Justice,
Reynato S. Puno described the immensity of police power in relation to the delegation of powers to the ERC
and its regulatory functions over electric power as a vital public utility, to wit:

Over the years, however, the range of police power was no longer limited to the preservation
of public health, safety and morals, which used to be the primary social interests in earlier
times. Police power now requires the State to "assume an affirmative duty to eliminate the
excesses and injustices that are the concomitants of an unrestrained industrial economy."
Police power is now exerted "to further the public welfare — a concept as vast as the good of
society itself." Hence, "police power is but another name for the governmental authority to
further the welfare of society that is the basic end of all government." When police power is
delegated to administrative bodies with regulatory functions, its exercise should be given a
wide latitude. Police power takes on an even broader dimension in developing countries such
as ours, where the State must take a more active role in balancing the many conflicting
interests in society. The Questioned Order was issued by the ERC, acting as an agent of the
State in the exercise of police power. We should have exceptionally good grounds to curtail its
exercise. This approach is more compelling in the field ofrate-regulation of electric power
rates. Electric power generation and distribution is a traditional instrument of economic growth
that affects not only a few but the entire nation. It is an important factor in encouraging
investment and promoting business. The engines of progress may come to a screeching halt if
the delivery ofelectric power is impaired. Billions of pesos would be lost as a result of power
outages or unreliable electric power services. The State thru the ERC should be able to
exercise its police power with great flexibility, when the need arises.

This was reiterated in National Association of Electricity Consumers for Reforms v. Energy Regulatory
Commission 63 where the Court held that the ERC, as regulator, should have sufficient power to respond in
real time to changes wrought by multifarious factors affecting public utilities.

From the foregoing disquisitions, we therefore hold that there is no undue delegation of legislative power to the
ERC.

Petitioners failed to pursue in their Memorandum the contention in the Complaint that the imposition of the
Universal Charge on all end-users is oppressive and confiscatory, and amounts to taxation without
representation. Hence, such contention is deemed waived or abandoned per Resolution 64 of August 3, 2004.
65Moreover, the determination of whether or not a tax is excessive, oppressive or confiscatory is an issue
which essentially involves questions of fact, and thus, this Court is precluded from reviewing the same. 66

As a penultimate statement, it may be well to recall what this Court said of EPIRA:

One of the landmark pieces of legislation enacted by Congress in recent years is the EPIRA. It
established a new policy, legal structure and regulatory framework for the electric power
industry. The new thrust is to tap private capital for the expansion and improvement of the
industry as the large government debt and the highly capital-intensive character of the
industry itself have long been acknowledged as the critical constraints to the program. To
attract private investment, largely foreign, the jaded structure of the industry had to be
addressed. While the generation and transmission sectors were centralized and monopolistic,
the distribution side was fragmented with over 130 utilities, mostly small and uneconomic. The
pervasive flaws have caused a low utilization of existing generation capacity; extremely high
and uncompetitive power rates; poor quality of service to consumers; dismal to forgettable
performance of the government power sector; high system losses; and an inability to develop
a clear strategy for overcoming these shortcomings.

Thus, the EPIRA provides a framework for the restructuring of the industry, including the
privatization of the assets of the National Power Corporation (NPC), the transition to a
289
 competitive structure, and the delineation of the roles of various government agencies and the
private entities. The law ordains the division of the industry into four (4) distinct sectors,
namely: generation, transmission, distribution and supply. Corollarily, the NPC generating
plants have to privatized and its transmission business spun off and privatized thereafter. 67

Finally, every law has in its favor the presumption of constitutionality, and to justify its nullification, there must
be a clear and unequivocal breach of the Constitutionand not one that is doubtful, speculative, or
argumentative. 68 Indubitably, petitioners failed to overcome this presumption in favor of the EPIRA. We find
no clear violation of the Constitution which would warrant a pronouncement that Sec. 34 of the EPIRA and
Rule 18 of its IRR are unconstitutional and void.

WHEREFORE, the instant case is hereby DISMISSED for lack of merit.

SO ORDERED.

Puno, C.J., Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Carpio-

Morales, Azcuna, Tinga, Chico-Nazario, Garcia and Velasco, Jr., JJ.,concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Gerochi v. Department of Energy, G.R. No. 159796, [July
17, 2007], 554 PHIL 563-590)

Punsalan v. Municipal Board of the City of Manila, G.R. No. L-4817, [May 26, 1954], 95 PHIL 46-51

EN BANC

[G.R. No. L-4817. May 26, 1954.]

SILVESTRE M. PUNSALAN, ET AL., plaintiffs-appellants, vs. THE MUNICIPAL BOARD OF

THE CITY OF MANILA, ET AL., defendants-appellants.

Calanog & Alafriz for plaintiffs and appellants.

City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants and appellants.

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ TAXATION; LEGISLATIVE

DEPARTMENT DETERMINES WHAT ENTITIES SHOULD BE EMPOWERED TO IMPOSE
OCCUPATION TAX. — It is not for the courts to judge what particular cities or municipalities should be
empowered to impose occupation taxes in addition to those imposed by the national Government. That
matter is peculiarly within the domain of the political departments and the courts would do well not to
encroach upon it.

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ID.; DOUBLE TAXATION. — There is

double taxation where one tax is imposed by the state and the other is imposed by the city, it being widely
recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be
enacted with respect to the same occupation, calling or activity by both the state and the political
subdivisions thereof. (Citing 1 Cooley on Taxation, 4th ed., p. 492 and 51 Am. Jur., 341.)

DECISION

REYES, J p:
 This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in
behalf of other professionals practicing in the City of Manila who may desire to join it." Object of the suit is

290
the annulment of Ordinance No. 3398 of the City of Manila together with the provision of the Manila charter
authorizing it and the refund of taxes collected under the ordinance but paid under protest.

The ordinance in question, which was approved by the municipal board of the City of Manila on July
25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city and
penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by imprisonment of not
more than six months, or by both such fine and imprisonment in the discretion of the court." Among the
professions taxed were those to which plaintiffs belong. The ordinance was enacted pursuant to paragraph

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ of section 18 of the Revised Charter of the City of Manila
(as amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various professions
above referred to.

Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same under
protest and then brought the present suit for the purpose already stated. The lower court upheld the validity
of the provision of law authorizing the enactment of the ordinance but declared the ordinance itself illegal and
void on the ground that the penalty therein provided for non-payment of the tax was not legally authorized.
From this decision both parties appealed to this Court, and the only question they have presented for our
determination is whether this ruling is correct or not, for though the decision is silent on the refund of taxes
paid plaintiffs make no assignment of error on this point.

To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The last paragraph
(kk) of the very section that authorizes the enactment of this tax ordinance (section 18 of the Manila Charter)
in express terms also empowers the Municipal Board "to fix penalties for the violation of ordinances which
shall not exceed to (sic) two hundred pesos fine or six months' imprisonment, or both such fine and
imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is illegal
and void because it imposes a penalty not authorized by law is clearly without basis.

As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double taxation.

In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the
professions to which they respectively belong have been singled out for the imposition of this municipal
occupation tax; and in any event, the Legislature may, in its discretion, select what occupations shall be
taxed, and in the exercise of that discretion it may tax all, or it may select for taxation certain classes and
leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is that
while the law has authorized the City of Manila to impose the said tax, it has withheld that authority from
other chartered cities, not to mention municipalities. We do not think it is for the courts to judge what
particular cities or municipalities should be empowered to impose occupation taxes in addition to those
imposed by the National Government. That matter is peculiarly within the domain of the political departments
and the courts would do well not to encroach upon it. Moreover, as the seat of the National Government and
with a population and volume of trade many times that of any other Philippine city or municipality, Manila, no
doubt, offers a more lucrative field for the practice of the professions, so that it is but fair that the
professionals in Manila be made to pay a higher occupation tax than their brethren in the provinces.

Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who have no
offices in the city but practice their profession therein are not subject to the tax. Plaintiffs make a distinction
that is not found in the ordinance. The ordinance imposes the tax upon every person "exercising" or
"pursuing" — in the City of Manila naturally — any one of the occupations named, but does not say that such
person must have his office in Manila. What constitutes exercise or pursuit of a profession in the city is a
matter of judicial determination.

The argument against double taxation may not be invoked where one tax is imposed by the state and
the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there
is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am. Jur.,
341.)
291
 In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance
No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the provision
of the Manila charter authorizing it. With costs against plaintiffs-appellants.

Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador and Concepcion, JJ., concur.

Separate Opinions

PARAS, C.J., dissenting:

I am constrained to dissent from the decision of the majority upon the ground that the Municipal
Board of Manila cannot outlaw what Congress of the Philippines has already authorized. The plaintiffs-
appellants — two lawyers, a physician, an accountant, a dentist and a pharmacist — had already paid the
occupation tax under section 201 of the National Internal Revenue Code and are thereby duly licensed to
practice their respective professions throughout the Philippines; and yet they had been required to pay
another occupation tax under Ordinance No. 3398 for practising in the City of Manila. This is a glaring
example of contradiction — the license granted by the National Government is in effect withdrawn by the
City in case of non-payment of the tax under the ordinance. If it be argued that the national occupation tax
is collected to allow the professional residing in Manila to pursue his calling in other places in the
Philippines, it should then be exacted only from professionals practising simultaneously in and outside of
Manila. At any rate, we are confronted with the following situation: Whereas the professionals elsewhere
pay only one occupation tax, in the City of Manila they have to pay two, although all are on equal footing
insofar as opportunities for earning money out of their pursuits are concerned. The statement that practice
in Manila is more lucrative than in the provinces, may be true perhaps with reference only to a limited few,
but certainly not to the general mass of practitioners in any field. Again, provincial residents who have
occasional or isolated practice in Manila may have to pay the city tax. This obvious discrimination or lack of
uniformity cannot be brushed aside or justified by any trite pronouncement that double taxation is legitimate
or that legislation may validly affect certain classes.

My position is that a professional who has paid the occupation tax under the National Internal
Revenue Code should be allowed to practice in Manila even without paying the similar tax imposed by
Ordinance No. 3398. The City cannot give what said professional already has. I would not say that this
Ordinance, enacted by the Municipal Board pursuant to paragraph 1 of section 18 of the Revised Charter
of Manila, as amended by Republic Act No. 409, empowering the Board to impose a municipal occupation
tax not to exceed P50 per annum, is invalid; but that only one tax, either under the Internal Revenue Code
or under Ordinance No. 3398, should be imposed upon a practitioner in Manila.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Punsalan v. Municipal Board of the City of Manila, G.R.
No. L-4817, [May 26, 1954], 95 PHIL 46-51)

American Bible Society v. City of Manila, G.R. No. L-9637, [April 30, 1957], 101 PHIL 386-402

SECOND DIVISION

[G.R. No. L-9637. April 30, 1957.]

AMERICAN BIBLE SOCIETY, plaintiff-appellant, vs. CITY OF MANILA, defendant-appellee.

City Fiscal Eugenio Angeles and Juan Nabong for appellant.

Assistant City Fiscal Arsenio Nañawa for appellee.

SYLLABUS

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ STATUTES; SIMULTANEOUS REPEAL

AND RE-ENACTMENT; EFFECT OF REPEAL UPON RIGHTS AND LIABILITIES WHICH ACCRUED
UNDER THE ORIGINAL STATUTE. — Where the old statute is repealed in its entirety and by the same
enactment re-enacts all or certain portions of the pre-

292
existing law, the majority view holds that the rights and liabilities which have accrued under the original
statute are preserved and may be enforced, since the re-enactment neutralizes the repeal, therefore
continuing the law in force without interruption. (Crawford, Statutory Construction, Sec. 322). In the case at
bar, Ordinances Nos. 2529 and 3000 of the Cityof Manila were enacted by the Municipal Board of the City of
Manila by virtue of the power granted to it by section 2444, Subsection (m-2) of the Revised Administrative
Code, superseded on June 13, 1949, by section 13, Subsection (o) of Republic Act No. 409, known as the
Revised Charter of the City of Manila. The only essential difference between these two provisions is that
while Subsection (m-2) prescribes that the combined total tax of any dealer or manufacturer, or both,
enumerated under Subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned
therein, shall not be in excess of P500 per annum, the corresponding Section 18, subsection (o) of Republic
Act No. 409, does not contain any limitation as to the amount of tax or license fee that the retail dealer has to
pay per annum. Hence, and in accordance with the weight of authorities aforementioned, City ordinances
Nos. 2529 and 3000 are still in force and effect.

MUNICIPAL TAX; RETAIL DEALERS IN GENERAL MERCHANDISE; ORDINANCE

PRESCRIBING TAX NEED NOT BE APPROVED BY THE PRESIDENT TO BE EFFECTIVE. — The
business of "retail dealers in general merchandise" is expressly enumerated in subsection (o), section 18 of
Republic Act No. 409: hence, an ordinance prescribing a municipal tax on said business does not have to be
approved by the President to be effective, as it is not among those businesses referred to in subsection

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ Section 18 of the same Act subject to the approval of the
President.

CONSTITUTIONAL LAW; RELIGIOUS FREEDOM; DISSEMINATION OF RELIGIOUS

INFORMATION, WHEN MAY BE RESTRAINED; PAYMENT OF LICENSE FEE, IMPAIRS FREE EXERCISE
OF RELIGION. — The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraint of such right can only be
justified like other restraints of freedom of expression on the grounds that there is a clear and present danger
of any substantive evil which the State has the right to prevent." (Tañada and Fernando on the Constitution
of the Philippines, Vol. I, 4th ed., p. 297). In the case at bar, plaintiff is engaged in the distribution and sales
of bibles and religious articles. The City Treasurer of Manila informed the plaintiff that it was conducting the
business of general merchandise without providing itself with the necessary Mayor's permit and municipal
license, in violation of Ordinance No. 3000, as amended, and Ordinance No. 2529, as amended, and
required plaintiff to secure the corresponding permit and license. Plaintiff protested against this requirement
and claimed that it never made any profit from the sale of its bibles. Held: It is true the price asked for the
religious articles was in some instances a little bit higher than the actual cost of the same, but this cannot
mean that plaintiff was engaged in the business or occupation of selling said "merchandise" for profit. For this
reasons, the provisions of City Ordinance No. 2529, as amended, which requires the payment of license fee
for conducting the business of general merchandise, cannot be applied to plaintiff society, for in doing so, it
would impair its free exercise and enjoyment of its religious profession and worship, as well as its rights
ofdissemination of religious beliefs. Upon the other hand, City Ordinance No. 3000, as amended, which
requires the obtention of the Mayor's permit before any person can engage in any of the businesses, trades
or occupations enumerated therein, does not impose any charge upon the enjoyment of a right granted by
the Constitution, nor tax the exercise of religious practices. Hence, it cannot be considered unconstitutional,
even if applied to plaintiff Society. But as Ordinance No. 2529 is not applicable to plaintiff and the City of
Manila is powerless to license or tax the business of plaintiff society involved herein, for the reasons above
stated, Ordinance No. 3000 is also inapplicable to said business, trade or occupation of the plaintiff.

DECISION

FELIX, J p:

Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered

and doing business in the Philippines through its Philippine agency established in Manila in November, 1898,
with its principal office at 636 Isaac Peral in said City. The defendant-appellee is a municipal corporation with
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.

293
 In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or
gospel portions thereof (except during the Japanese occupation) throughout the Philippines and translating
the same into several Philippine dialects. On May 29, 1953, the acting City Treasurer of the City of
Manilainformed plaintiff that it was conducting the business of general merchandise since November, 1945,
without providing itself with the necessary Mayor's permit and municipal license, in violation of Ordinance No.
3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three
days, the corresponding permit and license fees, together with compromise covering the period from the 4th
quarter of 1945 to the 2nd quarter of 1953, in the total sum ofP5,821.45 (Annex A).

Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and
pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same (Annex B). To
avoid the closing of its business as well as further fines and penalties in the premises, on October 24,
1953,plaintiff paid to the defendant under protest the said permit and license fees in the aforementioned
amount, giving at the same time notice to the City Treasurer that suit would be taken in court to question the
legality of the ordinances under which the said fees were being collected (Annex C), which was done on the
same date by filing the complaint that gave rise to this action. In its complaint plaintiff prays that judgment be
rendered declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028
and 3364 illegal and unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of
P5,891.45 paid under protest, together with legal interest thereon, and the costs, plaintiff further praying for
such other relief and remedy as the court may deem just and equitable.

Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the
Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection (m-2) of
the Revised Administrative Code, superseded on June 18, 1949, by section 18, subsection (1) of Republic
Act No. 409, known as the Revised Charter of the City of Manila, and praying that the complaint be
dismissed, with costs against plaintiff. This answer was replied by theplaintiff reiterating the
unconstitutionality of the often- repeated ordinances.

Before trial the parties submitted the following stipulation of facts:

"COME NOW the parties in the above-entitled case, thru their undersigned attorneys
and respectfully submit the following stipulation of facts:

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the plaintiff sold for the use of
the purchasers at its principal office at 636 Isaac Peral, Manila, Bibles, New Testaments, bible
portions and bibleconcordance in English and other foreign languages imported by it from the
United States as well as Bibles, New Testaments and bible portions in the local dialects
imported and/or purchased locally; that from the fourth quarter of 1945 to the first quarter of
1953 inclusive the sales made by the plaintiff were as follows:

Quarter Amount of Sales

4th quarter 1945 P1,244.21

1st quarter 1946 2,206.85

2nd quarter 1946 1,950.38

3rd quarter 1946 2,235.99

4th quarter 1946 3,256.04

1st quarter 1947 13,241.07

2nd quarter 1947 15,774.55

3rd quarter 1947 14,654.13

4th quarter 1947 12,590.94

1st quarter 1948 11,143.90

2nd quarter 1948 14,715.26

3rd quarter 1948 38,333.83

4th quarter 1948 16,179.90

1st quarter 1949 23,975.10

2nd quarter 1949 17,802.08

294
 3rd quarter 1949 16,640.79

4th quarter 1949 15,961.38

1st quarter 1950 18,562.46

2nd quarter 1950 21,816.32

3rd quarter 1950 25,004.55

4th quarter 1950 45,287.92

1st quarter 1951 37,841.21

2nd quarter 1951 29,103.98

3rd quarter 1951 20,181.10

4th quarter 1951 22,968.91

1st quarter 1952 23,002.65

2nd quarter 1952 17,626.96

3rd quarter 1952 17,921.01

4th quarter 1952 24,180.72

1st quarter 1953 29,516.21

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ That the parties hereby reserve the

right to present evidence of other facts not herein stipulated.

WHEREFORE, it is respectfully prayed that this case be set for hearing so that the
parties may present further evidence on their behalf (Record on Appeal, pp. 15-16)".

When the case was set for hearing, plaintiff proved, among other things, that it has been in existence
in the Philippines since 1899, and that its parent society is in New York, United States of America; that its
contiguous real properties located at Isaac Peral are exempt from real estate taxes; and that it was never
required to pay any municipal license fee or tax before the war, nor does the American Bible Society in the
United States pay any license fee or sales tax for the sale of bibletherein. Plaintiff further tried to establish
that it never made any profit from the sale of its bibles, which are disposed of for as low as one third of the
cost, and that in order to maintain its operating cost it obtains substantial remittances from its New York
office and voluntary contributions and gifts from certain churches, both in the United States and in the
Philippines, which are interested in its missionary work. Regarding plaintiff's contention of lack of profit in the
sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone witness who testified on
cross-examination that bibles bearing the price of 70 cents each from plaintiff-appellant's New York office are
sold here by plaintiff- appellant at P1.30 each; those bearing the price of $4.50 each are sold here at P10
each; those bearing the priceof $7 each are sold here at P15 each; and those bearing the price of $11 each
are sold here at P22 each, clearly show that plaintiff's contention that it never makes any profit from the sale
of its bible, is evidently untenable.

After hearing the Court rendered judgment, the last part of which is as follows:

"As may be seen from the repealed section (m-2) of the Revised Administrative Code
and the repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly
differ in the way the legislative intent is expressed, yet their meaning is practically the same for
the purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to
be levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of
Ordinance No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as amended by
Ordinance No. 3364).

IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so

holds that this case should be dismissed, as it is hereby dismissed, for lack ofmerits, with costs
against the plaintiff."
 Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the
case to Us for the reason that the errors assigned to the lower Court involved only questions of law.

Appellant contends that the lower Court erred:

295
 ࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In holding that Ordinances Nos.
2529 and 3000, as respectively amended, are not unconstitutional;

࿿࿿࿿ )31桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In holding that subsection m-2 of

Section 2444 of the Revised Administrative Code under which Ordinances Nos. 2529 and 3000
were promulgated, was not repealed by Section 18 of Republic Act No. 409;

࿿࿿࿿ )32桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In not holding that an ordinance

providing for percentage taxes based on gross sales or receipts, in order to be valid under the
new Charter of the City ofManila, must first be approved by the President of the Philippines; and

࿿࿿࿿ )33桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ In holding that, as the sales made by

the plaintiff-appellant have assumed commercial proportions, it cannot escape from the
operation of said municipal ordinances under the cloak of religious privilege.

The issues. — As may be seen from the preceding statement of the case, the issues involved in the
present controversy may be reduced to the following: (1) whether or not the ordinances of the City of Manila,
Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and (2) whether the
provisions ofsaid ordinances are applicable or not to the case at bar.

Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides

that:

"(7) No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof, and the free exercise and enjoyment of religious profession and worship,
without discrimination or preference, shall forever be allowed. No religion test shall be required
for the exercise of civil or political rights."

Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and
3000, as respectively amended, are unconstitutional and illegal in so far as its society is concerned, because
they provide for religious censorship and restrain the free exercise and enjoyment of its religious profession,
to wit: the distribution and sale of bibles and other religious literature to the people of the Philippines.

Before entering into a discussion of the constitutional aspect of the case, We shall first consider the
provisions of the questioned ordinances in relation to their application to the sale of bibles, etc. by appellant.
The records show that by letter of May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a
Mayor's permit in connection with the society's alleged business of distributing and selling bibles, etc. and to
pay permit dues in the sum of P35 for the period covered in this litigation, plus the sum of P35 for
compromise on account of plaintiff's failure to secure the permit required by Ordinance No. 3000 of the City
of Manila, as amended. This Ordinance is of general application and not particularly directed against
institutions like the plaintiff, and it does not contain any provisions whatsoever prescribing religious
censorship nor restraining the free exercise and enjoyment of any religious profession. Section 1 of
Ordinance No. 3000 reads as follows:

"SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or entity to

conduct or engage in any of the businesses, trades, or occupationsenumerated in Section 3 of
this Ordinance or other businesses, trades, or occupations for which a permit is required for the
proper supervision and enforcement ofexisting laws and ordinances governing the sanitation,
security, and welfare of the public and the health of the employees engaged in the business
specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT
THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY
TREASURER."

The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in
Section 3 of the Ordinance, and the record does not show that a permit is required therefor under existing
laws and ordinances for the proper supervision and enforcement of their provisions governing the sanitation,
security and welfare of the public and the health of the employees engaged in the business of the plaintiff.
However, section 3 of Ordinance 3000 contains item No. 79, which reads as follows:

"79. All other businesses, trades or occupations not mentioned in this Ordinance, 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.

296
 As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th
quarter of 1945 to the 1st quarter of 1953 in the sum ofP5,821.45, including the sum of P50 as compromise,
Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028 prescribes the following:

"SEC. 1. FEES. — Subject to the provisions of section 578 of the Revised Ordinances of
the City of Manila, as amended, there shall be paid to the CityTreasurer for engaging in any of
the businesses or occupations below enumerated, quarterly, license fees based on gross sales
or receipts realized during the preceding quarter in accordance with the rates herein prescribed:
PROVIDED, HOWEVER, That a person engaged in any business or occupation for the first time
shall pay the initial license fee based on the probable gross sales or receipts for the first quarter
beginning from the date of the opening of the business as indicated herein for the corresponding
business or occupation.

xxx xxx xxx

GROUP 2. — Retail dealers in new (not yet used) merchandise, which dealers are not
yet subject to the payment of any municipal tax, such as (1) retail dealers in general
merchandise; (2) retail dealers exclusively engaged in the sale of . . . books, including
stationery.

xxx xxx xxx

As may be seen, the license fees required to be paid quarterly- in Section 1 of said Ordinance No.
2529, as amended, are not imposed directly upon any religious institution but upon those engaged in any of
the business or occupations therein enumerated, such as retail "dealers in general merchandise" which, it is
alleged, cover the business or occupation of selling bibles, books, etc.

Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of said
legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the Municipal Board of
the City of Manila:

"(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or
both, and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject
to the payment of any municipal tax.

"For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers
in general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . .

. (e) books, including stationery paper and office supplies . . . PROVIDED, HOWEVER, That the
combined total tax of any debtor or manufacturer, or both, enumerated under these subsections
(m-1) and (m-2), whether dealing in one or all of the articles mentioned herein, SHALL NOT BE
IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM."

and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted in
virtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant, however, contends
that said ordinances are no longer in force and effect as the law under which they were promulgated has
been expressly repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as the
Revised Manila Charter.

Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly
repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the trial
Judge, although Section 244 (m-2) of the former Manila Charter and section 18 (o) of the new seemingly
differ in the way the legislative intent was expressed, yet their meaning is practically the same for the
purpose of taxing the merchandise mentioned in both legal provisions and, consequently, Ordinances Nos.
2529 and 3000, as amended, are to be considered as still in full force and effect uninterruptedly up to the
present.

"Often the legislature, instead of simply amending the preexisting statute, will repeal the
old statute in its entirety and by the same enactment re-enact all or certain portions of the
preexisting law. Of course, the problem created by this sort of legislative action involves mainly
the effect of the repeal upon rights and liabilities which accrued under the original statute. Are
those rights and liabilities destroyed or preserved? The authorities are divided as to the effect of
simultaneous repeals and re- enactments. Some adhere to the view that the rights and liabilities
accrued under the repealed act are destroyed, since the statutes from which they sprang are
actually terminated, even though for only a very short period of time.

297
 Others, and they seem to be in the majority, refuse to accept this view of the situation, and
consequently maintain that all rights and liabilities which have accrued under the original statute
are preserved and may be enforced, since the re-enactment neutralizes the repeal, therefore
continuing the law in force without interruption". (Crawford-Statutory Construction, Sec. 322).

Appellant's counsel states that section 18 (o) of Republic Act No. 409 introduces a new and wider
concept of taxation and is so different from the provisions ofSection 2444(m-2) that the former cannot be
considered as a substantial re-enactment of the provisions of the latter. We have quoted above the
provisions ofsection 2444 (m-2) of the Revised Administrative Code and We shall now copy hereunder the
provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as follows:

"(o) 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 under the provisions of this section.

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.

For purposes of this section, the term 'General merchandise' shall include poultry and
livestock, agricultural products, fish and other allied products."

The only essential difference that We find between these two provisions that may have any bearing
on the case at bar, is that while subsection (m-2) prescribes that the combined total tax of any dealer or
manufacturer, or both, enumerated under subsections (m-1) and (m- 2), whether dealing in one or all of the
articles mentioned therein, shall not be in excess of P500 per annum, the corresponding section 18,
subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount of tax or license fee
that the retail dealer has to pay per annum. Hence, and in accordance with the weight of the authorities
above referred to that maintain that "all rights and liabilities which have accrued under the original statute are
preserved and may be enforced, since the reenactment neutralizes the repeal, therefore continuing the law in
force without interruption", We hold that the questioned ordinances of the City of Manila are still in force and
effect.

Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the
President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads as
follows:

"(ii) To tax, license and regulate any business, trade or occupation being conducted
within the City of Manila, not otherwise enumerated in the preceding subsections, including
percentage taxes based on gross sales or receipts, subject to the approval of the PRESIDENT,
except amusement taxes."

but this requirement of the President's approval was not contained in section 2444 of the former Charter of
the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated by appellee's
counsel, the business of "retail dealers in general merchandise" is expressly enumerated in subsection (o),
section 18of Republic Act No. 409; hence, an ordinance prescribing a municipal tax on said business does
not have to be approved by the President to be effective, as it is not among those referred to in said
subsection (ii). Moreover, the questioned ordinances are still in force, having been promulgated by the
Municipal Board of the City ofManila under the authority granted to it by law.

The question that now remains to be determined is whether said ordinances are inapplicable, invalid
or unconstitutional if applied to the alleged business ofdistribution and sale of bibles to the people of the
Philippines by a religious corporation like the American Bible Society, plaintiff herein.

With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellant
contends that it is unconstitutional and illegal because it restrains the free exercise and enjoyment of the
religious profession and worship of appellant.
298
 Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the
freedom of religious profession and worship. "Religion has been spoken of as 'a profession of faith to an
active power that binds and elevates man to its Creator' (Aglipay vs. Ruiz, 64 Phil., 201). It has reference to
one's viewsof his relations to His Creator and to the obligations they impose of reverence to His being and
character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The constitutional guaranty of the
free exercise and enjoyment of religious profession and worship carries with it the right to disseminate
religious information. Any restraint of such right can only be justified like other restraints of freedom of
expression on the grounds that there is a clear and present danger of any substantive evil which the State
has the right to prevent". (Tañada and Fernando on the Constitution of the Philippines, Vol. I, 4th ed., p.
297). In the case at bar the license fee herein involved is imposed upon appellant for its distribution and sale
of bibles and other religious literature.

"In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a
license be obtained before a person could canvass or solicit orders for goods, paintings,
pictures, wares or merchandise cannot be made to apply to members of Jehovah's Witnesses
who went about from door to door distributing literature and soliciting people to 'purchase'
certain religious books and pamphlets, all published by the Watch Tower Bible & Tract Society.
The 'price' of the books was twenty-five cents each, the 'price' of the pamphlets five cents each.
It was shown that in making the solicitations there was a request for additional 'contribution'
oftwenty-five cents each for the books and five cents each for the pamphlets. Lesser sum were
accepted, however, and books were even donated in case interested persons were without
funds.

On the above facts the Supreme Court held that it could not be said that petitioners were
engaged in commercial rather than a religious venture. Their activities could not be described as
embraced in the occupation of selling books and pamphlets. Then the Court continued:

'We do not mean to say that religious groups and the press are free from all financial
burdens of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed.
660, 668, 56 S. Ct. 444. We have here something quite different, for example, from a tax on the
income of one who engages in religious activities or a tax on property used or employed in
connection with those activities. It is one thing to impose a tax on the income or property of a
preacher. It is quite another thing to exact a tax from him for the privilege of delivering a sermon.
The tax imposed by the City of Jeannette is a flat license tax, payment of which is a condition of
the exercise of these constitutional privileges. 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 ofengaging in this form of missionary evangelism
can close all its doors to all 'those who do not have a full purse. Spreading religious beliefs in
this ancient and honorable manner would thus be denied the needy. . . .

It is contended however that the fact that the license tax can suppress or control this
activity is unimportant if it does not do so. But that is to disregard the nature of this tax. It is a
license tax — a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . .

The power to impose a license tax on the exerciseof these freedoms 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
ofactivities 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.'

Nor could dissemination of religious information be conditioned upon the approval of an

official or manager even if the town were owned by a corporation as held in the case of Marsh
vs. State of Alabama (326 U.S. 501) or by the United States itself as held in the case of Tucker
vs. Texas (326 U.S. 517). In the former case the Supreme Court expressed the opinion that the
right to enjoy freedom of the press and religion occupies a preferred position as against the
constitutional right ofproperty owners.

299
 'When we balance the constitutional rights of owners of property against those of the
people to enjoy freedom of press and religion, as we must here, we remain mindful of the fact
that the latter occupy a preferred position. . . . In our view the circumstance that the property
rights to the premises where the deprivation ofproperty here involved, took place, were held
by others than the public, is not sufficient to justify the State's permitting a corporation to
govern a community of citizens so as to restrict their fundamental liberties and the
enforcement of such restraint by the application of a State statute.'" (Tañada and Fernando on
the Constitution ofthe Philippines, Vol. I, 4th ed., p. 304-306).

Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue
Code, provides:

"SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The following

organizations shall not be taxed under this Title in respect to income received by them as
such —

"(e) 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;"

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from
this tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc. is
purely religious and does not fall under the above legal provisions.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets
was in some instances a little bit higher than the actual costof the same, but this cannot mean that
appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this
reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be
applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious
profession and worship as well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires the obtention of the Mayor's
permit before any person can engage in any of the businesses, trades or occupations enumerated therein,
We do not find that it imposes any charge upon the enjoyment of a right granted by the Constitution, nor
tax the exerciseof religious practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this point
was elucidated as follows:

"An ordinance by the City of Griffin, declaring that the practice of distributing either by
hand or otherwise, circulars, handbooks, advertising, or literature of any kind, whether said
articles are being delivered free, or whether same are being sold within the city limits of the
City of Griffin, without first obtaining written permission from the city manager of the City of
Griffin, shall be deemed a nuisance and punishable as an offense against the City of Griffin,
does not deprive defendant of his constitutional right of the free exercise and enjoyment of
religious profession and worship, even though it prohibits him from introducing and carrying
out a scheme or purpose which he sees fit to claim as a part of his religious system."

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if
applied to plaintiff Society. But as Ordinance No. 2529 of theCity of Manila, as amended, is not applicable
to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of plaintiff Society
involved herein for, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its
religious profession and worship, as well as its rights ofdissemination of religious beliefs, We find that
Ordinance No. 3000, as amended, is also inapplicable to said business, trade or occupation of the plaintiff.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision
appealed from, sentencing defendant to return to plaintiff the sum of P5,891.45 unduly collected from it.
Without pronouncement as to costs. It is so ordered.

Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.

Reyes, A., J., concurs in the result.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (American Bible Society v. City of Manila, G.R. No. L-9637,
[April 30, 1957], 101 PHIL 386-402)

300
Abra Valley College, Inc. v. Aquino, G.R. No. L-39086, [June 15, 1988], 245 PHIL 83-93

SECOND DIVISION

[G.R. No. L-39086. June 15, 1988.]

ABRA VALLEY COLLEGE, INC. represented by PEDRO V. BORGONIA, petitioner, vs.

HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA,
Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued,
Abra; HEIRS CF PATERNO MILLARE,respondents.

DECISION

PARAS, J p:

This is a petition for review on certiorari of the decision ** of the defunct Court of First Instance of Abra, Branch
I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented
by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as
Municipal Treasurer of Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:

"IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

"That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the
Provincial Treasurer of said province against the lot and building of the Abra ValleyJunior
College, Inc., represented by Director Pedro Borgonia located at Bangued, Abra, is valid;

"That since the school is not exempt from paying taxes, it should therefore pay all back taxes
in the amount of P5,140.31 and back taxes and penalties from the promulgation of this
decision;

"That the amount deposited by the plaintiff in the sum of P6,000.00 before the trial, be
confiscated to apply for the payment of the back taxes and for the redemption of the property
in question, if the amount is less than P6,000.00, the remainder must be returned to the
Director of Pedro Borgonia, who represents the plaintiff herein;

"That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the
trial must be returned to said Municipal Treasurer of Bangued, Abra;

"And finally the case is hereby ordered dismissed with costs against the plaintiff.

"SO ORDERED." (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities
and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of
Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and declare void the "Notice of
Seizure" and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real
estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building
covered by Original Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on
July 6, 1972, byrespondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for
the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by
the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which
sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the
highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued to him.

On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counsel a motion to
dismiss the complaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial
Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Paterno Millare;

301
Rollo, pp. 98-100) to the complaint this was followed by an amended answer (Annex "3," ibid; Rollo, pp. 101-
103) on August 31, 1972.

On September 1, 1972, the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-108).

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge,
Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ the respondents provincial and municipal treasurers to

deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner,
through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB Check
No. 904369. LLpr

On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in
its questioned decision. Said Stipulations reads:

"STIPULATION OF FACTS

"COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully
enter into the following agreed stipulation of facts:

"1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint
is admitted; but the particular person of Mr. Armin M. Cariaga is to be substituted, however,
by anyone who is actually holding the position of Provincial Treasurer of the Province of Abra;

"2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings
thereon located in Bangued, Abra under Original Certificate of Title No. 0-83;

"3. That the defendant Gaspar V. Bosque, as Municipal Treasurer of Bangued, Abra caused to
be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of
said school under Original Certificate of title No. 0-83 for the satisfaction of real property taxes
thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the
complaint as Exhibit A;

"4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was
sold at public auction for the satisfaction of the unpaid real property taxes thereon and the
same was sold to defendant Paterno Millare who offered the highest bid of P6,000.00 and a
Certificate of Sale in his favor was issued by the defendant Municipal Treasurer.

"5. That all other matters not particularly and specially covered by this stipulation of facts will
be the subject of evidence by the parties.

WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit

this stipulation of facts on the point agreed upon by the parties.

Bangued, Abra, April 12, 1973.

Sgd. Agripino Brillantes

Typ. AGRIPINO BRILLANTES

Attorney for Plaintiff

Sgd. Loreto Roldan

Typ. LORETO ROLDAN

Provincial Fiscal

Counsel for Defendants

Provincial Treasurer of

Abra and the Municipal

Treasurer of Bangued, Abra

Sgd. Demetrio V. Pre

Typ. DEMETRIO V. PRE

302
 Attorney for Defendant

Paterno Millare"

(Rollo, pp. 17-18)

Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is
recognized by the government and is offering Primary, High School and College Courses, and has a school
population of more than one thousand students all in all; (b) that it is located right in the heart of the town of
Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance building; (c) that
the elementary pupils are housed in a two-storey building across the street; (d) that the high school and college
students are housed in the main building; (e) that the Director with his family is in the second floor of the main
building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos.
LLphil

From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether
or not the lot and building in question are used exclusively for educational purposes. (Rollo, p. 20)

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a
Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974,
wherein they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the
school building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted
from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).

Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner
school for residential purposes. He thus ruled for the government and rendered the assailed decision.

After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal
(Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant
petition for review on certiorari with prayer for preliminary injunction before this Court, which petition was filed
on August 17, 1974 (Rollo, p. 2).

In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58).

Respondents were required to answer said petition (Rollo,p. 74).

Petitioner raised the following assignments of error:

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE
COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF
THEPETITIONER.

II

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING
OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES
MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE
COLLEGE BUILDING.

III

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND
IN ORDERINGPETITIONER TO PAY P5,140.31 AS REALTY TAXES.

IV

THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00

DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31
REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)

The main issue in this case is the proper interpretation of the phrase "used exclusively for
educational purposes."
Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use
thereof, determines the exemption from property taxes under Section 22 (3), Article VI of the 1935

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Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary thereto as well
as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal
basis and therefore void. cdrep

On the other hand, private respondents maintain that the college lot and building in question which were
subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the
college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his
family including the in-laws and grandchildren; and (3) for commercial purposes because the ground floor of
the college building is being used and rented by a commercial establishment, the Northern Marketing
Corporation (See photograph attached as Annex "8" [Comment; Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22,
paragraph 3, Article VI, of the then 1935 PhilippineConstitution, which expressly grants exemption from realty
taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or educational purposes . . . ."

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409,
otherwise known as the Assessment Law, provides:

"The following are exempted from real property tax under the Assessment Law:

xxx xxx

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ churches and parsonages or

convents appurtenant thereto, and all lands, buildings, and improvements used exclusively
for religious, charitable, scientific or educational purposes.

xxx xxx

In this regard petitioner argues that the primary use of the school lot and building is the basic and
controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof.

As early as 1916 in YMCA of Manila vs. Collector of Internal Revenue, 33 Phil. 217 [1916], this Court ruled that
while it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its
members, still these do not constitute business in the ordinary acceptance of the word, but an institution used
exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from
taxation. LLpr

In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court
included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It
was clarified that the term "used exclusively" considers incidental use also. Thus, the exemption from payment
of land tax in favor of the convent includes, not only the land actually occupied by the building but also the
adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial
purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes
incidental use in religious functions.

The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of
Herrera vs. Quezon City Board of Assessment Appeals, 3 SCRA 186 [1961] and Commissioner of
Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus —

"Moreover, the exemption in favor of property used exclusively for charitable or educational
purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol.
2, p. 1430), but extends to facilities which are incidental to and reasonably necessary for the
accomplishment of said purposes, such as in the case of hospitals, 'a school for training
nurses, a nurses' home, property used to provide housing facilities for interns, resident
doctors, superintendents, and other members of the hospital staff, and recreational facilities
for student nurses, interns, and residents' (84 CJS 6621), such as 'athletic fields' including
'a farm used for the inmates of the institution.'" (Cooley on Taxation, Vol. 2, p. 1430).

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution
(Apostolic Prefect v. City Treasurer of Baguio, 71 Phil. 547 [1941]). prcd
It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the
phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the

304
1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities
which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise
stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by
jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential
purposes of the Director and his family, may find justification under the concept of incidental use, which is
complimentary to the main or primary purpose — educational, the lease of the first floor thereof to the
Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the
purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the first time in this
Court. That the matter was not taken up in the trial court is really apparent in the decision of respondent Judge.
No mention thereof was made in the stipulation of facts, not even in the description of the school building by
the trial judge, both embodied in the decision nor as one of the issues to resolve in order to determine whether
or not said property may be exempted from payment of real estate taxes (Rollo, pp. 17-23). On the other hand,
it is noteworthy that such fact was not disputed even after it was raised in this Court.

Indeed it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal.
Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely
raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal
factual matter. "The Supreme Court is clothed with ample authority to review palpable errors not assigned as
such if it finds that their consideration is necessary in arriving at a just decision." (Perez vs. Court of Appeals,
127 SCRA 645 [1984]). cdrep

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well
as the lot where it is built, should be taxed, not because the second floor of the same is being used by the
Director and his family for residential purposes, but because the first floor thereof is being used for
commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half
of the assessed tax be returned to the school involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby
AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.

SO ORDERED.

Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ ., concur.

࿿࿿࿿ )30桦྅࿿࿿࿿࿿࿿࿿࿿࿿࿿ * 찲ᆱ࿿࿿࿿࿿࿿࿿࿿࿿࿿ (Abra Valley College, Inc. v. Aquino, G.R. No. L-39086,
[June 15, 1988], 245 PHIL 83-93)
305