Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand,
such collection should be made in accordance with law as any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The corollary
issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was
made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85
as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a letter of protest or request
for reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965,
a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr.,
who refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved
fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of
the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest
and it was only then that he accepted the warrant of distraint and levy earlier sought to be served. 5 Sixteen days later, on
April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of
Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be
made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the warrant of distraint
and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for reconsideration," 9 being
"tantamount to an outright denial thereof and makes the said request deemed rejected." 10 But there is a special
circumstance in the case at bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its
letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed,
such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the
protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature
and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and was based
on strong legal considerations. It thus had the effect of suspending on January

18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., January
14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of
the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April
23, 1965, only 20 days of the reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary
reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held
that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was
in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate
Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be personal
holding company income 12 but later conformed to the decision of the respondent court rejecting this assertion. 13 In fact, as
the said court found, the amount was earned through the joint efforts of the persons among whom it was distributed It has
been established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale, Algue received as
agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to
the aforenamed individuals.
There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid
the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after examining the evidence, that no distribution
of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of the same family in
control of Algue. It is argued that no indication was made as to how such payments were made, whether by check or in
cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt
to evade a legitimate assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and
the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in
different amounts as each payee's need arose. 19 It should be remembered that this was a family corporation where strict
business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the
year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to
make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable,
however, in view of the close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. 21 After deducting the
said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was
60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions
—

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries or other compensation
for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or
incurred in carrying on any trade or business may be included a reasonable allowance for salaries or
other compensation for personal services actually rendered. The test of deductibility in the case of
compensation payments is whether they are reasonable and are, in fact, payments purely for service.
This test and deductibility in the case of compensation payments is whether they are reasonable and are,
in fact, payments purely for service. This test and its practical application may be further stated and
illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock.
This is likely to occur in the case of a corporation having few stockholders, Practically all of whom draw
salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the
excessive payment correspond or bear a close relationship to the stockholdings of the officers of
employees, it would seem likely that the salaries are not paid wholly for services rendered, but the
excessive payments are a distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30
O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling
stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent
has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in
inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new
business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of
the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to must contribute his share in the running of the government.
The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that
it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was
permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED  in toto, without costs.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF
INTERNAL REVENUE, respondents.

G.R. No. 109446 October 3, 1994

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O. CABALLES, ELPIDIO C.
JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his capacity as COMMISSIONER
OF INTERNAL REVENUE, respondents.

Rufino R. Tan for and in his own behalf.

Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.

VITUG, J.:

These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of Republic Act No. 7496,
also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending certain provisions of the National Internal
Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public respondents pursuant to said law.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation.

In G.R. No. 109289, it is asserted that the enactment of Republic Act

No. 7496 violates the following provisions of the Constitution:

Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which shall be
expressed in the title thereof.

Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.

Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor shall any person
be denied the equal protection of the laws.

In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public respondents have exceeded
their rule-making authority in applying SNIT to general professional partnerships.

The Solicitor General espouses the position taken by public respondents.

The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have filed their respective
memoranda.

G.R. No. 109289

Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or, at least, deficient for
being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).

The full text of the title actually reads:

An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals Engaged In
The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue Code, as Amended.

The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now amended, provide:

Sec. 21. Tax on citizens or residents. —

xxx xxx xxx

(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of Profession. — A
tax is hereby imposed upon the taxable net income as determined in Section 27 received during each taxable year
from all sources, other than income covered by paragraphs (b), (c), (d) and (e) of this section by every individual
whether
 a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices his profession
herein, determined in accordance with the following schedule:

Not over P10,000 3%

Over P10,000 P300 + 9%

but not over P30,000 of excess over P10,000

Over P30,000 P2,100 + 15%

but not over P120,00 of excess over P30,000

Over P120,000 P15,600 + 20%

but not over P350,000 of excess over P120,000

Over P350,000 P61,600 + 30%

of excess over P350,000

Sec. 29. Deductions from gross income. — In computing taxable income subject to tax under Sections 21(a), 24(a),
(b) and (c); and 25 (a)(1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing taxable income subject to tax under Section 21 (f) in the case of
individuals engaged in business or practice of profession, only the following direct costs shall be allowed as
deductions:

(a) Raw materials, supplies and direct labor;

(b) Salaries of employees directly engaged in activities in the course of or pursuant to the business or practice of their
profession;

(c) Telecommunications, electricity, fuel, light and water;

(d) Business rentals;

(e) Depreciation;

(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of calamity stricken
areas declared by the President; and

(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial institutions which must
be proven to have been incurred in connection with the conduct of a taxpayer's profession, trade or business.

For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of forty per cent
(40%) of their gross receipts shall be allowed as deductions to answer for business or professional expenses as the
case may be.

On the basis of the above language of the law, it would be difficult to accept petitioner's view that the amendatory law should be
considered as having now adopted a  gross income, instead of as having still retained the net  income, taxation scheme. The allowance
for deductible items, it is true, may have significantly been reduced by the questioned law in comparison with that which has prevailed
prior to the amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor opposed to, the net
income tax concept. The fact of the matter is still that various deductions, which are by no means inconsequential, continue to be well
provided under the new law.

Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended to unite the
members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid surprises or even fraud
upon the legislature, and (c) to fairly apprise the people, through such publications of its proceedings as are usually made, of the
subjects of legislation.1 The above objectives of the fundamental law appear to us to have been sufficiently met. Anything else would be
to require a virtual compendium of the law which could not have been the intendment of the constitutional mandate.

Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform and equitable"
in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on
corporations and partnerships. The contention clearly forgets, however, that such a system of income taxation has long been the
prevailing rule even prior to Republic Act No. 7496.

Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not
forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is
germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).

What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax
system towards the schedular approach2 in the income taxation of individual taxpayers and to maintain, by and large, the present global
treatment3 on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate.

Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to be an imbalance
between the tax liabilities of those covered by the amendatory law and those who are not. With the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court
cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax measure
becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all
its plenitude, the power to tax cannot override constitutional proscriptions. This stage, however, has not been demonstrated to have
been reached within any appreciable distance in this controversy before us.
Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must
perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional
limitations in the exercise of the tax power. No such transgression is so evident to us.

G.R. No. 109446

The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded
their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496.

The questioned regulation reads:

Sec. 6. General Professional Partnership — The general professional partnership (GPP) and the partners comprising
the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership, only the direct costs
mentioned in said law are to be deducted from partnership income. Also, the expenses paid or incurred by partners in
their individual capacities in the practice of their profession which are not reimbursed or paid by the partnership but
are not considered as direct cost, are not deductible from his gross income.

The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to partners
in general professional partnerships. Petitioners cite the pertinent deliberations in Congress during its enactment of Republic Act No.
7496, also quoted by the Honorable Hernando B. Perez, minority floor leader of the House of Representatives, in the latter's privilege
speech by way of commenting on the questioned implementing regulation of public respondents following the effectivity of the law,
thusly:

MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill. Do we speak
here of individuals who are earning, I mean, who earn through business enterprises and therefore,
should file an income tax return?

MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It applies only to
individuals.

(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).

Other deliberations support this position, to wit:

MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that this bill is
intended to increase collections as far as individuals are concerned and to make collection of taxes
equitable?

MR. PEREZ. That is correct, Mr. Speaker.

(Id. at 6:40 P.M.; Emphasis ours).

In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS, it is categorically
stated, thus:

This bill, Mr. President, is not applicable to business corporations or to partnerships; it is only with
respect to individuals and professionals. (Emphasis ours)

The Court, first of all, should like to correct the apparent misconception that general professional partnerships are subject to the
payment of income tax or that there is a difference in the tax treatment between individuals engaged in business or in the practice of
their respective professions and partners in general professional partnerships. The fact of the matter is that a general professional
partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the
corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax
exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. Section
23 of the Tax Code, which has not been amended at all by Republic Act 7496, is explicit:

Sec. 23. Tax liability of members of general professional partnerships. — (a) Persons exercising a common
profession in general partnership shall be liable for income tax only in their individual capacity, and the share in the
net profits of the general professional partnership to which any taxable partner would be entitled whether distributed
or otherwise, shall be returned for taxation and the tax paid in accordance with the provisions of this Title.

(b) In determining his distributive share in the net income of the partnership, each partner —

(1) Shall take into account separately his distributive share of the partnership's income, gain, loss,
deduction, or credit to the extent provided by the pertinent provisions of this Code, and

(2) Shall be deemed to have elected the itemized deductions, unless he declares his distributive
share of the gross income undiminished by his share of the deductions.

There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and
one who does it through partnership (whether registered or not) with others in the exercise of a common profession. Indeed, outside of
the gross compensation income tax and the final tax on passive investment income, under the present income tax system all individuals
deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules.

We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely
independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is
understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under
the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax
Code, and it practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most comprehensive
tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to
income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable base
(that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine sources). In the process,
the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and
(4) Irrevocable Trusts (irrevocable both as to corpus  and as to income).

Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships, no matter how
created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above
categorization, are by law assimilated to be within the context of, and so legally contemplated as, corporations. Except for few
variances, such as in the application of the "constructive receipt rule" in the derivation of income, the income tax approach is alike to
both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions in Congress during
its deliberations on Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject to the
payment of income tax.

"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as independent taxable
entities for income tax purposes. A general professional partnership is such an example.4 Here, the partners themselves, not the
partnership (although it is still obligated to file an income tax return [mainly for administration and data]), are liable for the payment of
income tax in their individual  capacity computed on their respective and distributive shares of profits. In the determination of the tax
liability, a partner does so as an individual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the
general professional partnership is deemed to be no more than a mere mechanism or a flow-through entity in the generation of income
by, and the ultimate distribution of such income to, respectively, each of the individual partners.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by Republic
Act
No. 7496 on basically the extent of allowable deductions applicable to all  individual income taxpayers on their non-compensation
income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in
significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do
it through a general professional partnership.

WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-17725             February 28, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
MAMBULAO LUMBER COMPANY, ET AL., defendants-appellants.

Office of the Solicitor General for plaintiff-appellee.

Arthur Tordesillas for defendants-appellants.

BARRERA, J.:

From the decision of the Court of First Instance of Manila (in Civil Case No. 34100) ordering it to pay to plaintiff Republic of the
Philippines the sum of P4,802.37 with 6% interest thereon from the date of the filing of the complaint until fully paid, plus costs,
defendant Mambulao Lumber Company interposed the present appeal.1

The facts of the case are briefly stated in the decision of the trial court, to wit: .

The facts of this case are not contested and may be briefly summarized as follows: (a) under the first cause of action, for forest
charges covering the period from September 10, 1952 to May 24, 1953, defendants admitted that they have a liability of
P587.37, which liability is covered by a bond executed by defendant General Insurance & Surety Corporation for Mambulao
Lumber Company, jointly and severally in character, on July 29, 1953, in favor of herein plaintiff; (b) under the second cause of
action, both defendants admitted a joint and several liability in favor of plaintiff in the sum of P296.70, also covered by a bond
dated November 27, 1953; and (c) under the third cause of action, both defendants admitted a joint and several liability in
favor of plaintiff for P3,928.30, also covered by a bond dated July 20, 1954. These three liabilities aggregate to P4,802.37. If
the liability of defendants in favor of plaintiff in the amount already mentioned is admitted, then what is the defense interposed
by the defendants? The defense presented by the defendants is quite unusual in more ways than one. It appears from Exh. 3
that from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines
P8,200.52 for 'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid
P927.08 to the Republic of the Philippines for 'reforestation charges'. These reforestation were paid to the plaintiff in
pursuance of Section 1 of Republic Act 115 which provides that there shall be collected, in addition to the regular forest
charges provided under Section 264 of Commonwealth Act 466 known as the National Internal Revenue Code, the amount of
P0.50 on each cubic meter of timber... cut out and removed from any public forest for commercial purposes. The amount
collected shall be expended by the director of forestry, with the approval of the secretary of agriculture and commerce, for
reforestation and afforestation of watersheds, denuded areas ... and other public forest lands, which upon investigation, are
found needing reforestation or afforestation .... The total amount of the reforestation charges paid by Mambulao Lumber
Company is P9,127.50, and it is the contention of the defendant Mambulao Lumber Company that since the Republic of the
Philippines has not made use of those reforestation charges collected from it for reforesting the denuded area of the land
covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at least it should
be compensated with what Mambulao Lumber Company owed the Republic of the Philippines for reforestation charges. In line
with this thought, defendant Mambulao Lumber Company wrote the director of forestry, on February 21, 1957 letter Exh. 1, in
paragraph 4 of which said defendant requested "that our account with your bureau be credited with all the reforestation
charges that you have imposed on us from July 1, 1947 to June 14, 1956, amounting to around P2,988.62 ...". This letter of
defendant Mambulao Lumber Company was answered by the director of forestry on March 12, 1957, marked Exh. 2, in which
the director of forestry quoted an opinion of the secretary of justice, to the effect that he has no discretion to extend the time for
paying the reforestation charges and also explained why not all denuded areas are being reforested.

The only issue to be resolved in this appeal is whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee
as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due
and owing from appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the reforestation
of the area covered by its license, the same is refundable to it or may be applied in compensation of said sum of P4,802.37 due from it
as forest charges.1äwphï1.ñët

We find appellant's claim devoid of any merit. Section 1 of Republic Act No. 115, provides:

SECTION 1. There shall be collected, in addition to the regular forest charges provided for under Section two hundred and
sixty-four of Commonwealth Act Numbered Four Hundred Sixty-six, known as the National Internal Revenue Code, the
amount of fifty centavos on each cubic meter of timber for the first and second groups and forty centavos for the third and
fourth groups cut out and removed from any public forest for commercial purposes. The amount collected shall be expended
by the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources (commerce), for
reforestation and afforestation of watersheds, denuded areas and cogon and open lands within forest reserves, communal
forest, national parks, timber lands, sand dunes, and other public forest lands, which upon investigation, are found needing
reforestation or afforestation, or needing to be under forest cover for the growing of economic trees for timber, tanning, oils,
gums, and other minor forest products or medicinal plants, or for watersheds protection, or for prevention of erosion and floods
and preparation of necessary plans and estimate of costs and for reconnaisance survey of public forest lands and for such
other expenses as may be deemed necessary for the proper carrying out of the purposes of this Act.

All revenues collected by virtue of, and pursuant to, the provisions of the preceding paragraph and from the sale of barks,
medical plants and other products derived from plantations as herein provided shall constitute a fund to be known as
Reforestation Fund, to be expended exclusively in carrying out the purposes provided for under this Act. All provincial or city
treasurers and their deputies shall act as agents of the Director of Forestry for the collection of the revenues or incomes
derived from the provisions of this Act. (Emphasis supplied.)

Under this provision, it seems quite clear that the amount collected as reforestation charges from a timber licenses or concessionaire
shall constitute a fund to be known as the Reforestation Fund, and that the same shall be expended by the Director of Forestry, with the
approval of the Secretary of Agriculture and Natural Resources for the reforestation or afforestation, among others, of denuded areas
which, upon investigation, are found to be needing reforestation or afforestation. Note that there is nothing in the law which requires
that the amount collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of
a licensee or concessionaire, and that if not so used, the same should be refunded to him. Observe too, that the licensee's area may or
may not be reforested at all, depending on whether the investigation thereof by the Director of Forestry shows that said area needs
reforestation. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a tax which
forms a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not. Said
fund, as the law expressly provides, shall be expended in carrying out the purposes provided for thereunder, namely, the reforestation
or afforestation, among others, of denuded areas needing reforestation or afforestation.

Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code 2 is applicable, such that the sum of
P9,127.50 paid by it as reforestation charges may compensate its indebtedness to appellee in the sum of P4,802.37 as forest charges.
But in the view we take of this case, appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law
on compensation is inapplicable. On this point, the trial court correctly observed: .

Under Article 1278, NCC, compensation should take place when two persons in their own right are creditors and debtors of
each other. With respect to the forest charges which the defendant Mambulao Lumber Company has paid to the government,
they are in the coffers of the government as taxes collected, and the government does not owe anything, crystal clear that the
Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors of each other, because
compensation refers to mutual debts. ..

And the weight of authority is to the effect that internal revenue taxes, such as the forest charges in question, can be the subject of set-
off or compensation.

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off,
which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state
or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since
they do not arise out of the contract or transaction sued on. ... (80 C.J.S. 73-74. ) .

The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes
levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the
nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the
making and enforcing of which, the personal consent of individual taxpayers is not required. ... If the taxpayer can properly
refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not
included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is
disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the
government will be thrown into great confusion. (47 Am. Jur. 766-767.)

WHEREFORE, the judgment of the trial court appealed from is hereby affirmed in all respects, with costs against the defendant-
appellant. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-67649 June 28, 1988

ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:

The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the auction sale of his
property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and
ordered titled in the latter's name.

The antecedent facts are as follows:

Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District
of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by Transfer
Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City.

On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum
of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public
auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax
Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.

Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title"
filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title.
Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City
Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795)
by the Register of Deeds.

On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980.

On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and
ordering:

(a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the
defendant Ho Fernandez over the parcel of land including the improvements thereon, subject to
whatever encumbrances appearing at the back of TCT No. 4739 (37795) and ordering the same
TCT No. 4739 (37795) cancelled.

(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30,
Record on Appeal)

The Intermediate Appellate Court affirmed the decision of the lower court in toto.

Hence, this petition for review.

Francia prefaced his arguments with the following assignments of grave errors of law:

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S
OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH
THE GOVERNMENT IS INDEBTED TO THE FORMER.

II

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT
PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE
ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.

III

RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY
INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT
DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at public
auction without notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and deprivation
without due process of law.

A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we
commiserate with him at the loss of his property, the law and the facts militate against the grant of his petition. We are constrained to
dismiss it.

Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government
owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by
operation of law as of October 15, 1977.

There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors
and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements
provided by Article 1279, to wit:

(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other;

xxx xxx xxx

(3) that the two debts be due.

xxx xxx xxx

This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against
the government.

In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of
set-off or compensation. We stated that:

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of
set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374).
"The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for
taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes
are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the
government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..."

We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the
governmental body not included in the tax levy.

This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the
subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of
the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."

There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation
was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square
meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property.
Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his
testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to
withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction.

Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of
the auction sale without reading it.

Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute
governing tax sale. No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax
delinquency was followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests upon
him to show that plaintiff was duly and properly notified  ... .(Petition for Review, Rollo p. 18; emphasis supplied)

We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there
was compliance with all the prescribed requisites for a tax sale.

The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:

xxx xxx xxx

... [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that
the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings
leading up to the sale.  (emphasis supplied)

There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax
sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that
administrative proceedings are presumed to be regular.

But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can
not, however, deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that:
 [T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale.
Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I")
as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977
the date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the
requirements of the notice, the validity of the auction sale can not be assailed ... .

We quote the following testimony of the petitioner on cross-examination, to wit:

Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the
property in question shall be sold at public auction to the highest bidder on December 5, 1977
pursuant to Sec. 74 of PD 464. Will you tell the Court whether you received the original of this
letter?

A. I just signed it because I was not able to read the same. It was just sent by mail carrier.

Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof but
you did not read the contents of it?

A. Yes, sir, as I was in a hurry.

Q. After you received that original where did you place it?

A. I placed it in the usual place where I place my mails.

Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own
admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force.

Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v.
Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917
Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not
material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the
price, the easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:

... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering
the wide divergence between their assessed values and the amounts for which they had been actually sold.
However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy
of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow
when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that
the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: "When there is the
right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property
or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at
the auction sale."

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):

If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner
would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the
correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid
objection to the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would
be useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are
grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).

In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555):

Like most cases of this character there is here a certain element of hardship from which we would be glad to relieve,
but do so would unsettle long-established rules and lead to uncertainty and difficulty in the collection of taxes which
are the life blood of the state. We are convinced that the present rules are just, and that they bring hardship only to
those who have invited it by their own neglect.

We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the
widening of Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone up in
the area. However, the price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing
reasons which answer the petitioner's claims lead us to deny the petition.

And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial
justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have
pocketed the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the
expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not
pay attention to another notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax
delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner
has no standing to invoke equity in his attempt to regain the property by belatedly asking for the annulment of the sale.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is
affirmed.

SO ORDERED.
G.R. No. L-22369            October 15, 1966

IN THE MATTER OF THE TESTATE ESTATE OF PATRICIO PONFERRADA, deceased.

JOAQUIN CORDERO, administrator-appellee,
vs.
JOSE GONDA, in his capacity as Representative of the Commissioner of Internal Revenue, claimant-appellant.

Artemio G. Raborar for administrator and appellee.

Office of the Solicitor General for claimant and appellant.

SANCHEZ, J.:

On September 18, 1953, a demand by letter was made on Patricio Ponferrada by the Bureau of Internal Revenue 1 for the payment of
P3,805.88, covering forest charges for the period from November 2, 1946 to January 29, 1949.2 Ponferrada made a partial payment of
P262.37,3 leaving a balance of P3,543.51.

Ponferrada died on November 25, 1957. In the Testate Estate proceedings,4 Joaquin Cordero was named Administrator.

On July 29, 1959, the BIR, thru respondent Jose Gonda, filed in the proceedings just mentioned a claim for the said sum of P3,543.51.
The Administrator opposed. Ground: Prescription.5

Upon a stipulation of facts, the probate court, on August 28, 1963, declared that said claim of P3,543.51 had prescribed.6

BIR now appeals direct to this Court.7

1. Our Tax Code8 provides for two main periods of prescription. The first refers to assessment, 9 the second to the remedies of
collection.10 Not concerned with the first, we are with the second.

That an assessment has here been, made, we do not doubt. By the very fact that, on September 18, 1953, a formal demand was made
by the government upon the deceased Patricio Ponferrada for the payment of forest charges in a definite amount — P3,805.88 —
assessment is deemed to have been made.11

September 18, 1953 then is a safe starting point for the statutory limitation to commence collection suit. Here, the court claim was filed
on July 29, 1959. From September 18, 1953 to July 29, 1959, a period of 5 years, 10 months and 11 days has passed. The five-year
prescriptive period had thus elapsed. Section 332 (c) of the Tax Code reads:

(c) Where the assessment of any internal-revenue tax has been made within the period of limitation above prescribed such
tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the
assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing  by the Commissioner of
Internal Revenue and the taxpayer before the expiration of such five-year. The period so agreed upon may be extended by
subsequent agreements in writing made before the expiration of the period previously agreed upon.12

We note the narrowly-confined restriction of time within which a proceeding in court may be brought: "but only if begun (1) within five
years after the assessment of the tax". Implicit in the words but only is that, unless otherwise authorized by statute, the 5-year period is
absolute.

The Code itself recognizes but one exception: If suit is started "prior to the expiration of any period for collection agreed upon in
writing  by the Commissioner of Internal Revenue and the taxpayer before the expiration of such five-year period" — which may be
extended by subsequent written agreements made "before the expiration of the period previously agreed upon". In Collector of Internal
Revenue vs. Pineda, etc., L-14522, May 31, 1961, this Court13 said in terms equally pertinent here, that: "the only agreement that could
have suspended the running of the prescriptive period for the collection of the tax in question is, . . . a  written agreement between
Solano (the taxpayer) and the Collector, entered into before the expiration of the five-year prescriptive period, extending the period of
limitation prescribed by law (Sec. 332 [c], N.I.R.C.)." No such written agreement exists here. The original five-year limit governs.

2. Appellant's brief draws our attention to jurisprudence where a taxpayer may not avail of the limitations statute. 14 These cases are
inapposite. In Arcache, delay in tax collection was excused because of "his [taxpayer's] own repeated requests for re-investigation and
similarly repeated requests of extension of time to pay". In Sison, "the taxpayer's petition for reconsideration or reinvestigation had
stopped the running of the five-year limitation period". In Capitol Subdivision, the pendency of a taxpayer's petition for clarification
interrupted said period. None of these situations obtains here.

The government also urges that partial payment is "acknowledgment of the tax obligation", hence, a "waiver of the defense of
prescription". But partial payment would not prevent the government from suing the taxpayer. Because, by such act of payment, the
government is not  thereby "persuaded to postpone collection to make him feel that the demand was not unreasonable or that no
harrassment or injustice is meant". Which, as stated in Collector vs. Suyoc Consolidated Mining Co., et al., L-11527, November 25,
1958, is the underlying reason behind the rule that prescriptive period is arrested by the taxpayer's request for reexamination or
reinvestigation — even if he "has not previously waived it [prescription] in writing". And, partial payment is no waiver "in writing".
Particularly is this true here where, out of the claim of P3,805.88, but P262.27 were paid; and in reference to the other claim of
P6,220.65,15 appellee made a substantial payment of P6,000.00 and acknowledged liability of P220.65.

3. The government leans heavily upon the Barretto case 16 to strengthen its claim that the action had not yet prescribed. Because, this
Court there said:

. . . Moreover, as already stated in the decision, forest charges and surcharges are payments for timber taken from public
forests, and they are considered as internal revenue taxes only in the sense that they are to be collected by the Collector of
Internal Revenue and the regulations for their collection are contained in the National Internal Revenue Code. Forest products
are obtained under licenses issued by the Government and forest charges are in a sense contractual in origin. No prescriptive
period having been prescribed by law for this case, Sec. 43 of the Code of Civil Procedure should apply . . . .17

This opinion was planted on the views of the Tax Commission (1939), as follows:

Forest charges, which are not property taxes but rather the price paid for exploiting national resources, need to be revised18 to
make them more in harmony with present-day conditions in the industry and with public policies.
 Forest charges are to be distinguished from taxes. They are, strictly speaking, the price which the Government charges for the
privilege granted to concessionaires to exploit the public domain, rather than a tax imposed to support the general services of
the government . . . .19

Compelling reasons there are which constrain us to revise the views expressed in the Barretto case.

By law, forest charges have always  been categorized as internal revenue taxes for — all purposes. Our statute books say so.

We start with the Tax Code. Forest charges appear below the heading "TITLE VIII — MISCELLANEOUS TAXES", under Chapter V,
along with such others as tax on banks (Chapter I), taxes on receipts of insurance companies (Chapter II), franchise tax (Chapter III),
and amusement taxes (Chapter IV). And Section 18 of the same Code, includes "charges on forest products" in the list of those that
"are deemed to be national internal revenue taxes", thus:

SEC. 18. Sources of revenue.—The following taxes, fees and charges are deemed to be national internal revenue taxes:

(a) Income tax;

(b) Estate, inheritance and gift taxes;

(c) Specific taxes on certain articles;

(d) Privilege taxes on business or occupation;

(e) Documentary stamp taxes;

(f) Mining taxes;

(g) Miscellaneous taxes, fees and charges, namely, taxes on banks and insurance companies, franchise taxes, taxes on
amusements, charges on forest products, fees for sealing weights and measures, firearms license fees, tobacco inspection
fees, and water rentals. (As amended by Rep. Act No. 1476, approved June 15, 1956.)20

With the exception of radio registration fees, which were eliminated, the foregoing is a reproduction in toto  of the original Section 18 of
the Tax Code approved on June 15, 1939.

Section 1438, Administrative Code of 1917, the law which Section 18 of the Tax Code of 1939 replaced, states in part:

SEC. 1438. Sources of taxes.—The following taxes, fees, and charges in the nature of tax are deemed to be internal revenue
taxes:

xxx           xxx           xxx

(f) Charges for forest products.

xxx           xxx           xxx

Section 1438 of the Administrative Code, in turn, proceeded from Section 21, Act 2339 of the Philippine Legislature known as the
Internal Revenue Law of 1914, which provides:

ARTICLE I. — Sources of internal revenue.

SEC. 21. Sources of taxes.—The following taxes, fees, and charges in the nature of tax are deemed to be internal-revenue
taxes:

xxx           xxx           xxx

(f) Charges for forest products;

xxx           xxx           xxx

Predecessor of this provision is Section 25 of Act 1189, known as the Internal Revenue Law of 1904, which reads:

SEC. 25. The following sources of revenue shall be included in the internal revenue for the Philippine Islands, and the taxes
imposed shall be collected by the Collector of Internal Revenue . . . and the revenue obtained therefrom shall be devoted to
the support of the several provinces and of the Insular and municipal governments in the manner in this Act provided:

xxx           xxx           xxx

1. Tax on forestry products.

xxx           xxx           xxx

4. Now, the law on prescription in the Tax Code does not make any distinction at all as to the sources of taxes to which it is made
applicable. Its broad sweep is articulated in the terms "internal-revenue taxes"21 and "any internal-revenue tax".22 Since "charges on
forest products" are "internal-revenue taxes", they are within the coverage of the law on prescription of actions to collect "internal-
revenue taxes" or "any internal-revenue tax". Had the Tax Code intended that forest charges be outside the operational rule on
prescription, that statute should have so provided. We cannot insert therein any such exception now. Clearly, that is intrusion into the
legislative domain in violation of a definite proscription in the Constitution.
5. Authorities are not wanting to bring home the point that forest charges are in reality internal revenue taxes, as such subject to the
other provisions of internal revenue law. As early as 1918,23 this Court held that forest charges are in the nature of an internal revenue
tax on property ["forest products removed from the public forest"] and a distress warrant may be issued thereon.

One month before the Barretto  decision came the Lacson case.24 There, this Court made mention of the observations of the Tax
Commission [heretofore textually copied], which recommended the enactment of the 1939 Internal Revenue Code. However, this
Court sustained the views of the dissenting judge of the Court of Tax Appeals, thus:

. . . There appears to be no legal basis for not considering forest charges as taxes when respondent considers them as taxes
under Republic Act No. 304, as amended, thus enabling holders of backpay certificates to pay forest charges out of their
backpay (B.I.R. ruling, November 22, 1955, Ex. B), and as internal revenue tax under Chapter II, Title IX, of the Revenue
Code, so as to authorize collection of said charges by distraint and levy (Op. Atty. Gen., Oct. 27, 1922). The argument that
forest charges are not taxes because they are the  price paid for the sale  by the Government of forest products overlooks the
fact that some forest charges are impose on forest products cut and removed from unregistered private lands. (See Sec. 266,
Revenue Code). The Government cannot sell forest products which it does not own. From this it may be inferred that forest
charges are not in reality the price paid for the sale by the Government of forest products; they are essentially taxes  for
the privilege of cutting and removing forest products . . . They stand on the same footing as the mining taxes  imposed under
Title VII of the Revenue Code . . . .25

Even the Chairman of the 1939 Tax Commission later on (November 20, 1939), in a decision he rendered as Secretary of Finance, in
the case of the Dulañgan Mining Interests Co., Inc., covering forest charges, adverted to the ruling in the Hongkong and Shanghai
Banking Corporation case, supra. He applied Section 1588 of the Administrative Code and declared that every internal revenue tax —
which includes forest charges — is a lien on the property for which that tax is imposed.26

51 Am. Jur. p. 1072 is authority for the statement that:

Taxes  which, although imposed under statutes containing many variations as to their precise phraseology, are directed
generally against the production, or severance  from the soil, of such natural resources as timber, oil, natural gas, ores, or the
like, and are normally measured according to the quantity or value of the articles produced or severed, are usually, although
not invariably, regarded as excise rather than property taxes.27

The view that forest charges are much like ad valorem  taxes in mining, finds jurisprudential support. In Cebu Portland Cement
Company vs. Commissioner of Internal Revenue, L-18649, February 27, 1965, we said that this ad valorem tax (on minerals used for
cement) "is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government's right to
exact the said impost springing from the Regalian theory of State ownership  of its natural resources".28 So saying, this Court there
applied Section 306,29 under the Administrative Provisions [of the Tax Code] which include prescription  of actions for tax collection.

In another case,30 upon the premise that forest charges "are in the coffers of the government as taxes collected", the pronouncement
was that internal revenue taxes cannot be the subject of compensation: Reason: government and taxpayer "are not mutually creditors
and debtors of each other" under Article 1278 of the Civil Code and a "claim for taxes is not  such a debt, demand, contract or judgment
as is allowed to be set-off." This decision inferentially takes forest charges out of the Barretto rule, because they are taxes — not  "in a
sense contractual in origin."

The thoughts expressed in the authorities just cited funnel down to one idea: forest charges are internal revenue taxes, whether one
labels them taxes on property, or excise taxes, i.e., taxes upon the privilege of cutting and carting away timber and forest products. And
they fall under the philosophy of taxation — to support the general services of government. They go into the general fund.31

6. The provisions on prescription fall under Title IX, entitled General Administrative Provisions. This title applies to all taxes, fees,
and charges  collected under the Code. In this title's first provision (Section 305), injunction is unavailing to a forest concessionaire "to
restrain the collection of any national internal-revenue tax, fee, or charge imposed by this Code". By Section 306, the concessionaire,
may only sue for tax refunds within two years from the date of payment. 32 Section 316 defines the "civil remedies for the collection of
internal revenue taxes, fees, or charges" to be distraint and levy, and judicial action.33

In Section 337, the forest concessionaire34 — like all other taxpayers — is obligated to preserve his books of account for a period of five
years "from the date of the last entry in each book." Why? Because the government is given a like period of five years within which to
make assessment. If forest charges were "in a sense contractual in origin", then the concessionaire should be required to keep his
accounting records not for five years only, but for ten years, to jibe with the 10-year prescriptive period in the Civil Code.35

In sum, here is the situation of a man called upon to pay forest charges. Applicable to him are the Tax Code provisions on distraint and
levy; the two-year period for refund; the prohibition against injunction; the duty to keep his books for five years. But, if we were to
adhere to the Barretto decision, then the law on prescription in the Code of Civil Procedure [now Art. 1144, Civil Code] 36 must have to
be scissored and pasted over Sections 331 and 332 of the Tax Code. Uniformity in the application of the Tax Code provisions would
suggest that we veer away from this view.

7. Our stand is even fortified by the facts set forth in the Barretto case. Assessment was not there based on a return. The judgment on
prescription therein was grounded on fraud. Because, from an examination of the books, it was found that "many purchases of logs
were without invoices and sales under declared". The "deficiencies amounting to fraud were discovered" in 1953. And applying the
provisions of the Code of Civil Procedure, it was there declared that the period for prescription should be reckoned" from 1953. But the
situation presented in said case is precisely covered by Section 332(a) of the Tax Code, which reads:

(a) In the case of a false or fraudulent  37 return with intent to evade tax or of a failure to file a return, the tax may be assessed,
or a  proceeding in court for the collection  of such tax may be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud, or omission.38

Our conclusion, therefore, is that the overwhelming implication from the text of the Tax Code leaves no other reasonable construction
except that: Forest charges come within the compass of the prescriptive periods set forth therein.

The net result still is: From September 18, 1953 (when demand for payment was made) to July 29, 1953 (when court claim was filed),
more than five (5) years have elapsed. By the terms of Article 332(c) of the Tax Code, supra, action to collect has prescribed.

Upon the premises, the judgment appealed from is affirmed. No costs. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 173863               September 15, 2010

CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES, INC.), Petitioner,

vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK DEVELOPMENT CORPORATION, Respondents.

DECISION

VILLARAMA, JR., J.:

This petition for review on certiorari assails the Decision1 dated November 30, 2005 of the Court of Appeals (CA) in CA-G.R. SP No.
87117, which affirmed the Resolution2 dated August 2, 2004 and the Order3 dated September 30, 2004 of the Office of the President in
O.P. Case No. 04-D-170.

The facts follow.

On June 28, 2002, the Board of Directors of respondent Clark Development Corporation (CDC) issued and approved Policy Guidelines
on the Movement of Petroleum Fuel to and from the Clark Special Economic Zone (CSEZ) 4 which provided, among others, for the
following fees and charges:

1. Accreditation Fee

xxxx

2. Annual Inspection Fee

xxxx

3. Royalty Fees

Suppliers delivering fuel from outside sources shall be assessed the following royalty fees:

- Php0.50 per liter – those delivering Coastal petroleum fuel to CSEZ locators not sanctioned by CDC

- Php1.00 per liter – those bringing-in petroleum fuel (except Jet A-1) from outside sources

xxxx

4. Gate Pass Fee

x x x x5

The above policy guidelines were implemented effective July 27, 2002. On October 1, 2002, CDC sent a letter 6 to herein petitioner
Chevron Philippines, Inc. (formerly Caltex Philippines, Inc.), a domestic corporation which has been supplying fuel to Nanox Philippines,
a locator inside the CSEZ since 2001, informing the petitioner that a royalty fee of ₱0.50 per liter shall be assessed on its deliveries to
Nanox Philippines effective August 1, 2002. Thereafter, on October 21, 2002 a Statement of Account 7 was sent by CDC billing the
petitioner for royalty fees in the amount of ₱115,000.00 for its fuel sales from Coastal depot to Nanox Philippines from August 1-31 to
September 3-21, 2002.

Claiming that nothing in the law authorizes CDC to impose royalty fees or any fees based on a per unit measurement of any commodity
sold within the special economic zone, petitioner sent a letter 8 dated October 30, 2002 to the President and Chief Executive Officer of
CDC, Mr. Emmanuel Y. Angeles, to protest the assessment for royalty fees. Petitioner nevertheless paid the said fees under protest on
November 4, 2002.

On August 18, 2003, CDC again wrote a letter 9 to petitioner regarding the latter’s unsettled royalty fees covering the period of
December 2002 to July 2003. Petitioner responded through a letter10 dated September 8, 2003 reiterating its continuing objection over
the assessed royalty fees and requested a refund of the amount paid under protest on November 4, 2002. The letter also asked CDC to
revoke the imposition of such royalty fees. The request was denied by CDC in a letter11 dated September 29, 2003.

Petitioner elevated its protest before respondent Bases Conversion Development Authority (BCDA) arguing that the royalty fees
imposed had no reasonable relation to the probable expenses of regulation and that the imposition on a per unit measurement of fuel
sales was for a revenue generating purpose, thus, akin to a "tax". The protest was however denied by BCDA in a letter 12 dated March 3,
2004.

Petitioner appealed to the Office of the President which dismissed13 the appeal for lack of merit on August 2, 2004 and
denied14 petitioner’s motion for reconsideration thereof on September 30, 2004.

Aggrieved, petitioner elevated the case to the CA which likewise dismissed 15 the appeal for lack of merit on November 30, 2005 and
denied16 the motion for reconsideration on July 26, 2006.

The CA held that in imposing the challenged royalty fees, respondent CDC was exercising its right to regulate the flow of fuel into
CSEZ, which is bolstered by the fact that it possesses exclusive right to distribute fuel within CSEZ pursuant to its Joint Venture
Agreement (JVA)17 with Subic Bay Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11, 1996.
The appellate court also found that royalty fees were assessed on fuel delivered, not on the sale, by petitioner and that the basis of
such imposition was petitioner’s delivery receipts to Nanox Philippines. The fact that revenue is incidentally also obtained does not
make the imposition a tax as long as the primary purpose of such imposition is regulation.18

Petitioner filed a motion for reconsideration but the CA denied the same in its Resolution19 dated July 26, 2006.

Hence, this petition raising the following grounds:

I. THE ISSUE RAISED BEFORE THE COURT A QUO IS A QUESTION OF SUBSTANCE NOT HERETOFORE DETERMINED BY
THE HONORABLE SUPREME COURT.

II. THE RULING OF THE COURT OF APPEALS THAT THE CDC HAS THE POWER TO IMPOSE THE QUESTIONED "ROYALTY
FEES" IS CONTRARY TO LAW.

III. THE COURT OF APPEALS WAS MANIFESTLY MISTAKEN AND COMMITTED GRAVE ABUSE OF DISCRETION AND A CLEAR
MISUNDERSTANDING OF FACTS WHEN IT RULED CONTRARY TO THE EVIDENCE THAT: (i) THE QUESTIONED "ROYALTY
FEE" IS PRIMARILY FOR REGULATION; AND (ii) ANY REVENUE EARNED THEREFROM IS MERELY INCIDENTAL TO THE
PURPOSE OF REGULATION.

IV. THE COURT OF APPEALS FAILED TO GIVE DUE WEIGHT AND CONSIDERATION TO THE EVIDENCE PRESENTED BY CPI
SUCH AS THE LETTERS COMING FROM RESPONDENT CDC ITSELF PROVING THAT THE QUESTIONED ROYALTY FEES ARE
IMPOSED ON THE BASIS OF FUEL SALES (NOT DELIVERY OF FUEL) AND NOT FOR REGULATION BUT PURELY FOR INCOME
GENERATION, I.E. AS PRICE OR CONSIDERATION FOR THE RIGHT TO MARKET AND DISTRIBUTE FUEL INSIDE THE CSEZ. 20

Petitioner argues that CDC does not have any power to impose royalty fees on sale of fuel inside the CSEZ on the basis of purely
income generating functions and its exclusive right to market and distribute goods inside the CSEZ. Such imposition of royalty fees for
revenue generating purposes would amount to a tax, which the respondents have no power to impose. Petitioner stresses that the
royalty fee imposed by CDC is not regulatory in nature but a revenue generating measure to increase its profits and to further enhance
its exclusive right to market and distribute fuel in CSEZ.21

Petitioner would also like this Court to note that the fees imposed, assuming arguendo they are regulatory in nature, are unreasonable
and are grossly in excess of regulation costs. It adds that the amount of the fees should be presumed to be unreasonable and that the
burden of proving that the fees are not unreasonable lies with the respondents.22

On the part of the respondents, they argue that the purpose of the royalty fees is to regulate the flow of fuel to and from the CSEZ.
Such being its main purpose, and revenue (if any) just an incidental product, the imposition cannot be considered a tax. It is their
position that the regulation is a valid exercise of police power since it is aimed at promoting the general welfare of the public. They claim
that being the administrator of the CSEZ, CDC is responsible for the safe distribution of fuel products inside the CSEZ.23

The petition has no merit.

In distinguishing tax and regulation as a form of police power, the determining factor is the purpose of the implemented measure. If the
purpose is primarily to raise revenue, then it will be deemed a tax even though the measure results in some form of regulation. On the
other hand, if the purpose is primarily to regulate, then it is deemed a regulation and an exercise of the police power of the state, even
though incidentally, revenue is generated. Thus, in Gerochi v. Department of Energy,24 the Court stated:

The conservative and pivotal distinction between these two (2) powers rests in the purpose for which the charge is made. If generation
of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the
fact that revenue is incidentally raised does not make the imposition a tax.

In the case at bar, we hold that the subject royalty fee was imposed primarily for regulatory purposes, and not for the generation of
income or profits as petitioner claims. The Policy Guidelines on the Movement of Petroleum Fuel to and from the Clark Special
Economic Zone25 provides:

DECLARATION OF POLICY

It is hereby declared the policy of CDC to develop and maintain the Clark Special Economic Zone (CSEZ) as a highly secured zone free
from threats of any kind, which could possibly endanger the lives and properties of locators, would-be investors, visitors, and
employees.

It is also declared the policy of CDC to operate and manage the CSEZ as a separate customs territory ensuring free flow or movement
of goods and capital within, into and exported out of the CSEZ.26 (Emphasis supplied.)

From the foregoing, it can be gleaned that the Policy Guidelines was issued, first and foremost, to ensure the safety, security, and good
condition of the petroleum fuel industry within the CSEZ. The questioned royalty fees form part of the regulatory framework to ensure
"free flow or movement" of petroleum fuel to and from the CSEZ. The fact that respondents have the exclusive right to distribute and
market petroleum products within CSEZ pursuant to its JVA with SBMA and CSBTI does not diminish the regulatory purpose of the
royalty fee for fuel products supplied by petitioner to its client at the CSEZ.

As pointed out by the respondents in their Comment, from the time the JVA took effect up to the time CDC implemented its Policy
Guidelines on the Movement of Petroleum Fuel to and from the CSEZ, suppliers/distributors were allowed to bring in petroleum
products inside CSEZ without any charge at all. But this arrangement clearly negates CDC’s mandate under the JVA as exclusive
distributor of CSBTI’s fuel products within CSEZ and respondents’ ownership of the Subic-Clark Pipeline. 27 On this score, respondents
were justified in charging royalty fees on fuel delivered by outside suppliers.

However, it was erroneous for petitioner to argue that such exclusive right of respondent CDC to market and distribute fuel inside CSEZ
is the sole basis of the royalty fees imposed under the Policy Guidelines. Being the administrator of CSEZ, the responsibility of ensuring
the safe, efficient and orderly distribution of fuel products within the Zone falls on CDC. Addressing specific concerns demanded by the
nature of goods or products involved is encompassed in the range of services which respondent CDC is expected to provide under the
law, in pursuance of its general power of supervision and control over the movement of all supplies and equipment into the CSEZ.

Section 2 of Executive Order No. 8028 provides:

SEC. 2. Powers and Functions of the Clark Development Corporation. – The BCDA, as the incorporator and holding company of its
Clark subsidiary, shall determine the powers and functions of the CDC. Pursuant to Section 15 of RA 7227, the CDC shall have the
specific powers of the Export Processing Zone Authority as provided for in Section 4 of Presidential Decree No. 66 (1972) as amended.

Among those specific powers granted to CDC under Section 4 of Presidential Decree No. 66 are:

(a) To operate, administer and manage the export processing zone established in the Port of Mariveles, Bataan, and such other export
processing zones as may be established under this Decree; to construct, acquire, own, lease, operate and maintain infrastructure
facilities, factory building, warehouses, dams, reservoir, water distribution, electric light and power system, telecommunications and
transportation, or such other facilities and services necessary or useful in the conduct of commerce or in the attainment of the purposes
and objectives of this Decree;

xxxx

(g) To fix, assess and collect storage charges and fees, including rentals for the lease, use or occupancy of lands, buildings, structure,
warehouses, facilities and other properties owned and administered by the Authority; and to fix and collect the fees and charges
for the issuance of permits, licenses and the rendering of services not enumerated herein, the provisions of law to the contrary
notwithstanding;

(h) For the due and effective exercise of the powers conferred by law and to the extend (sic) [extent] requisite therefor, to exercise
exclusive jurisdiction and sole police authority over all areas owned or administered by the Authority. For this purpose, the Authority
shall have supervision and control over the bringing in or taking out of the Zone, including the movement therein, of
all cargoes, wares, articles, machineries, equipment, supplies or merchandise of every type and description;

x x x x (Emphasis supplied.)

In relation to the regulatory purpose of the imposed fees, this Court in Progressive Development Corporation v. Quezon City, 29 stated
that "x x x the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety
and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its
incidental consequences as well."

In the case at bar, there can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general
welfare.30 In addition, fuel is a highly combustible product which, if left unchecked, poses a serious threat to life and property. Also, the
reasonable relation between the royalty fees imposed on a "per liter" basis and the regulation sought to be attained is that the higher
the volume of fuel entering CSEZ, the greater the extent and frequency of supervision and inspection required to ensure safety,
security, and order within the Zone.

Respondents submit that increased administrative costs were triggered by security risks that have recently emerged, such as terrorist
strikes in airlines and military/government facilities. Explaining the regulatory feature of the charges imposed under the Policy
Guidelines, then BCDA President Rufo Colayco in his letter dated March 3, 2004 addressed to petitioner’s Chief Corporate Counsel,
stressed:

The need for regulation is more evident in the light of the 9/11 tragedy considering that what is being moved from one location to
another are highly combustible fuel products that could cause loss of lives and damage to properties, hence, a set of guidelines was
promulgated on 28 June 2002. It must be emphasized also that greater security measure must be observed in the CSEZ because of
the presence of the airport which is a vital public infrastructure.1avvphi1

We are therefore constrained to sustain the imposition of the royalty fees on deliveries of CPI’s fuel products to Nanox Philippines.31

As to the issue of reasonableness of the amount of the fees, we hold that no evidence was adduced by the petitioner to show that the
fees imposed are unreasonable.

Administrative issuances have the force and effect of law. 32 They benefit from the same presumption of validity and constitutionality
enjoyed by statutes. These two precepts place a heavy burden upon any party assailing governmental regulations. 33 Petitioner’s plain
allegations are simply not enough to overcome the presumption of validity and reasonableness of the subject imposition.

WHEREFORE, the petition is DENIED for lack of merit and the Decision of the Court of Appeals dated November 30, 2005 in CA-G.R.
SP No. 87117 is hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED.
G.R. No. L-18994             June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents.

Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.

Benedicto and Martinez for respondents.

LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos,
presiding, seeking to annul certain orders of the court and for an order in this Court directing the respondent court below to execute the
judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final
and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to
P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate
of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to
the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not
justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The orders of the court below
dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her late
husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged
before Notary Public Salvador V. Esguerra, legal adviser in Malacañang to Executive Secretary De Leon dated December 14,
1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to pay
to Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of
P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K. Price, as
directed in the above note of the President. Considering these facts, the Court orders that the payment of inheritance taxes in
the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with
the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00
due and payable to the Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government to her
without further delay. (Order of August 20, 1960)

The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the
Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein
amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to
its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration
that the amount due to the Government draws interests while the credit due to the present state does not accrue any interest.
(Order of September 28, 1960)

The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate
must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased
person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First Instance
of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of
administration. The proper procedure is for the court to order the sale of personal estate or the sale or mortgage of real
property of the deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and
devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of
real estate is to be made, the regulations contained in Rule 90, section 7, should be complied with.1äwphï1.ñët

Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in
the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are
such debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose,
after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall
contribute, and may issue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis
supplied.) And this is not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the
properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been
distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia legis  and the proper
procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the
administrator to pay the amount due from the estate and required to be paid.

Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that
the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the
purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance
taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil
Code, and both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and
extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter
Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

NATIONAL POWER CORPORATION, Petitioner,
vs.
PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO, Respondent.

BRION, J.:

The petitioner National Power Corporation (Napocor) filed the present motion for reconsideration 1 of the Court’s Decision of July 15,
2009, in which we denied Napocor’s claimed real property tax exemptions. For the resolution of the motion, we deem it proper to
provide first a background of the case.

BACKGROUND FACTS

The Province of Quezon assessed Mirant Pagbilao Corporation (Mirant) for unpaid real property taxes in the amount of ₱1.5 Billion for
the machineries located in its power plant in Pagbilao, Quezon. Napocor, which entered into a Build-Operate-Transfer (BOT)
Agreement (entitled Energy Conversion Agreement) with Mirant, was furnished a copy of the tax assessment.

Napocor (nota bene, not Mirant) protested the assessment before the Local Board of Assessment Appeals (LBAA), claiming entitlement
to the tax exemptions provided under Section 234 of the Local Government Code (LGC), which states:

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

xxxx

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

xxxx

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

xxxx

Assuming that it cannot claim the above tax exemptions, Napocor argued that it is entitled to certain tax privileges, namely:

a. the lower assessment level of 10% under Section 218(d) of the LGC for government-owned and controlled corporations engaged in
the generation and transmission of electric power, instead of the 80% assessment level for commercial properties imposed in the
assessment letter; and

b. an allowance for depreciation of the subject machineries under Section 225 of the LGC.

In the Court’s Decision of July 15, 2009, we ruled that Napocor is not entitled to any of these claimed tax exemptions and privileges on
the basis primarily of the defective protest filed by the Napocor. We found that Napocor did not file a valid protest against the realty tax
assessment because it did not possess the requisite legal standing. When a taxpayer fails to question the assessment before the
LBAA, the assessment becomes final, executory, and demandable, precluding the taxpayer from questioning the correctness of the
assessment or from invoking any defense that would reopen the question of its liability on the merits.2

Under Section 226 of the LGC,3 any owner or person having legal interest in the property may appeal an assessment for real property
taxes to the LBAA. Since Section 250 adopts the same language in enumerating who may pay the tax, we equated those who are liable
to pay the tax to the same entities who may protest the tax assessment. A person legally burdened with the obligation to pay for the tax
imposed on the property has the legal interest in the property and the personality to protest the tax assessment.

To prove that it had legal interest in the taxed machineries, Napocor relied on:.

1. the stipulation in the BOT Agreement that authorized the transfer of ownership to Napocor after 25 years;

2. its authority to control and supervise the construction and operation of the power plant; and

3. its obligation to pay for all taxes that may be incurred, as provided in the BOT Agreement.

Napocor posited that these indicated that Mirant only possessed naked title to the machineries.

We denied the first argument by ruling that legal interest should be one that is actual and material, direct and immediate, not simply
contingent or expectant.4 We disproved Napocor’s claim of control and supervision under the second argument after reading the full
terms of the BOT Agreement, which, contrary to Napocor’s claims, granted Mirant substantial power in the control and supervision of
the power plant’s construction and operation.5

For the third argument, we relied on the Court’s rulings in Baguio v. Busuego6 and Lim v. Manila.7 In these cases, the Court essentially
declared that contractual assumption of tax liability alone is insufficient to make one liable for taxes. The contractual assumption of tax
liability must be supplemented by an interest that the party assuming the liability had on the property; the person from whom payment is
sought must have also acquired the beneficial use of the property taxed. In other words, he must have the use and possession of the
property – an element that was missing in Napocor’s case.

We further stated that the tax liability must be a liability that arises from law, which the local government unit can rightfully and
successfully enforce, not the contractual liability that is enforceable only between the parties to the contract. In the present case, the
Province of Quezon is a third party to the BOT Agreement and could thus not exact payment from Napocor without violating the
principle of relativity of contracts.8 Corollarily, for reasons of fairness, the local government units cannot be compelled to recognize the
protest of a tax assessment from Napocor, an entity against whom it cannot enforce the tax liability.

At any rate, even if the Court were to brush aside the issue of legal interest to protest, Napocor could still not successfully claim
exemption under Section 234 (c) of the LGC because to be entitled to the exemption under that provision, there must be actual, direct,
and exclusive use of machineries. Napocor failed to satisfy these requirements.
THE MOTION FOR RECONSIDERATION

Although Napocor insists that it is entitled to the tax exemptions and privileges claimed, the primary issue for the Court to resolve,
however, is to determine whether Napocor has sufficient legal interest to protest the tax assessment because without the requisite
interest, the tax assessment stands, and no claim of exemption or privilege can prevail.

Section 226 of the LGC, as mentioned, limits the right to appeal the local assessor’s action to the owner or the person having legal
interest in the property. Napocor posits that it is the beneficial owner of the subject machineries, with Mirant retaining merely a naked
title to secure certain obligations. Thus, it argues that the BOT Agreement is a mere financing agreement and is similar to the
arrangement authorized under Article 1503 of the Civil Code, which declares:

Art. 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of
possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus
reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the
buyer.

Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of
his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would
have passed to the buyer on shipment of the goods, the seller's property in the goods shall be deemed to be only for the purpose of
securing performance by the buyer of his obligations under the contract.

xxxx

Pursuant to this arrangement, Mirant’s ownership over the subject machineries is merely a security interest, given only for the purpose
of ensuring the performance of Napocor’s obligations.

Napocor additionally contends that its contractual assumption liability (through the BOT Agreement) for all taxes vests it with sufficient
legal interest because it is actually, directly, and materially affected by the assessment.

While its motion for reconsideration was pending, Napocor filed a Motion to Refer the Case to the Court En Banc considering that "the
issues raised have far-reaching consequences in the power industry, the country’s economy and the daily lives of the Filipino people,
and since it involves the application of real property tax provision of the LGC against Napocor, an exempt government instrumentality."9

Also, the Philippine Independent Power Producers Association, Inc. (PIPPA) filed a Motion for Leave to Intervene and a Motion for
Reconsideration-in-Intervention. PIPPA is a non-stock corporation comprising of privately-owned power generating companies which
includes TeaM Energy Corporation (TeaM Energy), successor of Mirant. PIPPA is claiming interest in the case since any decision here
will affect the other members of PIPPA, all of which have executed similar BOT agreements with Napocor.

THE COURT’S RULING

At the outset, we resolve to deny the referral of the case to the Court en banc. We do not find the reasons raised by Napocor
meritorious enough to warrant the attention of the members of the Court en banc, as they are merely reiterations of the arguments it
raised in the petition for review on certiorari that it earlier filed with the Court.10

Who may appeal a real property tax assessment

Legal interest is defined as interest in property or a claim cognizable at law, equivalent to that of a legal owner who has legal title to the
property.11 Given this definition, Napocor is clearly not vested with the requisite interest to protest the tax assessment, as it is not an
entity having the legal title over the machineries. It has absolutely no solid claim of ownership or even of use and possession of the
machineries, as our July 15, 2009 Decision explained.

A BOT agreement is not a mere financing arrangement. In Napocor v. CBAA 12 – a case strikingly similar to the one before us, we
discussed the nature of BOT agreements in the following manner:

The underlying concept behind a BOT agreement is defined and described in the BOT law as follows:

Build-operate-and-transfer – A contractual arrangement whereby the project proponent undertakes the construction, including
financing, of a given infrastructure facility, and the operation and maintenance thereof. The project proponent operates the facility over
a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding those proposed
in its bid or as negotiated and incorporated in the contract to enable the project proponent to recover its investment, and operating and
maintenance expenses in the project. The project proponent transfers the facility to the government agency or local government unit
concerned at the end of the fixed term which shall not exceed fifty (50) years x x x x.

Under this concept, it is the project proponent who constructs the project at its own cost and subsequently operates and manages it.
The proponent secures the return on its investments from those using the project’s facilities through appropriate tolls, fees, rentals, and
charges not exceeding those proposed in its bid or as negotiated. At the end of the fixed term agreed upon, the project proponent
transfers the ownership of the facility to the government agency. Thus, the government is able to put up projects and provide immediate
services without the burden of the heavy expenditures that a project start up requires.1avvphi1

A reading of the provisions of the parties’ BOT Agreement shows that it fully conforms to this concept. By its express terms, BPPC
has complete ownership – both legal and beneficial – of the project, including the machineries and equipment used, subject
only to the transfer of these properties without cost to NAPOCOR after the lapse of the period agreed upon. As agreed upon,
BPPC provided the funds for the construction of the power plant, including the machineries and equipment needed for power
generation; thereafter, it actually operated and still operates the power plant, uses its machineries and equipment, and receives
payment for these activities and the electricity generated under a defined compensation scheme. Notably, BPPC – as owner-user – is
responsible for any defect in the machineries and equipment.

xxxx

That some kind of "financing" arrangement is contemplated – in the sense that the private sector proponent shall initially shoulder the
heavy cost of constructing the project’s buildings and structures and of purchasing the needed machineries and equipment – is
undeniable. The arrangement, however, goes beyond the simple provision of funds, since the private sector proponent not only
constructs and buys the necessary assets to put up the project, but operates and manages it as well during an agreed period that
would allow it to recover its basic costs and earn profits. In other words, the private sector proponent goes into business for itself,
assuming risks and incurring costs for its account. If it receives support from the government at all during the agreed period, these are
pre-agreed items of assistance geared to ensure that the BOT agreement’s objectives – both for the project proponent and for the
government – are achieved. In this sense, a BOT arrangement is sui generis and is different from the usual financing
arrangements where funds are advanced to a borrower who uses the funds to establish a project that it owns, subject only to a
collateral security arrangement to guard against the nonpayment of the loan. It is different, too, from an arrangement where a
government agency borrows funds to put a project from a private sector-lender who is thereafter commissioned to run the project for the
government agency. In the latter case, the government agency is the owner of the project from the beginning, and the lender-operator
is merely its agent in running the project.

If the BOT Agreement under consideration departs at all from the concept of a BOT project as defined by law, it is only in the way
BPPC’s cost recovery is achieved; instead of selling to facility users or to the general public at large, the generated electricity is
purchased by NAPOCOR which then resells it to power distribution companies. This deviation, however, is dictated, more than anything
else, by the structure and usages of the power industry and does not change the BOT nature of the transaction between the parties.

Consistent with the BOT concept and as implemented, BPPC – the owner-manager-operator of the project – is the actual user of
its machineries and equipment. BPPC’s ownership and use of the machineries and equipment are actual, direct, and
immediate, while NAPOCOR’s is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for tax
exemption. Thus, the CTA committed no reversible error in denying NAPOCOR’s claim for tax exemption. [Emphasis supplied.]

Given the special nature of a BOT agreement as discussed in the cited case, we find Article 1503 inapplicable to define the contract
between Napocor and Mirant, as it refers only to ordinary contracts of sale. We thus declared in Tatad v. Garcia 13 that under BOT
agreements, the private corporations/investors are the owners of the facility or machinery concerned. Apparently, even Napocor and
Mirant recognize this principle; Article 2.12 of their BOT Agreement provides that "until the Transfer Date, [Mirant] shall, directly or
indirectly, own the Power Station and all the fixtures, fitting, machinery and equipment on the Site x x x. [Mirant] shall operate, manage,
and maintain the Power Station for the purpose of converting fuel of Napocor into electricity."

Moreover, if Napocor truly believed that it was the owner of the subject machineries, it should have complied with Sections 202 and 206
of the LGC which obligates owners of real property to:

a. file a sworn statement declaring the true value of the real property, whether taxable or exempt;14 and

b. file sufficient documentary evidence supporting its claim for tax exemption.15

While a real property owner’s failure to comply with Sections 202 and 206 does not necessarily negate its tax obligation nor invalidate
its legitimate claim for tax exemption, Napocor’s omission to do so in this case can be construed as contradictory to its claim of
ownership of the subject machineries. That it assumed liability for the taxes that may be imposed on the subject machineries similarly
does not clothe it with legal title over the same. We do not believe that the phrase "person having legal interest in the property" in
Section 226 of the LGC can include an entity that assumes another person’s tax liability by contract.

A review of the provisions of the LGC on real property taxation shows that the phrase has been repeatedly adopted and used to define
an entity:

a. in whose name the real property shall be listed, valued, and assessed;16

b. who may be summoned by the local assessor to gather information on which to base the market value of the real property;17

c. who may protest the tax assessment before the LBAA18 and may appeal the latter’s decision to the CBAA;19

d. who may be liable for the idle land tax,20 as well as who may be exempt from the same;21

e. who shall be notified of any proposed ordinance imposing a special levy, 22 as well as who may object the proposed
ordinance;23

f. who may pay the real property tax;24

g. who is entitled to be notified of the warrant of levy and against whom it may be enforced;25

h. who may stay the public auction upon payment of the delinquent tax, penalties and surcharge;26 and

i. who may redeem the property after it was sold at the public auction for delinquent taxes.27

For the Court to consider an entity assuming another person’s tax liability by contract as a person having legal interest in the real
property would extend to it the privileges and responsibilities enumerated above. The framers of the LGC certainly did not contemplate
that the listing, valuation, and assessment of real property can be made in the name of such entity; nor did they intend to make the
warrant of levy enforceable against it. Insofar as the provisions of the LGC are concerned, this entity is a party foreign to the operation
of real property tax laws and could not be clothed with any legal interest over the property apart from its assumed liability for tax. The
rights and obligations arising from the BOT Agreement between Napocor and Mirant were of no legal interest to the tax collector – the
Province of Quezon – which is charged with the performance of independent duties under the LGC.28

Some authorities consider a person whose pecuniary interests is or may be adversely affected by the tax assessment as one who has
legal interest in the property (hence, possessed of the requisite standing to protest it), citing Cooley’s Law on Taxation. 29 The reference
to this foreign material, however, is misplaced. The tax laws of the United States deem it sufficient that a person’s pecuniary interests
are affected by the tax assessment to consider him as a person aggrieved and who may thus avail of the judicial or administrative
remedies against it. As opposed to our LGC, mere pecuniary interest is not sufficient; our law has required legal interest in the property
taxed before any administrative or judicial remedy can be availed. The right to appeal a tax assessment is a purely statutory right;
whether a person challenging an assessment bears such a relation to the real property being assessed as to entitle him the right to
appeal is determined by the applicable statute – in this case, our own LGC, not US federal or state tax laws.

In light of our ruling above, PIPPA’s motion to intervene and motion for reconsideration-in-intervention is already mooted. PIPPA as an
organization of independent power producers is not an interested party insofar as this case is concerned. Even if TeaM Energy, as
Mirant’s successor, is included as one of its members, the motion to intervene and motion for reconsideration-in-intervention can no
longer be entertained, as it amounts to a protest against the tax assessment that was filed without the complying with Section 252 of
the LGC, a matter that we shall discuss below. Most importantly, our Decision has not touched or affected at all the contractual
stipulations between Napocor and its BOT partners for the former’s assumption of the tax liabilities of the latter.

Payment under protest is required before an appeal to the LBAA can be made

Apart from Napocor’s failure to prove that it has sufficient legal interest, a further review of the records revealed another basis for
disregarding Napocor’s protest against the assessment.

The LBAA dismissed Napocor’s petition for exemption for its failure to comply with Section 252 of the LGC 30 requiring payment of the
assailed tax before any protest can be made. Although the CBAA ultimately dismissed Napocor’s appeal for failure to meet the
requirements for tax exemption, it agreed with Napocor’s position that "the protest contemplated in Section 252 (a) is applicable only
when the taxpayer is questioning the reasonableness or excessiveness of an assessment. It presupposes that the taxpayer is subject
to the tax but is disputing the correctness of the amount assessed. It does not apply where, as in this case, the legality of the
assessment is put in issue on account of the taxpayer’s claim that it is exempt from tax." The CTA en banc agreed with the CBAA’s
discussion, relying mainly on the cases of Ty v. Trampe31 and Olivarez v. Marquez.32

We disagree. The cases of Ty and Olivarez must be placed in their proper perspective.

The petitioner in Ty v. Trampe questioned before the trial court the increased real estate taxes imposed by and being collected in Pasig
City effective from the year 1994, premised on the legal question of whether or not Presidential Decree No. 921 (PD 921) was repealed
by the LGC. PD 921 required that the schedule of values of real properties in the Metropolitan Manila area shall be prepared jointly by
the city assessors in the districts created therein; while Section 212 of the LGC stated that the schedule shall be prepared by the
provincial, city or municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property
situated in their respective local government units for enactment by ordinance of the Sanggunian concerned. The private respondents
assailed Ty’s act of filing a prohibition petition before the trial court contending that Ty should have availed first the administrative
remedies provided in the LGC, particularly Sections 252 (on payment under protest before the local treasurer) and 226 (on appeals to
the LBAA).

The Court, through former Chief Justice Artemio Panganiban, declared that Ty correctly filed a petition for prohibition before the trial
court against the assailed act of the city assessor and treasurer. The administrative protest proceedings provided in Section 252 and
226 will not apply. The protest contemplated under Section 252 is required where there is a question as to the reasonableness or
correctness of the amount assessed. Hence, if a taxpayer disputes the reasonableness of an increase in a real property tax
assessment, he is required to "first pay the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. Ty
however was questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and
of the treasurer to collect the tax. These were not questions merely of amounts of the increase in the tax but attacks on the very validity
of any increase. Moreover, Ty was raising a legal question that is properly cognizable by the trial court; no issues of fact were involved.
In enumerating the power of the LBAA, Section 229 declares that "the proceedings of the Board shall be conducted solely for the
purpose of ascertaining the facts x x x." Appeals to the LBAA (under Section 226) are therefore fruitful only where questions of fact are
involved.

Olivarez v. Marquez, on the other hand, involved a petition for certiorari, mandamus, and prohibition questioning the assessment and
levy made by the City of Parañaque. Olivarez was seeking the annulment of his realty tax delinquency assessment. Marquez assailed
Olivarez’ failure to first exhaust administrative remedies, particularly the requirement of payment under protest. Olivarez replied that his
petition was filed to question the assessor’s authority to assess and collect realty taxes and therefore, as held in Ty v. Trampe, the
exhaustion of administrative remedies was not required. The Court however did not agree with Olivarez’s argument. It found that there
was nothing in his petition that supported his claim regarding the assessor’s alleged lack of authority. What Olivarez raised were the
following grounds: "(1) some of the taxes being collected have already prescribed and may no longer be collected as provided in
Section 194 of the Local Government Code of 1991; (2) some properties have been doubly taxed/assessed; (3) some properties being
taxed are no longer existent; (4) some properties are exempt from taxation as they are being used exclusively for educational purposes;
and (5) some errors are made in the assessment and collection of taxes due on petitioners’ properties, and that respondents committed
grave abuse of discretion in making the improper, excessive and unlawful the collection of taxes against the petitioner." The Olivarez
petition filed before the trial court primarily involved the correctness of the assessments, which is a question of fact that is not allowed in
a petition for certiorari, prohibition, and mandamus. Hence, we declared that the petition should have been brought, at the very first
instance, to the LBAA, not the trial court.

Like Olivarez, Napocor, by claiming exemption from realty taxation, is simply raising a question of the correctness of the assessment. A
claim for tax exemption, whether full or partial, does not question the authority of local assessor to assess real property tax. This may
be inferred from Section 206 which states that:

SEC. 206. Proof of Exemption of Real Property from Taxation. - Every person by or for whom real property is declared, who shall claim
tax exemption for such property under this Title shall file with the provincial, city or municipal assessor within thirty (30) days from the
date of the declaration of real property sufficient documentary evidence in support of such claim including corporate charters, title of
ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage deeds, and similar documents. If the
required evidence is not submitted within the period herein prescribed, the property shall be listed as taxable in the assessment roll.
However, if the property shall be proven to be tax exempt, the same shall be dropped from the assessment roll. [Emphasis provided]

By providing that real property not declared and proved as tax-exempt shall be included in the assessment roll, the above-quoted
provision implies that the local assessor has the authority to assess the property for realty taxes, and any subsequent claim for
exemption shall be allowed only when sufficient proof has been adduced supporting the claim. Since Napocor was simply questioning
the correctness of the assessment, it should have first complied with Section 252, particularly the requirement of payment under
protest. Napocor’s failure to prove that this requirement has been complied with thus renders its administrative protest under Section
226 of the LGC without any effect. No protest shall be entertained unless the taxpayer first pays the tax.

It was an ill-advised move for Napocor to directly file an appeal with the LBAA under Section 226 without first paying the tax as required
under Section 252. Sections 252 and 226 provide successive administrative remedies to a taxpayer who questions the correctness of
an assessment. Section 226, in declaring that "any owner or person having legal interest in the property who is not satisfied with the
action of the provincial, city, or municipal assessor in the assessment of his property may x x x appeal to the Board of Assessment
Appeals x x x," should be read in conjunction with Section 252 (d), which states that "in the event that the protest is denied x x x, the
taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of the LGC [Chapter 3 refers to Assessment Appeals,
which includes Sections 226 to 231]. The "action" referred to in Section 226 (in relation to a protest of real property tax assessment)
thus refers to the local assessor’s act of denying the protest filed pursuant to Section 252. Without the action of the local assessor, the
appellate authority of the LBAA cannot be invoked. Napocor’s action before the LBAA was thus prematurely filed.

For the foregoing reasons, we DENY the petitioner’s motion for reconsideration. SO ORDERED.
G.R. No. L-11499             April 29, 1961

IN RE: PETITION FOR CANCELLATION OF CERTIFICATE OF NATURALIZATION. REPUBLIC OF THE PHILIPPINES, petitioner-

appellant,
vs.
GO BON LEE, respondent-appellee.

Office of the Solicitor General for petitioner-appellant.

Candido V. Vasquez for respondent-appellee.

DIZON, J.:

Appeal from the decision of the Court of First Instance of Cebu denying the petition filed by the Government, through the Solicitor
General, for the cancellation of the certificate of naturalization issued to Go Bon Lee — hereinafter referred to as Go.

Go was granted Philippine citizenship by the Court of First Instance of Cebu on November 26, 1941 and on February 11, 1942 he took
his oath of allegiance, and naturalization certificate No. 4 was issued to him thereafter.

On August 15, 1951 the Solicitor General filed a petition for the cancellation of Go's certificate of naturalization on the following
grounds:(1) that the same was obtain illegally or contrary to law because Go did not then ha all the necessary qualifications to become
a citizen of the Philippines; (2) that at the time he was granted Philippine citizenship, he had not enrolled all his minor children of school
age in any public or private school recognized by the Office of Private Education where Philippine history, government and civics are
taught or prescribe as part of the school curriculum; (3) that he did not reside continuously in the Philippines for ten years; (4) and
finally, that he filed his petition for naturalization on April 18, 1941 in violation of Section 5 of the Revised Natural nation Law, because
at that time one year had not yet elapsed since he filed with the Bureau of Justice a sworn declaration of his intention to become a
citizen of the Philippines.

It is not denied that Go, bound as he was by the law requiring the filing of a declaration of intention to become a citizen of the
Philippines, complied with said requirement on May 23, 1940 (Exh. C). Neither is it disputed that his petition for naturalization was filed
with the Court of First Instance of Cebu on April 18, 1941 (Exh. C) — clearly in violation of the provision of Section 5 of the Revised
Naturalization Law to the effect that the petition for naturalization must be filed after one year from the filing of the aforesaid declaration
of intention.

The lower court, however, held the view that Go had substantially complied with this requirement because, after all, the hearing of his
petition was held more than o year after the filing of his declaration of intention to become a citizen. We disagree with this view. The
language of the law on the matter being express and explicit, it is beyond the province of the courts to take into account questions of
expediency, good faith and other similar reason in the construction of its provisions (De los Santos vs. Mallari, G.R. No. 1,3861, Aug.
13, 1960). Were we to accept the view of the lower court on this matter, there would be no good reason why a petition for naturalization
cannot be filed one week after or simultaneously with the filing of the required declaration of intention as long as the hearing is delayed
to a date after the expiration of the period of one year. The ruling of the lower court amounts, in our opinion, to a substantial change in
the law, something which courts can not do, their duty being to apply the law and not tamper with it (Cui vs. Dinglasan, 47 O.G. No. 12
Supp. 233; Orestoff vs. Government etc., 71 Phil. 240). In U.S. vs. Ginsberg, 243 U.S., 472, 475; 61 L. Ed. 853, 856, cited in Bautista
vs. Republic, etc., G.R. No. L- 3353, Dec. 29, 1950, it was held:

An alien who seeks political rights as a member of this nation can rightly obtain them only upon terms and conditions specified
by Congress. Courts are without authority to sanction changes or modifications; their duty is rigidly to enforce the legislative
will in respect of the matter so vital to the public welfare.

In connection with the question of appellee's failure to enroll all his minor children of school age in a public or private school recognized
by the Office of Private Education of the Philippines, etc. — which is mandatory, failure to comply with it constituting a valid ground for
the denial of the petition for citizenship (Tan vs. Republic, etc., 49 O.G. p. 1409) or for the cancellation of a certificate of naturalization
already issued — it appears that when Go filed his petition for naturalization in 1941 he had five minor children of school age, four of
whom were then living in China, where they were born, and had never been enrolled in any recognized public or private school in the
Philippines. It has been held in this connection that the fact that applicant's minor children were born and have lived since infancy in
China does not excuse him from complying with this particular requirement of the law (Lim vs. Republic etc., G.R. No. L- 3575, Dec. 26,
1950; Haw vs. Republic etc., 48 O.G. p. 1780). Go's claim that his failure to comply with this legal requirement was due to different
factors beyond his control, such as the unsettled conditions in China and the strictness of Philippine Immigration Laws, do not constitute
valid excuses for non-compliance (Lian Chua vs. Republic etc., 48 O.G. No. 5, p. 1780). Moreover, according to appellee's own
testimony, in 1930 he took his daughter Juanita — who was born in Cebu — to China were she remained until she was brought back to
the Philippines in 1938. No satisfactory proof been presented to show that Go had exerted efforts at that time to bring to the Philippines
his other four minor children.

In denying the petition of the government the lower Court expressed the view that the matter of Go's citizenship was already res
judicata and that the Government was in estoppel to question his status as a citizen upon any ground which would have been raised
before or during the hearing of the petition for naturalization. This we find to be untenable.

It is settled that the doctrine of estoppel or of laches does not apply against the Government suing in its capacity as Sovereign or
asserting governmental rights. It has been held that the Government is never estopped by mistakes or errors on the part of its agents
(Pineda vs. Court of First Instance of Tayabas, 52 Phil. 803, 807), and that estoppel cannot give validity to an act that is prohibited by
law or is against public policy(Benguet Consolidate etc. vs. Pineda etc., 52 O. No. 4, p. 1961; Eugenio v. Perdido, G.R. No. L-7083,
May 19, 1955).

Furthermore, unlike final decisions in actions and other proceedings in court, a decision or order granting citizenship to the applicant
does not really become executory and a naturalization proceeding not being a judicial adversary proceeding, the decision rendered
therein is no res judicata  as to any of the reasons or matters which would support a judgment cancelling the certificate of naturalization
for illegal or fraudulent procurement. As a matter of fact, it is settled in this jurisdiction that a certificate of naturalization may be
cancelled upon grounds or conditions subsequent to the granting of the certificate o naturalization. Thus in Bell vs. Attorney General, 56
Phil 667, it was held that a certificate of naturalization ma be cancelled if it is found subsequently that the applicant for citizenship
secured the same by misleading the courts on any material fact. Finally, the following was said in U.S. vs. Sponrer 175 Fed. 440:

An alien friend is offered under certain conditions the privilege of citizenship. He may accept the offer and become a citizen
upon compliance with the prescribed conditions, but not otherwise. His claim is of favor, not of right. He can only become a
citizen upon and after a strict compliance with the acts of Congress. An applicant for this high privilege is bound, therefore, to
conform to the terms upon which alone the right he seeks can be conferred. It is his province, and he is bound, to see that the
jurisdictional facts upon which the grant is predicated actually exist, and if they do not he takes nothing by this paper grant.
 xxx     xxx     xxx

Congress having limited this privilege to a specified class of persons, no other person is entitled to such privilege, nor to a
certificate purporting to grant it, and any such certificate issued to a person not so entitled to receive it must be treated as a
mere nullity, which confers no legal rights as against the government, from which it has been obtained without warrant of law.

IN VIEW OF THE FOREGOING, the decision appealed from is hereby reversed and another is rendered cancelling Certificate of
Naturalization No. 4 heretofore issued to appellee Go Bon Lee, with costs.
G.R. No. L-27473 September 30, 1977

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE DIRECTOR OF LANDS, plaintiff-appellant,

vs.
HEIRS OF FELIX CABALLERO y ABAD, defendants-appellees.

Solicitor General Arturo A. Alafriz, Assistant Solicitor General Isidro C. Borromeo, Solicitor Santiago M. Kapunan and Special Attorney
Jovito C. Oreta for plaintiff-appellant.

Leonardo Garcillano for defendant-appellee.

GUERRERO, J.:

This case was certified to Us by the Court of Appeal as the question presented before it involves purely questions of law in the
appealed case entitled "Republic of the Philippines, represented by the Director of Lands, versus Heirs of Felix Caballero y Abad, et
al.," Civil Case No. R-7320 of the Court of First Instance of Cebu, which is an action for reconveyance of Lot 5211 of the Talisay
Minglanilla Friar Lands Estate and decided against the plaintiff Republic of the Philippines, declaring the title of defendant heirs of Felix
Caballero y Abad over said lot perfectly legal and valid.

The facts established in the record are as follows:

A sale certificate covering Lot No. 5211 was originally issued by the Director of Lands in favor of Mamerta Caballero on April 25, 1911,
but was cancelled for non-payment of installments. After the required auction sale, another sale certificate (No. 9094) covering the said
lot was issued to Felix Caballero y Abad who paid thereon two (2) installments in the amount of P41.00 each on August 1, 1919 and on
November 3, 1919. No further instants having been paid, Sale Certificate No. 9094 was cancelled on July 15, 1935 by the Secretary of
Agriculture and Commerce. Two years later, on December 1, 1937, the District Land Officer of Cebu sent a commotion letter to Felix
Caballero y Abad demanding payment of his indebtedness on Lot 5211. This demand was reiterated on March 1, 1938, this time the
District Land Officer demanding not only the payment of his (Felix Caballero y Abad) indebtedness on Lot 5211 but also of his total
indebtedness on all the other thirteen (13) lots PPIW for by him, and giving him up to March 31, 1938 within which to pay; otherwise,
said Lot 5211 would be disposed of in accordance with law. Felix Caballero y Abad did not mike further payments until his death in
1941.

In 1941, an ocular inspection made by the Public Lands Inspector showed that Lot 5211 was actually occupied by Carlos Mantalaba
Juan Caballero and Bernarda Mantalaba as a result of which the Public Lands Inspector recommended that the lot be subdivided and
sold to them. In September, 1941, Carlos Mantalaba Bernarda Mantalaba and Juan Caballero filed their applications to purchase their
respective portions of Lot 5211, all of them paying their initial installments.

On June 22, 1957, Bernarda Mantalaba received a option letter from District Land Officer Apolinar Gil but her attempt to pay was
refused by the said District Land Officer on the ground that Cresencio Caballero had already paid the full price of said lot in behalf of his
deceased father, Felix Caballero y Abad, on September 2, 1957, his payment having been made in compliance with a commotion letter
sent by District Land Officer Apolinar Gil dated August 26, 1957, or 38 years after the last payment made by Felix Caballero y Abad, or
22 years after the disputed cancellation of Sale Certificate No. 9094 made on July 15, 1935.

On October 31, 1957, a final deed of conveyance (No. V-59733) for Lot 5211 was executed and issued in the name of Felix Caballero y
Abad by the Secretary of Agriculture and Natural Resources.

Upon formal protest filed by Bernarda Mantalaba the Chief of the Land Management Division sent a letter to the Register of Deeds of
Cebu requesting the return of the Deed of Conveyance No. V-5973 for Lot No. 5211; but was informed that a Transfer Certificate of
Title (No. 5591) had already been issued thereon in the name of Felix Caballero y Abad on January 2, 1958.

The Director of Lands ordered an investigation of the protest of Bernarda Mantalaba. The defendants-appelee moved to set aside the
investigation on the ground that the land is already a private property of Felix Caballero y Abad but was denied. Appeal was taken to
the Secretary of Agriculture and Natural Resources but the same was also dismissed. The Director of Lands was thereupon directed to
institute the necessary court action for the reconveyance of Lot 5211.

On December 22, 1961, the Republic of the Philippines, represented by the Director of Lands, filed before the Court of First instance of
Cebu a complaint praying that the Deed of Conveyance over Lot No. 5211 of the Talisay-Minglanilia Estate and the Transfer Certificate
of Title No. 5591 issued by virtue thereof and entered in the name of Felix Caballero y Abad be declared null and void; arid, that the
aforesaid lot be reconveyed to the Republic of the Philippines. Before a trial on the merits should be held, the parties agreed to a
stipulation of facts, which We quote:

STIPULATION OF FACTS

COME NOW the parties assisted by their respective counsel, and to this Honorable Court most respectfully submit
the following stipulation of facts:

EVIDENCE OF PLAINTIFF

1. That Mamerta Caballero was the original lessee of Lot No, 5211 under Temporary Lease No. 2358; that on April
25, 1911, the Director of Lands acting in representation of the Government of the Philippine Islands agreed to sell the
said land to Mamerta Caballero for P365.00 and Sale Certificate No. 3761 was issued in her favor, a certified copy of
which is hereto attached as Exhibit "A";

2. That Felix Caballero appears in the records of the Bureau of Lands to be the registered purchaser of fourteen (14)
lots in the Talisay-Minglanilia Estate including Lot No. 5211 for which Sale Certificate No. 9094 was issued to him, the
Sale Certificate No. 3761 of Mamerta Caballero having been cancelled;

3. That Felix Caballero y Abad failed to pay the installments due on Lot 5211 so that on December 1, 1937, the then
District Land Officer at Cebu, Jose Ma. Paredes, wrote him a letter informing him that he had an indebtedness of
P699.49 on the said land and he was advised that if he failed to pay the amount within thirty (30) days from his
receipt of this letter the land would be disposed of in accordance with law; a certified copy of this letter is hereto
attached as Exhibit "B";

4. That Felix Caballero y Abad failed to pay the amount so that on March 1, 1938, the District Land Officer wrote him
another letter this time demanding not only the payment of his indebtedness on Lot 5211 but the payment of his total
indebtedness on all the lots applied for by him in the total amount of P4,941.76 and he was given an extension of
time up to March 31, 1938, within which to pay. A certified copy of this letter is hereto attached as Exhibit "C", and as
Exhibit "C-2" a certified copy of his statement of accounts; together with the letter of the District Land Officer to the
Director of Lands marked Exhibit "C-1";

5. That an ocular inspection of Lot 5211 was made by Public Lands Inspector Jose V. Sison and he submitted his
report thereon under a Ist Ind. dated September 26, 1941 stating that he found Lot 5211 actually occupied by Carlos
Mantalaba Juan Caballero and Bernarda Mantalaba and he made a recommendation that the said land be
subdivided among them; a certified copy of this report is attached hereto as Exhibit "D"; and the District Land Officer
at Cebu concurred in his recommendation under a 2nd Ind. of even date which is found on the lower part of Exh. "D"
and the same is marked as Exhibit "D";

6. That it appears in the Information Sheet in the records of the Bureau of Lands, a certified copy of which is hereto
attached as Exh. "E", that the said Lot 5211 was declared vacant; that it was found occupied by Carlos Mantalaba
Juan Caballero and Bernarda Mantalaba who first occupied the same in 1926 and that they have filed their respective
application to purchase friar lands for the portion occupied by each one of them; and the same was recommended to
be sold to them as shown in a certified copy of the lst Ind. dated September 29, 1941 attached hereto as Exhibit "F";

7. That on October 7, 1941, Bernarda Mantalaba Juan Caballero and Carlos Mantalaba executed a joint affidavit on
their proposed partition of Lot 5211 as occupied by each one of them, a copy of their affidavit is hereto attached as
Annex "G";

8. That on September 23, 1941, Carlos Mantalaba filed his application to purchase Friar Lands for a portion of Lot
5211 a duplicate original of which is hereto attached as Exhibit "H" and he paid the amount of Ten Pesos (P10.00) on
September 26, 1941 as part amendment on the 1st installment of the sale value of a portion of Lot 5211 for which O.
R. No. 763315 was issued to him and the same is hereto attached as Exhibit "I";

9. That on September 26, 1941, Bernarda Mantalaba filed her application to purchase Friar Lands for her portion of
Lot 5211 a duplicate original of which is hereto attached as Exhibit "J" and on the same date she paid the amount of
Ten Pesos (Pl0.00) as part payment of the Ist Installment on the sale value of a portion of Lot 5211 for which O. R.
No. 763314 B was issued to her and the same is her to attached as Exhibit "E";

10. That on February 3, 1947, Bernarda Mantalaba made a second payment on her application to purchase in the
amount of Forty four pesos (P44.00) for which O. R. No. G-171474 was issued to her and hereto attached as Exhibit
"L";

11. That on September 19, 1941, Juan Caballero filed his application to purchase Friar Lands a duplicate original of
which is hereto attached as Exh. "M" and on October 3, 1941, he paid the amount of Ten Pesos (Pl0.00) as part
payment of the lst installment on the sale value of his portion of Lot 5211 for which O. R. No. 763324 was issued to
him and which is attached hereto as Exhibit "N";

12. That in a letter dated May 31, 1951, Friar Lands Agent Jose Sison informed the Director of Lands that Lot 5211
had been subdivided into sub-lots as occupied by Bernarda Mantalaba Carlos Mantalaba and Juan Caballero by the
Bureau of Lands Surveyor Jose Dermentos sometime in 1941 and he requested that he be furnished sixth a blue-
print of the plan; a certified copy of this letter is attached hereto as Exhibit "O":

13. That Jose Suguitan Chief, Division of Surveys of the Bureau of Lands informed Friar Lands Agent Jose V. Sison
in a letter dated September 19, 1951 that the said subdivision plan is presumed to have been destroyed during the
last war as no record thereof is available; a certified copy of Jose Suguitans letter is hereto attached as Exhibit "P";

14. That District Land Officer Apolinar Gil sent letters of demand of payment to Bernarda Mantalaba Carlos
Mantalaba and Juan Caballero, a copy of the said letter is attached as Exhibit "Q"; but when she went to the Office of
the Bureau of Lands her payment was refused on the ground that Cresencio Caballero had already paid for the
same;

15. That upon an undated petition filed by Cresencio Caballero, a duplicate original of which is hereto attached as
Exhibit "R", in which he requested in his own behalf and in behalf of his coheirs that the cancelled sales certificates of
his late father, Felix Caballero y Abad be reinstated and that then be allowed to pay for his accounts, the amount of
P964.59 was paid by Cresencio Caballero for Lot 5211 after 31 years 9 months and 29 days from the last payment
made by his father:

16. That the final deed of Conveyance No. V-5973 was executed i) the Secretary, of Agriculture and Natural
Resources on October 31, 1957 but on October 18, 1957, Bernarda Mantalba wired the Director of Lands in Manila to
suspend all actions on Lot 5211 as she was filing a protest against the said deed of conveyance, the said telegram is
hereto attached Exhibit "S"

17. That upon the protest filed by Bernarda Mantalaba the Chief of the Land Management Division in a letter to the
Register of Deeds of Cebu dated January 17, 1958, requested that Deed of Conveyance No. V-5973 which was
transmitted to him on November 26, 1957, be returned to the Bureau of Lands, a certified copy of the said letter is
hereto attached as Exhibit "T";

18. That the Director of Lands entered an order on February 20, 1959, directing investigation of the protest of
Bernarda Mantalaba a certified cope, of which is hereto attached as Exhibit "U";

19. That in a motion dated March 20, 1959, filed by Atty. Leonardo Garcillano in behalf of the Heirs of Felix Caballero
y Abad, he requested that the order of investigation be set aside on the ground that the land is already the private
property of Felix Caballero;
20. That in a letter dated July 16, 1959, the Director of Lands denied the said motion stating that the allegations in the
protest of Bernarda Mantalaba have raised in issue the regularity of the issuance of the deed of conveyance in favor
of Felix Caballero y Abad; a certified true copy of the said letter is hereunto attached as Exhibit "V";

EVIDENCE OF THE DEFENDANTS

22. That according to the records of the Friar Lands Agency, Bureau of Lands, Felix Caballero y Abad is the original
registered of Lot No. 5211 of the Talisay-Minglanilla Friar Lands Estate situated in the Municipality of Minglanilla
Provinceof Cebu;

23. That on July 15, 1920, the Director of Lands, acting for and in presentation of the Government of the Philippine
Islands, as Vendor executed Sale Certificate No. 9040, in favor of Caballero Abad, Felix, as Vendee, affecting Lot No.
5211, for the consideration of P489.00 to be paid on installment basis and for the period of 10 years, a certified true
copy of said Sales Certificate No. 9040, is hereto attached and marked as Exhibit 1; and Official Receipt No. 3930665
as certification fee as Exhibit 1-A;

24. That on account of said Lot No. 5211, the following investsments were made by the registered purchaser,
itemized as follows:

August 1, 1919......... Receipt No. 442661;

  P41.00 Official

November 3, 1919... Receipt No. 1311482;and

September 3, 1957... P964,59, Oficial

Receipt No. 1643821,

as evidence by, a certificate signed by the District Land Officer, dated February 21, 1963, marked as Exhibit 2; and
Official Receipt No. :i5l9874 as certification fee marked as Exhibit 2-A;

25. That Felix Caballero y Abad died intestate on October 31, 1941, in Minglanilla Cebu, and was survived by
legitimate children Gerarda Cecilio, Mercedes, Catalina, and Cresencio, all surnamed Caballero; Son Cresensio also
died intestate on April 27, 1960, in Minglanilla Cebu and was survived by his widow, Defendant Celedonia M. de
Caballero, and legitimate children defendants Josefine Thelma, Cresencio, Jr., Divina, Diosdidit Abel, Maria Socorro,
Ben Hur, Lourdes and Joan Maria, all surnamed Caballero who became the successors in interests of the deceased
Felix Caballero y Abad.

26. That on October 26, 1948, Friar Land Agent Jose V. Sison, acting by authority of the Director of Lands issued a
subpoena duces tecum to the following persons — Cresencio Caballero, Bernarda Mantalaba Carlos Mantalaba Juan
Caballero, Jacinto Sillote Anastacio Alicamen, Inocencio Caballero, Canuto Mantalaba and requesting them to be
and appear before him (Sison) at the Bureau of Lands, Frair Lands Agency No. 4, Tabunoc, Talisay Cebu, in an
investigation and to present documents regarding among others Lot N ). 521 was paid subpoena is hereto attached
and marked as Exhibit 3;

27. That on August 26, 1957, District Land Officer Apolinar Gil, furnishing a copy thereof to the Director of Lands
Manila, sent a letter of collection to Felix Caballero y Abad, of Minglanilla, Cebu resisting payment of the total amount
of P972.73 to the Office of District Land Officer, within 30 days from date receipt a copy of the letter is hereto
attached and marked as Exhibit 4;

28. That on September 2, 1957, the amount of P964.59, on account of and in full paymentt of Lot No. 5211 was paid
by Cresencio as Caballero by Official Receipt No. A-1643824, hereto attached and marked as Exhibit 5;

29. That on October 31, 1957, the Secretary Agriculture and Natural Resources the then Hon. Juan de O. Rodriguez
executed final Deed of Conveyance, in favor of Felix Caballero y Abad, affecting said Lot No. 5211, which deed is
hereto attached and marked as Exhibit 6;

30 That on November 26, 1957 a letter signed by Alejo Manalang Chief Land Management Division for the Dir3ectoe
of Lands, transmitting Deed No. V-5973, for Lot No. 5211, and for the issuance of necessary transfer certificate of title
to said Lot No. 5211 to the Registered purchaser, felix Caballero y Abad, a copy of which has been furnished Felix
Caballero y Abad, which is hereto attached and marked as Exhibit 7;

31 That transfer Certificate of Title No. 5597 was issued, No. 5211 by the Register, of Deeds of Cebu in the name of
Felix Caballero y Abad photostat copy of title hereto attached and marked as Exhibit 8;

32. That Lot No. 5211 is now declared for, taxation purpose as shown by Tax Declaration No. 05440, in the name of
Felix Caballero y Abad hereto attached and marked as Exhibit 9;

33. That the taxes from 1958 to 1962, have been paid by the Heirs of Felix Caballero as shown by Tax Receipts
marked as Exhibit 10, 10-a and 10-c;

34. That a certificate, dated January 3, 1958 showing that No. 5211 is declared in the name of Felix Caballero y Abad
under Tax Declaration No. 05440 and is not delinquent in the convinient of realty taxes up to and including the year
1958, hereto attached and as Exhibit 11; and the Heirs of Felix Caballero y Abad are in the present occupation and
possession of said Lot No 5211;

35. That a letter, dated July 30, 1952, signed by Vicente Tordesillas Public Lands Division addressed to the Friar
Lands recoginizing that administrative Cancellation of sale certificates without observing the procedure prescribed in
Sec. 17, of 1120, as amended is void and without, effect, which letter is marked as Exhibit 12;
 That the parties hereby submit the above stipulation of facts for decision of this Honorable Court, without the
necessity of introducing further evidence.

Cebu City, February 21, 1963,

xxx xxx xxx

Based on the above-quoted stipulation of facts, the Court of First Instance of Cebu dismissed the complaint and declared the- title of
Felix Caballero y Abad valid and legal. Hence, this appeal by the Government.

The principal issue presented to Us is whether or not the title of Felix Caballero y Abad over Lot No. 5211 as evidenced by Transfer
Certificate of Title No. 5591 issued pursuant to a Final Deed of Conveyance executed by the then Secretary of Agriculture and Natural
Resources is valid and binding, there having been an administrative cancellation of the Sale Certificate issued to Felix Caballero y Abad
on which the aforesaid final deed of conveyance was predicated.

The Government rests its case on the administrative cancellation of Sale Certificate No. 9094 issued to Felix Caballero y Abad, the
legality of which is being assailed by the defendants-appellee, and estoppel by laches in that appellate failed to take the necessary
steps to question and set aside the action of the Secretary of Agriculture and Natural Resources in cancelling the certificate of sale in
favor of their father.

The administrative cancellation was made by the Secretary of Agriculture and Commerce pursuant to Sec. 32 of Lands Administrative
Order No. 34 promulgated on January 1, 1934, and as amended by Lands Administrative Order No. 3-5 dated November 30, 1956,
which reads:

SEC. 32. Cancellation of Sale Certificates— causes: — Sale certificate may be cancelled by the Secretary of
Agriculture and Commerce for the following causes: (e) When the purchaser shall have been delinquent for two or
more successive years in the payment of installments, except when granted an extension of time within which to pay
in accordance with section 10 hereof. (p. 40, ROA)

The Government contends that Felix Caballero y Abad failed to pay his option from the year 1919 until his death on October 3 1, 1941;
that the full amount of the purchase price was paid by Cresencio Caballero on his misrepresentation that they were still the occupants
of Lot 5211 and that the sale certificate of his father for the said lot had not yet been cancelled; that in truth and in fact, Bernard
Mantalaba Carlos Mantalaba and Juan Caballero were found to be the actual occupants of the said lot, and the sale certificate issued
to Felix Caballero y Abad was cancelled by the Secretary of Agriculture and Commerce for non-payment of further installements on the
purchase price; that the administrative cancellation of the aforesaid sale certificate is legal having been made pursuant to Lands
Administrative Order No. 3-4 as amended by Lands Administrative Order No. 3-5; and that, therefore, the sale of Lot 5211 to Felix
Caballero y Abad is wrongful, and the Final Deed of Conveyance and Transfer Certificate of Title No. 5591 issued pursuant thereto in
the name of Felix Caballero y Abad are null and void.

As correctly intended by the defendants-appelee, under the Friar Lands Act (Act 1120), the Director of Lands has no power to cancel
unilaterally the sale certificate or contract for failure to pay subsequent installments Section 17 of said Act merely "authorizes said
Director of Lards to enforce payment of any past due insert and interest by by suit to recover the same with interest thereon, and also to
enforce the lien of the Government against the land by selling the same in the manner provoked by Act No. 190 for the foreclosure of
mortgages.

The purchaser, even before the payment of the full price and before the execution of the final deed of convey is
considered by law as the actual owner of the lot purchased under obligation to pay in full the purchase price, the role
or position of the Government being that of a mere lienholder or mortgagee.

It is true that the Government under Section 15 of Act 1120 title to any parcel of land sold under said Act until the full
payment of all installments of the sales price. But this must refer to the bare, naked title. The equitable and beneficial
title really went to the purchaser the moment he paid the first installment and was given a certificate of sale. The
reservation of the title in favor of the Government is made merely to protect the interest of the Government so as to
preclude or prevent the purchaser from encumbring or disposing of the lot purchased before the payment in fun of the
purchased price. Outside of this protection the Government retains no right as owner. (Director of Lands v. Rizal) 1

The facts of the case at bar, however, go beyond the unauthorized cancellation of the sale certificate in favor of the appeal by the
Secretary of Agriculture and Natural Resources on July 15, 1935. The evidence undisputably show that for 13 years thereafter, appeal
kept silent and slept on their rights without rifting a finger in protest against such an illegal act of the Secretary. They sought no redress
of the wrong committed against them; they failed to go to the courts to protect their rights; neither did they have to reconsider or set
aside the order of the Secretary of Agriculture and Natural Resources, much less sought recourse to the Director of Lands or to the
District Lands Officer in Cebu. It was only on July 17, 1948 that Cresencio Caballero's letter was received by the Director of Lands
requesting reinstatement of the sale certificate to his late father, Felix Caballero y Abad, and that they be allowed to pay for his account
in the amount of P964.59 for Lot 5211, which amount was paid on September 2, 1957 under O. R. 1643821 (Exh. 2, Folio of Exhibits,
p. 52) or 37 years after the date of the last payment made by his father on November 3, 1919.

Appellees are clearly guilty of laches. Laches, in a general sense, is a failure or neglect, for an unreasonable and unexplained length of
time to do that which, by exercising due diligence could or should have been done earlier; it is negligence or omission to assert a right
within a reasonable length of time, warranting a presumption that a party entitled to assert it either has abandoned it or declined to
assert it. (Castañeda vs. Ago, 65 SCRA 505; Heirs of Batiog Lacamen vs, Heirs of Laruan, 65 SCRA 605)

The defense of laches is an equitable one and does not concern itself with the character of the defendant's title, but
only with whether or not by reason of the plaintiff's long inaction or inexcusable neglect he should be barred from
asserting this claim at all. Pabalate was. Echarri Jr., 37 SCRA 518)

The principle of laches require the following essential elements: (1) conduct on the part of the defendant or one under
whom he claims, giving rise to the situation that led to the complaint and for which the complaint seeks a remedy; (2)
delay in asserting the complainant's rights the complainant having had knowledge or notice of the defendant's
conduct and having been afforded an opportunity to installment a suit; (31) lack of knowledge or notice on the part of
the defendant that the complainant would assert the right on which he cases his suit and (4) injury or prejudice to the
defendant in the event relief is accorded to the complainant or the suit is not held barred. Yusingco vs. Ong Hing
Lian, 42 SCRA 589)
In the meantime that appelees remained asleep, neglectful and mute, Bernarda Mantalaba Carlos Mantalaba and Juan Caballero had
entered into the possession and occupancy of the land and applied to purchase their respective portions and then paid the initial
installments of the. sale value of the lot in question on September 23, 1941, September 26, 1941 and September 19, 1941,
respectively. Bernarda Mantalaba also made a second payment on her application to purchase her portion on February 3, 1947. There
is proof that Lot 5211 had been subdivided into sublets as occupied by these applicants who were ready to complete payments of their
respective lots but were refused on the ground that Cresencio Caballero had finally after 38 years paid fully for the same on September
2, 1957.

It would not be fair and just to deny and disapprove the applications of the occupants Bernarda Mantalaba Carlos Mantalaba and Juan
Caballero whose initial payments to buy their respective portions of Lot 5211 were paid to, received and collected by the government. lt
appears in the records that Felix Caballero y Abad had applied and purchased 14 lots of the Talisay-Minglanilla Friar Lands Estate for
which he was being demanded to pay a total of P4,941.76 as fisted in Exhibits "C", "C-1" and "C-2" (pp. 4-6, Rollo of Exhibits).

The social justice program of the government to ensure the dignity, welfare and security of all the people (New Constitution, Art. 1, Sec.
6) by improving the econnomic condition of the poor and Providing land for the landless would be an Idle and meaningless policy were
we to allow the privileged and the rich to grow richer and the landed gentry to amass more land holdings at the expense of the less
fortunate and the less privileged. A fairer and more equitable distribution of the country's land resources to a greater number of tillers of
the soil as farmer-owners and not as mere agricultural tenants will go a long way in effectively achieving the agrarian or land reform
program in our country today.

We are not unmindful of the fact that the government acting thru its public officers, had demanded and coated the balance of the
purchase price of Lot 5211 in the amount of P964.59, executed the final deed of conveyance No. V-5973 by the Secretary of culture
and Natural Resources and issued certificate of title No. 5597 by the Register of Deeds of Cebu in the name of Felix Caballero y Abad.
The government is not, however, estopped from socking reconveyance of the land, for it is a basic rule of law that estoppel does not he
against the government or any of its agencies arising from unauthorized or illegal acts of public officers. (Pacheco & Sons Co. vs.
Provincial Board of Antique, 31 SCRA 321; Favis vs. Municipality of Sabangan 27 SCRA 90; City of Manila vs. Tarlac Development
Corp., 24 SCRA 466; Tan Guan vs. Court of Tax Appeals, 19 SCRA 903). The government is never estopped by mistake or error on
the part of its agents. Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553).

PREMISES CONSIDERED, the judgment appealed from is reversed, and another one entered (1) declaring the deed of conveyance
over Lot 5211 null and void, and the Transfer Certificate of Title No. 5597 issued by virtue thereof cancelled as well as the owner's
duplicate certificate which is hereby ordered surrendered by the appelees, and (2) directing the Register of Deeds of Cebu to issue a
new certificate of title of Lot 5211 of the Talisay Manglanilla Friar Lands Estate in the name of the Republic of the Philippines. No costs.

SO ORDERED.