G.R. No.

185371               December 8, 2010 For petitioner’s failure to comply with several requests for the presentation of records and
Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement dated September
COMMISSIONER OF INTERNAL REVENUE, Petitioner,  26, 2001 informing Revenue District Officer of Revenue Region No. 67, Legazpi City to proceed
vs. with the investigation based on the best evidence obtainable preparatory to the issuance of
METRO STAR SUPERAMA, INC., Respondent. assessment notice.

D E C I S I O N  On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary

MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner
Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1] September 16,
2008 Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its
November 18, 2008 Resolution2 denying petitioner’s motion for reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division) in
CTA Case No. 7169 reversing the February 8, 2005 Decision of the CIR which assessed
respondent Metro Star Superama, Inc. (Metro Star) of deficiency value-added tax and
withholding tax for the taxable year 1999.
15-day Letter, which petitioner received on November 9, 2001. The said letter stated that a post
audit review was held and it was ascertained that there was deficiency value-added and
withholding taxes due from petitioner in the amount of ₱ 292,874.16.
On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from
Revenue District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred Ninety
Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos (₱292,874.16.) for
deficiency value-added and withholding taxes for the taxable year 1999, computed as follows:
ASSESSMENT NOTICE NO. 067-99-003-579-072
VALUE ADDED TAX

Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA Second Division Gross Sales ₱1,697,718.90
summarized the factual and procedural antecedents of the case, the pertinent portions of which
read: Output Tax ₱ 154,338.08

Less: Input Tax _____________

Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the
Republic of the Philippines, x x x. VAT Payable ₱ 154,338.08

On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued Letter Add: 25% Surcharge ₱ 38,584.54
of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to examine petitioner’s books
of accounts and other accounting records for income tax and other internal revenue taxes for 20% Interest 79,746.49
the taxable year 1999. Said Letter of Authority was revalidated on August 10, 2001 by Regional
Compromise Penalty 
Director Leonardo Sacamos.
Late Payment ₱16,000.00 
Failure to File VAT returns 2,400.00 18,400.00 136,731.01  VALUE ADDED TAX ₱ 291,069.09

TOTAL ₱ 291,069.09 WITHHOLDING TAX 1,805.07

WITHHOLDING TAX TOTAL ₱ 292,874.16

Compensation 2,772.91
Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated
Expanded 110,103.92 May 12, 2003, which petitioner received on May 15, 2003, giving the latter last opportunity to
settle its deficiency tax liabilities within ten (10) [days] from receipt thereof, otherwise
Total Tax Due ₱ 112,876.83 respondent BIR shall be constrained to serve and execute the Warrants of Distraint and/or Levy
and Garnishment to enforce collection.
Less: Tax Withheld 111,848.27

Deficiency Withholding Tax ₱ 1,028.56 On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of
Distraint and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of deficiency
Add: 20% Interest p.a. 576.51 value-added tax and withholding tax payment in the amount of ₱292,874.16.

Compromise Penalty 200.00 On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for
Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.
TOTAL ₱ 1,805.07

*Expanded Withholding Tax ₱1,949,334.25 x 5% 97,466.71 On February 8, 2005, respondent Commissioner, through its authorized representative, Revenue
Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying petitioner’s
Film Rental 10,000.25 x 10% 1,000.00 Motion for Reconsideration. Petitioner, through counsel received said Decision on February 18,
2005.
Audit Fee 193,261.20 x 5% 9,663.00

Rental Expense 41,272.73 x 1% 412.73  x x x.

Security Service
Service Contractor
Total
SUMMARIES OF DEFICIENCIES
156,142.01 x 1% 1,561.42  Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not
accorded due process, Metro Star filed a petition for review4 with the CTA. The parties then
₱ 110,103.92  stipulated on the following issues to be decided by the tax court:
1. Whether the respondent complied with the due process requirement as provided
under the National Internal Revenue Code and Revenue Regulations No. 12-99 with
regard to the issuance of a deficiency tax assessment;
 1.1 Whether petitioner is liable for the respective amounts of ₱291,069.09 and
₱1,805.07 as deficiency VAT and withholding tax for the year 1999;
1.2. Whether the assessment has become final and executory and demandable
for failure of petitioner to protest the same within 30 days from its receipt
thereof on April 11, 2002, pursuant to Section 228 of the National Internal
Revenue Code;
2. Whether the deficiency assessments issued by the respondent are void for failure to
state the law and/or facts upon which they are based.
2.2 Whether petitioner was informed of the law and facts on which the
assessment is made in compliance with Section 228 of the National Internal
Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to
VAT on sales of services under Section 108(A) of the National Internal Revenue Code;
4. Whether or not the assessment is based on the best evidence obtainable pursuant to
Section 6(b) of the National Internal Revenue Code.
The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007,
rendered a decision, the decretal portion of which reads:  process.
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the
assailed Decision dated February 8, 2005 is hereby REVERSED and SET ASIDE and respondent is
ORDERED TO DESIST from collecting the subject taxes against petitioner.
The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a mailed
letter [is] deemed received by the addressee in the ordinary course of mail, a direct denial of the
receipt of mail shifts the burden upon the party favored by the presumption to prove that the
mailed letter was indeed received by the addressee."5 It also found that there was no clear
showing that Metro Star actually received the alleged PAN, dated January 16, 2002. It,
accordingly, ruled that the Formal Letter of Demand dated April 3, 2002, as well as the Warrant
of Distraint and/or Levy dated May 12, 2003 were void, as Metro Star was denied due process.6
The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the motion was
denied in the latter’s July 24, 2007 Resolution.8
Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition was
dismissed after a determination that no new matters were raised. The CTA-En Banc disposed:
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for
lack of merit. Accordingly, the March 21, 2007 Decision and July 27, 2007 Resolution of the CTA
Second Division in CTA Case No. 7169 entitled, "Metro Star Superama, Inc., petitioner vs.
Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En Banc in its
November 18, 2008 Resolution.11
The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due
process was served nonetheless because the latter received the Final Assessment Notice (FAN),
comes now before this Court with the sole issue of whether or not Metro Star was denied due
The general rule is that the Court will not lightly set aside the conclusions reached by the CTA
which, by the very nature of its functions, has accordingly developed an exclusive expertise on
the resolution unless there has been an abuse or improvident exercise of authority.12 In
Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal
Revenue,13 the Court wrote: 
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with
the highest respect. In Sea-Land Service Inc. v. Court of Appeals  [G.R. No. 122605, 30 April 2001,
357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very
nature of its function is dedicated exclusively to the consideration of tax problems, has
necessarily developed an expertise on the subject, and its conclusions will not be overturned
unless there has been an abuse or improvident exercise of authority. Such findings can only be
disturbed on appeal if they are not supported by substantial evidence or there is a showing of
gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing
proof to the contrary, this Court must presume that the CTA rendered a decision which is valid
in every respect.
On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is
instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an
assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that
such notice was indeed received by the addressee. The onus probandi was shifted to respondent
to prove by contrary evidence that the Petitioner received the assessment in the due course of
mail. The Supreme Court has consistently held that while a mailed letter is deemed received by
the addressee in the course of mail, this is merely a disputable presumption subject to
controversion and a direct denial thereof shifts the burden to the party favored by the
presumption to prove that the mailed letter was indeed received by the addressee (Republic vs.
Court of Appeals, 149 SCRA 351). Thus as held by the Supreme Court in Gonzalo P. Nava vs.
Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965:
"The facts to be proved to raise this presumption are (a) that the letter was properly addressed
with postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption
is that the letter was received by the addressee as soon as it could have been transmitted to him
in the ordinary course of the mail. But if one of the said facts fails to appear, the presumption
does not lie. (VI, Moran, Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs.
Sunlife Assurance of Canada, 41 Phil 269)."
x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of
Posts or the Registry return card which would have been signed by the Petitioner or its
authorized representative. And if said documents cannot be located, Respondent at the very
least, should have submitted to the Court a certification issued by the Bureau of Posts and any
other pertinent document which is executed with the intervention of the Bureau of Posts. This
Court does not put much credence to the self serving documentations made by the BIR
personnel especially if they are unsupported by substantial evidence establishing the fact of
mailing. Thus:
"While we have held that an assessment is made when sent within the prescribed period, even
if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-
12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing or
sending of the notice be clearly and satisfactorily proved. Mere notations made without the
taxpayer’s intervention, notice or control, without adequate supporting evidence cannot suffice;
otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate
protection or defense." (Nava vs. CIR, 13 SCRA 104, January 30, 1965).
x x x.
The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the
conclusion that no assessment was issued. Consequently, the government’s right to issue an
assessment for the said period has already prescribed. (Industrial Textile Manufacturing Co. of
the Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases supplied.)
The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence
to show that Metro Star indeed received the PAN dated January 16, 2002. It could have simply
presented the registry receipt or the certification from the postmaster that it mailed the PAN,
but failed. Neither did it offer any explanation on why it failed to comply with the requirement
of service of the PAN. It merely accepted the letter of Metro Star’s chairman dated April 29,
2002, that stated that he had received the FAN dated April 3, 2002, but not the PAN; that he
was willing to pay the tax as computed by the CIR; and that he just wanted to clarify some
matters with the hope of lessening its tax liability. 
This now leads to the question: Is the failure to strictly comply with notice requirements
prescribed under Section 228 of the National Internal Revenue Code of 1997 and Revenue
Regulations (R.R.) No. 12-99 tantamount to a denial of due process? Specifically, are the
requirements of due process satisfied if only the FAN stating the computation of tax liabilities
and a demand to pay within the prescribed period was sent to the taxpayer? 
The answer to these questions require an examination of Section 228 of the Tax Code which as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of
reads: the protest, all relevant supporting documents shall have been submitted; otherwise, the
assessment shall become final. 
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180)
findings: provided, however, that a preassessment notice shall not be required in the following days from submission of documents, the taxpayer adversely affected by the decision or inaction
cases:  may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision,
or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become
(a) When the finding for any deficiency tax is the result of mathematical error in the final, executory and demandable. (Emphasis supplied).
computation of the tax as appearing on the face of the return; or 
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed
(b) When a discrepancy has been determined between the tax withheld and the amount that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the
actually remitted by the withholding agent; or  facts and the law upon which the assessment is made. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with tax collection without first
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable establishing a valid assessment is evidently violative of the cardinal principle in administrative
withholding tax for a taxable period was determined to have carried over and investigations - that taxpayers should be able to present their case and adduce supporting
automatically applied the same amount claimed against the estimated tax liabilities for evidence.14
the taxable quarter or quarters of the succeeding taxable year; or 
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:
(d) When the excise tax due on exciseable articles has not been paid; or 
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —
(e) When the article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, 3.1 Mode of procedures in the issuance of a deficiency tax assessment:
traded or transferred to non-exempt persons. 
3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's
The taxpayers shall be informed in writing of the law and the facts on which the assessment is records shall, among others, state in his report whether or not the taxpayer agrees with
made; otherwise, the assessment shall be void.  his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not
amenable, based on the said Officer's submitted report of investigation, the taxpayer
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be shall be informed, in writing, by the Revenue District Office or by the Special
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly Investigation Division, as the case may be (in the case Revenue Regional Offices) or by
authorized representative shall issue an assessment based on his findings.  the Chief of Division concerned (in the case of the BIR National Office) of the
discrepancy or discrepancies in the taxpayer's payment of his internal revenue taxes, for
Such assessment may be protested administratively by filing a request for reconsideration or the purpose of "Informal Conference," in order to afford the taxpayer with an
reinvestigation within thirty (30) days from receipt of the assessment in such form and manner opportunity to present his side of the case. If the taxpayer fails to respond within fifteen
(15) days from date of receipt of the notice for informal conference, he shall be
considered in default, in which case, the Revenue District Officer or the Chief of the
Special Investigation Division of the Revenue Regional Office, or the Chief of Division in
the National Office, as the case may be, shall endorse the case with the least possible
delay to the Assessment Division of the Revenue Regional Office or to the Commissioner
or his duly authorized representative, as the case may be, for appropriate review and
issuance of a deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as
the case may be, it is determined that there exists sufficient basis to assess the taxpayer
for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by
registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules and regulations, or jurisprudence on which
the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer
fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be
considered in default, in which case, a formal letter of demand and assessment notice
shall be caused to be issued by the said Office, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal
conference and the preliminary assessment notice shall not be required in any of the
following cases, in which case, issuance of the formal assessment notice for the
payment of the taxpayer's deficiency tax liability shall be sufficient:
(i) When the finding for any deficiency tax is the result of mathematical error in
the computation of the tax appearing on the face of the tax return filed by the
taxpayer; or
(ii) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have carried
over and automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable year;
or 
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as,
but not limited to, vehicles, capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand
and assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayer's deficiency tax
or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which
the assessment is based, otherwise, the formal letter of demand and assessment notice
shall be void (see illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail or by personal delivery.
If sent by personal delivery, the taxpayer or his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the
following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of
the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d)
date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him
of the assessment made is but part of the "due process requirement in the issuance of a
deficiency tax assessment," the absence of which renders nugatory any assessment made by the
tax authorities. The use of the word "shall" in subsection 3.1.2 describes the mandatory nature
of the service of a PAN. The persuasiveness of the right to due process reaches both substantial
and procedural rights and the failure of the CIR to strictly comply with the requirements laid
down by law and its own rules is a denial of Metro Star’s right to due process.15 Thus, for its
failure to send the PAN stating the facts and the law on which the assessment was made as
required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.
The case of CIR v. Menguito 16 cited by the CIR in support of its argument that only the non-
service of the FAN is fatal to the validity of an assessment, cannot apply to this case because the
issue therein was the non-compliance with the provisions of R. R. No. 12-85 which sought to
interpret Section 229 of the old tax law. RA No. 8424 has already amended the provision of
Section 229 on protesting an assessment. The old requirement of merely notifyingthe taxpayer
of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law, but also
of the facts on which an assessment would be made. Otherwise, the assessment itself would be
invalid.17 The regulation then, on the other hand, simply provided that a notice be sent to the
respondent in the form prescribed, and that no consequence would ensue for failure to comply
with that form.1avvphi1
The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it
is well-settled that a void assessment bears no fruit.18
It is said that taxes are what we pay for civilized society. Without taxes, the government would
be paralyzed for the 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 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 x x x that the law has not been observed.21 (Emphasis supplied).
WHEREFORE, the petition is DENIED.

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of SO ORDERED.
property without due process of law.19 In balancing the scales between the power of the State
to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal protection of the laws on
the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by
the Bill of Rights under the Constitution. Thus, while "taxes are the lifeblood of the
government," the power to tax has its limits, in spite of all its plenitude. Hence in Commissioner
of Internal Revenue v. Algue, Inc.,20 it was said –

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.

x x x           x x x          x x x

G.R. No. 210551               June 30, 2015
JOSE J. FERRER, JR., Petitioner, 
vs.
CITY MAYOR HERBERT BAUTISTA, CITY COUNCIL OF QUEZON CITY, CITY TREASURER OF
QUEZON CITY, and CITY ASSESSOR OF QUEZON CITY, Respondents.
DECISION
PERALTA, J.:
Before this Court is a petition for certiorari under Rule 65 of the Rules of Court with prayer for
the issuance of a temporary restraining order (TRO) seeking to declare unconstitutional and
illegal Ordinance Nos. SP-2095, S-2011 and SP-2235, S-2013 on the Socialized Housing Tax and
Garbage Fee, respectively, which are being imposed by the respondents.
The Case
On October 17, 2011,1 respondent Quezon City Council enacted Ordinance No. SP-2095, S-
2011,2 or the Socialized Housing Tax of Quezon City, Section 3 of which provides:
SECTION 3. IMPOSITION. A special assessment equivalent to one-half percent (0.5%) on the
assessed value of land in excess of One Hundred Thousand Pesos (Php100,000.00) shall be
collected by the City Treasurer which shall accrue to the Socialized Housing Programs of the
Quezon City Government. The special assessment shall accrue to the General Fund under a
special account to be established for the purpose.
Effective for five (5) years, the Socialized Housing Tax ( SHT ) shall be utilized by the Quezon City
Government for the following projects: (a) land purchase/land banking; (b) improvement of
current/existing socialized housing facilities; (c) land development; (d) construction of core
houses, sanitary cores, medium-rise buildings and other similar structures; and (e) financing of
public-private partners hip agreement of the Quezon City Government and National Housing
Authority ( NHA ) with the private sector.3
Under certain conditions, a tax credit shall be enjoyed by taxpayers regularly paying the special
assessment:
SECTION 7. TAX CREDIT. Taxpayers dutifully paying the special assessment tax as imposed by this
ordinance shall enjoy a tax credit. The tax credit may be availed of only after five (5) years of
continue[d] payment. Further, the taxpayer availing this tax credit must be a taxpayer in good
standing as certified by the City Treasurer and City Assessor.
The tax credit to be granted shall be equivalent to the total amount of the special assessment
paid by the property owner, which shall be given as follows:
1. 6th year - 20%
2. 7th year - 20%
3. 8th year - 20%
4. 9th year - 20%
5. 10th year - 20%
Furthermore, only the registered owners may avail of the tax credit and may not be continued
by the subsequent property owners even if they are buyers in good faith, heirs or possessor of a
right in whatever legal capacity over the subject property.4
On the other hand, Ordinance No. SP-2235, S-20135 was enacted on December 16, 2013 and
took effect ten days after when it was approved by respondent City Mayor. 6 The proceeds
collected from the garbage fees on residential properties shall be deposited solely and
exclusively in an earmarked special account under the general fund to be utilized for garbage
collections.7 Section 1 of the Ordinance se t forth the schedule and manner for the collection of On high-rise Condominium Units
garbage fees:
a) High-rise Condominium – The Homeowners Association of high- rise condominiums
SECTION 1. The City Government of Quezon City in conformity with and in relation to Republic shall pay the annual garbage fee on the total size of the entire condominium and
Act No. 7160, otherwise known as the Local Government Code of 1991 HEREBY IMPOSES THE socialized Housing Unit and an additional garbage fee shall be collected based on area
FOLLOWING SCHEDULE AND MANNER FOR THE ANNUAL COLLECTION OF GARBAGE FEES, AS occupied for every unit already so ld or being amortized.
FOLLOWS: On all domestic households in Quezon City;
b) High-rise apartment units – Owners of high-rise apartment units shall pay the annual
LAND AREA IMPOSABLE FEE garbage fee on the total lot size of the entire apartment and an additional garbage fee
based on the schedule prescribed herein for every unit occupied.
Less than 200 sq. m. PHP 100.00
The collection of the garbage fee shall accrue on the first day of January and shall be paid
201 sq. m. – 500 sq. m. PHP 200.00 simultaneously with the payment of the real property tax, but not later than the first quarter
installment.8 In case a household owner refuses to pay, a penalty of 25% of the garbage fee due,
501 sq. m. – 1,000 sq. m. PHP 300.00
plus an interest of 2% per month or a fraction thereof, shall be charged.9
1,001 sq. m. – 1,500 sq. m. PHP 400.00
Petitioner alleges that he is a registered co-owner of a 371-square-meter residential property in
1,501 sq. m. – 2,000 sq. m. or more PHP 500.00 Quezon City which is covered by Transfer Certificate of Title (TCT ) No. 216288, and that, on
January 7, 2014, he paid his realty tax which already included the garbage fee in the sum of

Php100.00.10
On all condominium unit and socialized housing projects/units in Quezon City;
The instant petition was filed on January 17, 2014. We issued a TRO on February 5, 2014, which
enjoined the enforcement of Ordinance Nos. SP-2095 and SP-2235 and required respondents to
FLOOR AREA IMPOSABLE FEE comment on the petition without necessarily giving due course thereto.11
Less than 40 sq. m. PHP 25.00
Respondents filed their Comment12 with urgent motion to dissolve the TRO on February 17,
41 sq. m. – 60 sq. m. PHP 50.00 2014. Thereafter, petitioner filed a Reply and a Memorandum on March 3, 2014 and September
8, 2014, respectively.
61 sq. m. – 100 sq. m. PHP 75.00
Procedural Matters
101 sq. m. – 150 sq. m. PHP 100.00
A. Propriety of a Petition for Certiorari
151 sq. m. – 200 sq. [m.] or more PHP 200.00
Respondents are of the view that this petition for certiorari is improper since they are not
tribunals, boards or officers exercising judicial or quasi-judicial functions. Petitioner, however,
counters that in enacting Ordinance Nos. SP-2095 and SP-2235, the Quezon City Council
exercised quasi-judicial function because the ordinances ruled against the property owners who
must pay the SHT and the garbage fee, exacting from them funds for basic essential public
services that they should not be held liable. Even if a Rule 65 petition is improper, petitioner still
asserts that this Court, in a number of cases like in Rosario v. Court of Appeals,13 has taken
cognizance of an improper remedy in the interest of justice.
We agree that respondents neither acted in any judicial or quasi-judicial capacity nor arrogated
unto themselves any judicial or quasi-judicial prerogatives.
A respondent is said to be exercising judicial function where he has the power to determine
what the law is and what the legal rights of the parties are, and then undertakes to determine
these questions and adjudicate upon the rights of the parties.
Quasi-judicial function, on the other hand, is "a term which applies to the actions, discretion,
etc., of public administrative officers or bodies … required to investigate facts or ascertain the
existence of facts, hold hearings, and draw conclusions from them as a basis for their official
action and to exercise discretion of a judicial nature."
Before a tribunal, board, or officer may exercise judicial or quasi-judicial acts, it is necessary that
there be a law that gives rise to some specific rights of person s or property under which
adverse claims to such rights are made, and the controversy en suing therefrom is brought
before a tribunal, board, or officer clothed with power and authority to determine the law and
adjudicate the respective rights of the contending parties.14
For a writ of certiorari to issue, the following requisites must concur: (1) it must be directed
against a tribunal, board, or officer exercising judicial or quasi-judicial functions; (2) the tribunal,
board, or officer must have acted without or in excess of jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain,
speedy, and adequate remedy in the ordinary course of law. The enactment by the Quezon City
Council of the assailed ordinances was done in the exercise of its legislative, not judicial or quasi-
judicial, function. Under Republic Act (R.A.) No.7160, or the Local Government Code of 1991
(LGC), local legislative power shall be exercised by the Sangguniang Panlungsod for the
city.15Said law likewise is specific in providing that the power to impose a tax, fee, or charge , or
to generate revenue shall be exercised by the sanggunian of the local government unit
concerned through an appropriate ordinance.16
Also, although the instant petition is styled as a petition for certiorari, it essentially seeks to
declare the unconstitutionality and illegality of the questioned ordinances. It, thus, partakes of
the nature of a petition for declaratory relief, over which this Court has only appellate, not
original, jurisdiction.17
Despite these, a petition for declaratory relief may be treated as one for prohibition or
mandamus, over which we exercise original jurisdiction, in cases with far-reaching implications
or one which raises transcendental issues or questions that need to be resolved for the public
good.18The judicial policy is that this Court will entertain direct resort to it when the redress
sought cannot be obtained in the proper courts or when exceptional and compelling
circumstances warrant availment of a remedy within and calling for the exercise of Our primary
jurisdiction.19
Section 2, Rule 65 of the Rules of Court lay down under what circumstances a petition for
prohibition may be filed:
SEC. 2. Petition for prohibition. - When the proceedings of any tribunal, corporation, board,
officer or person, whether exercising judicial, quasi-judicial or ministerial functions, are without
or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or
excess of jurisdiction, and there is no appeal or any other plain, speedy, and adequate remedy in
the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper
court, alleging the facts with certainty and praying that judgment be rendered commanding the
respondent to desist from further proceeding in the action or matter specified therein, or
otherwise granting such incidental reliefs as law and justice may require.
In a petition for prohibition against any tribunal, corporation, board, or person – whether
exercising judicial, quasi-judicial, or ministerial functions – who has acted without or in excess of
jurisdiction or with grave abuse of discretion, the petitioner prays that judgment be rendered,
commanding the respondents to desist from further proceeding in the action or matter specified
in the petition. In this case, petitioner's primary intention is to prevent respondents from
implementing Ordinance Nos. SP-2095 and SP-2235. Obviously, the writ being sought is in the
nature of a prohibition, commanding desistance.
We consider that respondents City Mayor, City Treasurer, and City Assessor are performing
ministerial functions. A ministerial function is one that an officer or tribunal performs in the
context of a given set of facts, in a prescribed manner and without regard for the exercise of his
or its own judgment, upon the propriety or impropriety of the act done. 20 Respondent Mayor, as
chief executive of the city government, exercises such powers and performs such duties and
functions as provided for by the LGC and other laws. 21 Particularly, he has the duty to ensure
that all taxes and other revenues of the city are collected, and that city funds are applied to the
payment of expenses and settlement of obligations of the city, in accordance with law or
ordinance.22 On the other hand, under the LGC, all local taxes, fees, and charges shall be
collected by the provincial, city, municipal, or barangay treasurer, or their duly-authorized
deputies, while the assessor shall take charge, among others, of ensuring that all laws and
policies governing the appraisal and assessment of real properties for taxation purposes are
properly executed.23 Anent the SHT, the Department of Finance (DOF) Local Finance Circular No.
1-97, dated April 16, 1997, is more specific:
6.3 The Assessor’s office of the Identified LGU shall:
a. immediately undertake an inventory of lands within its jurisdiction
which shall be subject to the levy of the Social Housing Tax (SHT) by the
local sanggunian concerned;
b. inform the affected registered owners of the effectivity of the SHT; a
list of the lands and registered owners shall also be posted in 3
conspicuous places in the city/municipality;
c. furnish the Treasurer’s office and the local sanggunian concerned of
the list of lands affected;
6.4 The Treasurer’s office shall:
a. collect the Social Housing Tax on top of the Real Property Tax, SEF Tax
and other special assessments;
b. report to the DOF, thru the Bureau of Local Government Finance, and
the Mayor’s office the monthly collections on Social Housing Tax (SHT).
An annual report should likewise be submitted to the HUDCC on the
total revenues raised during the year pursuant to Sec. 43, R.A. 7279 and
the manner in which the same was disbursed.
Petitioner has adduced special and important reasons as to why direct recourse to us should be
allowed. Aside from presenting a novel question of law, this case calls for immediate resolution
since the challenged ordinances adversely affect the property interests of all paying constituents
of Quezon City. As well, this petition serves as a test case for the guidance of other local
government units (LGUs).Indeed, the petition at bar is of transcendental importance warranting
a relaxation of the doctrine of hierarchy of courts. In Social Justice Society (SJS) Officers, et al. v.
Lim ,24the Court cited the case of Senator Jaworski v. Phil. Amusement & Gaming Corp.,25 where
We ratiocinated:
Granting arguendo that the present action cannot be properly treated as a petition for
prohibition, the transcendental importance of the issues involved in this case warrants that we
set aside the technical defects and take primary jurisdiction over the petition at bar . x x x This is
in accordance with the well entrenched principle that rules of procedure are not inflexible tools
designed to hinder or delay, but to facilitate and promote the administration of justice. Their
strict and rigid application, which would result in technicalities that tend to frustrate, rather
than promote substantial justice, must always be eschewed.26
B. Locus Standi of Petitioner
Respondents challenge petitioner’s legal standing to file this case on the ground that, in relation
to Section 3 of Ordinance No. SP-2095, petitioner failed to allege his ownership of a property
that has an assessed value of more than Php100,000.00 and, with respect to Ordinance No. SP-
2335, by what standing or personality he filed the case to nullify the same. According to
respondents, the petition is not a class suit, and that, for not having specifically alleged that
petitioner filed the case as a taxpayer, it could only be surmised whether he is a party-in-interest
who stands to be directly benefited or injured by the judgment in this case.
It is a general rule that every action must be prosecuted or defended in the name of the real
party-in-interest, who stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit.
Jurisprudence defines interest as "material interest, an interest in issue and to be affected by
the decree, as distinguished from mere interest in the question involved, or a mere incidental
interest. By real interest is meant a present substantial interest, as distinguished from a mere
expectancy or a future, contingent, subordinate, or consequential interest." "To qualify a person
to be a real party-in-interest in whose name an action must be prosecuted, he must appear to
be the present real owner of the right sought to be enforced."27
"Legal standing" or locus standi calls for more than just a generalized grievance. 28 The concept
has been define d as a personal and substantial interest in the case such that the party has
sustained or will sustain direct injury as a result of the government al act that is being
challenged.29 The gist of the question of standing is whether a party alleges such personal stake
in the outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court depends for illumination of difficult constitutional
questions.30
A party challenging the constitutionality of a law, act, or statute must show "not only that the
law is invalid, but also that he has sustained or is in immediate, or imminent danger of
sustaining some direct injury as a result of its enforcement, and not merely that he suffers
thereby in some indefinite way." It must be shown that he has been, or is about to be, denied
some right or privilege to which he is lawfully entitled, or that he is about to be subjected to
some burdens or penalties by reason of the statute complained of.31
Tested by the foregoing, petitioner in this case clearly has legal standing to file the petition. He is
a real party-in-interest to assail the constitutionality and legality of Ordinance Nos. SP-2095 and
SP-2235 because respondents did not dispute that he is a registered co-owner of a residential
property in Quezon City an d that he paid property tax which already included the SHT and the
garbage fee. He has substantial right to seek a refund of the payments he made and to stop
future imposition. While he is a lone petitioner, his cause of action to declare the validity of the
subject ordinances is substantial and of paramount interest to similarly situated property
owners in Quezon City.
C. Litis Pendentia
Respondents move for the dismissal of this petition on the ground of litis pendentia. They claim
that, as early as February 22, 2012, a case entitled Alliance of Quezon City Homeowners, Inc., et
al., v. Hon. Herbert Bautista, et al. , docketed as Civil Case No. Q-12- 7-820, has been pending in
the Quezon City Regional Trial Court, Branch 104, which assails the legality of Ordinance No. SP-
2095. Relying on City of Makati, et al. v. Municipality (now City) of Taguig, et al., 32 respondents
assert that there is substantial identity of parties between the two cases because petitioner
herein and plaintiffs in the civil case filed their respective cases as taxpayers of Quezon City.
For petitioner, however, respondents’ contention is untenable since he is not a party in Alliance
and does not even have the remotest identity or association with the plaintiffs in said civil case.
Moreover, respondents’ arguments would deprive this Court of its jurisdiction to determine the
constitutionality of laws under Section 5, Article VIII of the 1987 Constitution.33
Litis pendentia is a Latin term which literally means "a pending suit" and is variously referred to
in some decisions as lis pendens and auter action pendant.34 While it is normally connected with
the control which the court has on a property involved in a suit during the continuance
proceedings, it is more interposed as a ground for the dismissal of a civil action pending in
court.35 In Film Development Council of the Philippines v. SM Prime Holdings, Inc.,36 We
elucidated:
Litis pendentia, as a ground for the dismissal of a civil action, refers to a situation where two
actions are pending between the same parties for the same cause of action, so that one of them
becomes unnecessary and vexatious. It is based on the policy against multiplicity of suit and
authorizes a court to dismiss a case motu proprio.
xxxx
The requisites in order that an action may be dismissed on the ground of litis pendentia are: (a)
the identity of parties, or at least such as representing the same interest in both actions; (b) the
identity of rights asserted and relief prayed for, the relief being founded on the same facts, and
(c) the identity of the two cases such that judgment in one, regardless of which party is
successful, would amount to res judicata in the other.
The underlying principle of litis pendentia is the theory that a party is not allowed to vex another
more than once regarding the same subject matter and for the same cause of action. This theory
is founded on the public policy that the same subject matter should not be the subject of
controversy in courts more than once, in order that possible conflicting judgments may be
avoided for the sake of the stability of the rights and status of persons, and also to avoid the
costs and expenses incident to numerous suits.
Among the several tests resorted to in ascertaining whether two suits relate to a single or
common cause of action are: (1) whether the same evidence would support and sustain both
the first and second causes of action; and (2) whether the defenses in one case may be used to
substantiate the complaint in the other.
The determination of whether there is an identity of causes of action for purposes of litis
pendentia is inextricably linked with that of res judicata , each constituting an element of the
other. In either case, both relate to the sound practice of including, in a single litigation, the
disposition of all issues relating to a cause of action that is before a court.37
There is substantial identity of the parties when there is a community of interest between a
party in the first case and a party in the second case albeit the latter was not impleaded in the
first case.38Moreover, the fact that the positions of the parties are reversed, i.e., the plaintiffs in
the first case are the defendants in the second case or vice-versa, does not negate the identity
of parties for purposes of determining whether the case is dismissible on the ground of litis
pendentia .39
In this case, it is notable that respondents failed to attach any pleading connected with the
alleged civil case pending before the Quezon City trial court.1âwphi1 Granting that there is
substantial identity of parties between said case and this petition, dismissal on the ground of
litis pendentia still cannot be had in view of the absence of the second and third requisites.
There is no way for us to determine whether both cases are based on the same set of facts that
require the presentation of the same evidence. Even if founded on the same set of facts, the
rights asserted and reliefs prayed for could be different. Moreover, there is no basis to rule that
the two cases are intimately related and/or intertwined with one another such that the
judgment that may be rendered in one, regardless of which party would be successful, would
amount to res judicata in the other.
D. Failure to Exhaust Administrative Remedies
Respondents contend that petitioner failed to exhaust administrative remedies for his non-
compliance with Section 187 of the LGC, which mandates:
Section 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures;
Mandatory Public Hearings. – The procedure for approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of this Code: Provided, That public hearings
shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any
question on the constitutionality or legality of tax ordinances or revenue measures may be
raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice
who shall render a decision within sixty (60) days from the date of receipt of the appeal:
Provided, however, That such appeal shall not have the effect of suspending the effectivity of
the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided,
finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day
period without the Secretary of Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction.
The provision, the constitutionality of which was sustained in Drilon v. Lim ,40 has been
construed as mandatory41 considering that – 
A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax
is the most effective instrument to raise needed revenues to finance and support the myriad
activities of local government units for the delivery of basic services essential to the promotion
of the general welfare and enhancement of peace, progress, and prosperity of the people.
Consequently, any delay in implementing tax measures would be to the detriment of the public.
It is for this reason that protests over tax ordinances are required to be done within certain time
frames. x x x.42
The obligatory nature of Section 187 was underscored in Hagonoy Market Vendor Asso. v.
Municipality of Hagonoy:43
x x x [T]he timeframe fixed by law fo r parties to avail of their legal remedies before competent
courts is not a "mere technicality" that can be easily brushed aside. The periods stated in Section
187 of the Local Government Code are mandatory. x x x Being its lifeblood, collection of
revenues by the government is of paramount importance. The funds for the operation of its
agencies and provision of basic services to its inhabitants are largely derived from its revenues
and collections. Thus, it is essential that the validity of revenue measures is not left uncertain for
a considerable length of time. Hence, the law provided a time limit for an aggrieved party to
assail the legality of revenue measures and tax ordinances."44
Despite these cases, the Court, in Ongsuco, et al. v. Hon. Malones,45held that there was no need
for petitioners therein to exhaust administrative remedies before resorting to the courts,
considering that there was only a pure question of law, the parties did not dispute any factual
matter on which they had to present evidence. Likewise, in Cagayan Electric Power and Light
Co., Inc. v. City of Cagayan de Oro,46 We relaxed the application of the rules in view of the more
substantive matters. For the same reasons, this petition is an exception to the general rule.
Substantive Issues
Petitioner asserts that the protection of real properties from informal settlers and the collection
of garbage are basic and essential duties and functions of the Quezon City Government. By
imposing the SHT and the garbage fee, the latter has shown a penchant and pattern to collect
taxes to pay for public services that could be covered by its revenues from taxes imposed on
property, idle land, business, transfer, amusement, etc., as well as the Internal Revenue
Allotment (IRA ) from the National Government. For petitioner, it is noteworthy that
respondents did not raise the issue that the Quezon City Government is in dire financial state
and desperately needs money to fund housing for informal settlers and to pay for garbage
collection. In fact, it has not denied that its revenue collection in 2012 is in the sum of ₱13.69
billion.
Moreover, the imposition of the SHT and the garbage fee cannot be justified by the Quezon City
Government as an exercise of its power to create sources of income under Section 5, Article X of
the 1987 Constitution.47 According to petitioner, the constitutional provision is not a carte
blanche for the LGU to tax everything under its territorial and political jurisdiction as the
provision itself admits of guidelines and limitations.
Petitioner further claims that the annual property tax is an ad valorem tax, a percentage of the
assessed value of the property, which is subject to revision every three (3) years in order to
reflect an increase in the market value of the property. The SHT and the garbage fee are actually
increases in the property tax which are not based on the assessed value of the property or its
reassessment every three years; hence, in violation of Sections 232 and 233 of the LGC.48
For their part, respondents relied on the presumption in favor of the constitutionality of
Ordinance Nos. SP-2095 and SP-2235, invoking Victorias Milling Co., Inc. v. Municipality of
Victorias, etc.,49 People v. Siton, et al.,50 and Hon. Ermita v. Hon. Aldecoa-Delorino .51 They argue
that the burden of establishing the invalidity of an ordinance rests heavily upon the party
challenging its constitutionality. They insist that the questioned ordinances are proper exercises
of police power similar to Telecom. & Broadcast Attys. of the Phils., Inc. v. COMELEC52 and
Social Justice Society (SJS), et al. v. Hon. Atienza, Jr. 53 and that their enactment finds basis in the
social justice principle enshrined in Section 9,54 Article II of the 1987 Constitution.
As to the issue of publication, respondents argue that where the law provides for its own
effectivity, publication in the Official Gazette is not necessary so long as it is not punitive in
character, citing Balbuna, et al. v. Hon. Secretary of Education, et al.55 and Askay v. Cosalan .[56]]
Thus, Ordinance No. SP-2095 took effect after its publication, while Ordinance No. SP-2235
became effective after its approval on December 26, 2013.
Additionally, the parties articulate the following positions:
On the Socialized Housing Tax
Respondents emphasize that the SHT is pursuant to the social justice principle found in Sections
1 and 2, Article XIII57 of the 1987 Constitution and Sections 2 (a)58 and 4359 of R.A. No. 7279, or
the "Urban Development and Housing Act of 1992 ( UDHA ).
Relying on Manila Race Horse Trainers Assn., Inc. v. De La Fuente,60and Victorias Milling Co., Inc.
v. Municipality of Victorias, etc.,61respondents assert that Ordinance No. SP-2095 applies equally
to all real property owners without discrimination. There is no way that the ordinance could
violate the equal protection clause because real property owners and informal settlers do not
belong to the same class.
Ordinance No. SP-2095 is also not oppressive since the tax rate being imposed is consistent with
the UDHA. While the law authorizes LGUs to collect SHT on properties with an assessed value of
more than ₱50,000.00, the questioned ordinance only covers properties with an assessed value
exceeding ₱100,000.00. As well, the ordinance provides for a tax credit equivalent to the total
amount of the special assessment paid by the property owner beginning in the sixth (6th) year
of the effectivity of the ordinance.
On the contrary, petitioner claims that the collection of the SHT is tantamount to a penalty
imposed on real property owners due to the failure of respondent Quezon City Mayor and
Council to perform their duty to secure and protect real property owners from informal settlers,
thereby burdening them with the expenses to provide funds for housing. For petitioner, the SHT
cannot be viewed as a "charity" from real property owners since it is forced, not voluntary.
Also, petitioner argues that the collection of the SHT is a kind of class legislation that violates the
right of property owners to equal protection of the laws since it favors informal settlers who
occupy property not their own and pay no taxes over law-abiding real property owners w ho pay
income and realty taxes.
Petitioner further contends that respondents’ characterization of the SHT as "nothing more than
an advance payment on the real property tax" has no statutory basis. Allegedly, property tax
cannot be collected before it is due because, under the LGC, chartered cities are authorized to
impose property tax based on the assessed value and the general revision of assessment that is
made every three (3) years.
As to the rationale of SHT stated in Ordinance No. SP-2095, which, in turn, was based on Section
43 of the UDHA, petitioner asserts that there is no specific provision in the 1987 Constitution
stating that the ownership and enjoyment of property bear a social function. And even if there
is, it is seriously doubtful and far-fetched that the principle means that property owners should
provide funds for the housing of informal settlers and for home site development. Social justice
and police power, petitioner believes, does not mean imposing a tax on one, or that one has to
give up something, for the benefit of another. At best, the principle that property ownership and
enjoyment bear a social function is but a reiteration of the Civil Law principle that property
should not be enjoyed and abused to the injury of other properties and the community, and
that the use of the property may be restricted by police power, the exercise of which is not
involved in this case.
Finally, petitioner alleges that 6 Bistekvilles will be constructed out of the SHT collected. Bistek is
the monicker of respondent City Mayor. The Bistekvilles makes it clear, therefore, that
politicians will take the credit for the tax imposed on real property owners.
On the Garbage Fee
Respondents claim that Ordinance No. S-2235, which is an exercise of police power, collects on
the average from every household a garbage fee in the meager amount of thirty-three (33)
centavos per day compared with the sum of ₱1,659.83 that the Quezon City Government
annually spends for every household for garbage collection and waste management.62
In addition, there is no double taxation because the ordinance involves a fee. Even assuming
that the garbage fee is a tax, the same cannot be a direct duplicate tax as it is imposed on a
different subject matter and is of a different kind or character. Based on Villanueva, et al. v. City
of Iloilo63 and Victorias Milling Co., Inc. v. Municipality of Victorias, etc., 64 there is no "taxing
twice" because the real property tax is imposed on ownership based on its assessed value, while
the garbage fee is required on the domestic household. The only reference to the property is the
determination of the applicable rate and the facility of collection.
Petitioner argues, however, that Ordinance No. S-2235 cannot be justified as an exercise of
police power. The cases of Calalang v. Williams,65 Patalinghug v. Court of Appeals,66 and Social
Justice Society (SJS), et al. v. Hon. Atienza, Jr.,67 which were cited by respondents, are
inapplicable since the assailed ordinance is a revenue measure and does not regulate the
disposal or other aspect of garbage.
The subject ordinance, for petitioner, is discriminatory as it collects garbage fee only from
domestic households and not from restaurants, food courts, fast food chains, and other
commercial dining places that spew garbage much more than residential property owners.
Petitioner likewise contends that the imposition of garbage fee is tantamount to double taxation
because garbage collection is a basic and essential public service that should be paid out from
property tax, business tax, transfer tax, amusement tax, community tax certificate, other taxes,
and the IRA of the Quezon City Government. To bolster the claim, he states that the revenue
collection of the Quezon City Government reached Php13.69 billion in 2012. A small portion of
said amount could be spent for garbage collection and other essential services.
It is further noted that the Quezon City Government already collects garbage fee under Section
4768 of R.A. No. 9003, or the Ecological Solid Waste Management Act of 2000, which authorizes
LGUs to impose fees in amounts sufficient to pay the costs of preparing, adopting, and
implementing a solid waste management plan, and that LGUs have access to the Solid Waste
Management (SWM) Fund created under Section 4669 of the same law. Also, according to
petitioner, it is evident that Ordinance No. S2235 is inconsistent with R.A. No. 9003 for whil e
the law encourages segregation, composting, and recycling of waste, the ordinance only
emphasizes the collection and payment of garbage fee; while the law calls for an active
involvement of the barangay in the collection, segregation, and recycling of garbage, the
ordinance skips such mandate. Lastly, in challenging the ordinance, petitioner avers that the
garbage fee was collected even if the required publication of its approval had not yet elapsed.
He notes that on January 7, 2014, he paid his realty tax which already included the garbage fee.
The Court's Ruling
Respondents correctly argued that an ordinance, as in every law, is presumed valid.
An ordinance carries with it the presumption of validity. The question of reasonableness though
is open to judicial inquiry. Much should be left thus to the discretion of municipal authorities.
Courts will go slow in writing off an ordinance as unreasonable unless the amount is so excessive
as to be prohibitive, arbitrary, unreasonable, oppressive, or confiscatory. A rule which has
gained acceptance is that factors relevant to such an inquiry are the municipal conditions as a
whole and the nature of the business made subject to imposition.70
For an ordinance to be valid though, it must not only be within the corporate powers of the LGU
to enact and must be passed according to the procedure prescribed by law, it should also
conform to the following requirements: (1) not contrary to the Constitution or any statute; (2)
not unfair or oppressive; (3) not partial or discriminatory; (4) not prohibit but may regulate
trade; (5) general and consistent with public policy; and (6) not unreasonable. 71 As jurisprudence
indicates, the tests are divided into the formal (i.e., whether the ordinance was enacted within
the corporate powers of the LGU and whether it was passed in accordance with the procedure
prescribed by law), and the substantive ( i.e., involving inherent merit, like the conformity of the
ordinance with the limitations under the Constitution and the statutes, as well as with the
requirements of fairness and reason, and its consistency with public policy).72
An ordinance must pass muster under the test of constitutionality and the test of consistency
with the prevailing laws.73 If not, it is void.74
Ordinance should uphold the principle of the supremacy of the Constitution.75 As to conformity
with existing statutes,
Batangas CATV, Inc. v. Court of Appeals76 has this to say:
It is a fundamental principle that municipal ordinances are inferior in status and subordinate to
the laws of the state. An ordinance in conflict with a state law of general character and
statewide application is universally held to be invalid. The principle is frequently expressed in
the declaration that municipal authorities, under a general grant of power, cannot adopt
ordinances which infringe the spirit of a state law or repugnant to the general policy of the
state. In every power to pass ordinances given to a municipality, there is an implied restriction
that the ordinances shall be consistent with the general law. In the language of Justice Isagani
Cruz (ret.), this Court, in Magtajas vs. Pryce Properties Corp., Inc., ruled that:
The rationale of the requirement that the ordinances should not contravene a statute is
obvious. Municipal governments are only agents of the national government. Local councils
exercise only delegated legislative powers conferred on them by Congress as the national
lawmaking body. The delegate cannot be superior to the principal or exercise powers higher
than those of the latter. It is a heresy to suggest that the local government units can undo the
acts of Congress, from which they have derived their power in the first place, and negate by
mere ordinance the mandate of the statute.
Municipal corporations owe their origin to, and derive their powers and rights wholly from the
legislature. It breathes into them the breath of life, without which they cannot exist. As it
creates, so it may destroy. As it may destroy, it may abridge and control. Unless there is some
constitutional limitation on the right, the legislature might, by a single act, and if we can suppose
it capable of so great a folly and so great a wrong, sweep from existence all of the municipal
corporations in the State, and the corporation could not prevent it. We know of no limitation on
the right so far as to the corporation themselves are concerned. They are so to phrase it, the
mere tenants at will of the legislature.
This basic relationship between the national legislature and the local government units has not
been enfeebled by the new provisions in the Constitution strengthening the policy of local
autonomy. Without meaning to detract from that policy, we here confirm that Congress retains
control of the local government units although in significantly reduced degree now than under
our previous Constitutions. The power to create still includes the power to destroy. The power
to grant still includes the power to withhold or recall. True, there are certain notable
innovations in the Constitution, like the direct conferment on the local government units of the
power to tax, which cannot now be withdrawn by mere statute. By and large, however, the
national legislature is still the principal of the local government units, which cannot defy its will
or modify or violate it.77
LGUs must be reminded that they merely form part of the whole; that the policy of ensuring the
autonomy of local governments was never intended by the drafters of the 1987 Constitution to
create an imperium in imperio and install an intra-sovereign political subdivision independent of
a single sovereign state.78
"[M]unicipal corporations are bodies politic and corporate, created not only as local units of
local self-government, but as governmental agencies of the state. The legislature, by
establishing a municipal corporation, does not divest the State of any of its sovereignty; absolve
itself from its right and duty to administer the public affairs of the entire state; or divest itself of
any power over the inhabitants of the district which it possesses before the charter was
granted."79
LGUs are able to legislate only by virtue of a valid delegation of legislative power from the
national legislature; they are mere agents vested with what is called the power of subordinate
legislation.80 "Congress enacted the LGC as the implementing law for the delegation to the
various LGUs of the State’s great powers, namely: the police power, the power of eminent
domain, and the power of taxation. The LGC was fashioned to delineate the specific parameters
and limitations to be complied with by each LGU in the exercise of these delegated powers with
the view of making each LGU a fully functioning subdivision of the State subject to the
constitutional and statutory limitations."81
Specifically, with regard to the power of taxation, it is indubitably the most effective instrument
to raise needed revenues in financing and supporting myriad activities of the LGUs for the
delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.82 As this Court opined in
National Power Corp. v. City of Cabanatuan:83
In recent years, the increasing social challenges of the times expanded the scope of state
activity, and taxation has become a tool to realize social justice and the equitable distribution of
wealth, economic progress and the protection of local industries as well as public welfare and
similar objectives. Taxation assume s even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant
to Article X, Section 5 of the 1987 Constitution, viz: "Section 5. Each Local Government unit shall
have the power to create its own sources of revenue, to levy taxes, fees and charges subject to
such guidelines and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees and charges shall accrue exclusively to the local governments."
This paradigm shift results from the realization that genuine development can be achieved only
by strengthening local autonomy and promoting decentralization of governance. For a long
time, the country’s highly centralized government structure has bred a culture of dependence
among local government leaders upon the national leadership. It has also "dampened the spirit
of initiative, innovation and imaginative resilience in matters of local development on the part of
local government leaders." The only way to shatter this culture of dependence is to give the
LGUs a wider role in the delivery of basic services, and confer them sufficient powers to
generate their own sources for the purpose. To achieve this goal, Section 3 of Article X of the
1987 Constitution mandates Congress to enact a local government code that will, consistent
with the basic policy of local autonomy , set the guidelines and limitations to this grant of taxing
powers x x x84
Fairly recently, We also stated in Pelizloy Realty Corporation v. Province of Benguet85 that:
The rule governing the taxing power of provinces, cities, municipalities and barangays is
summarized in Icard v. City Council of Baguio :
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent
power of taxation. The charter or statute must plainly show an intent to confer that power or
the municipality, cannot assume it. And the power when granted is to be construed in
strictissimi juris . Any doubt or ambiguity arising out of the term used in granting that power
must be resolved against the municipality. Inferences, implications, deductions – all these –
have no place in the interpretation of the taxing power of a municipal corporation.
[Underscoring supplied]
xxxx
Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees
and other charges." Nevertheless, such authority is "subject to such guidelines and limitations as
the Congress may provide."
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act
No. 7160, otherwise known as the Local Government Code of 1991. Book II of the LGC governs
local taxation and fiscal matters.86
Indeed, LGUs have no inherent power to tax except to the extent that such power might be
delegated to them either by the basic law or by the statute.87 "Under the now prevailing
Constitution , where there is neither a grant nor a prohibition by statute , the tax power must be
deemed to exist although Congress may provide statutory limitations and guidelines. The basic
rationale for the current rule is to safeguard the viability and self-sufficiency of local government
units by directly granting them general and broad tax powers. Nevertheless, the fundamental
law did not intend the delegation to be absolute and unconditional; the constitutional objective
obviously is to ensure that, while the local government units are being strengthened and made
more autonomous , the legislature must still see to it that (a) the taxpayer will not be over-
burdened or saddled with multiple and unreasonable impositions; (b) each local government
unit will have its fair share of available resources; (c) the resources of the national government
will not be unduly disturbed; and (d) local taxation will be fair, uniform, and just."88
Subject to the provisions of the LGC and consistent with the basic policy of local autonomy,
every LGU is now empowered and authorized to create its own sources of revenue and to levy
taxes, fees, and charges which shall accrue exclusively to the local government unit as well as to
apply its resources and assets for productive, developmental, or welfare purposes, in the
exercise or furtherance of their governmental or proprietary powers and functions. 89 The
relevant provisions of the LGC which establish the parameters of the taxing power of the LGUs
are as follows:
SECTION 130. Fundamental Principles. – The following fundamental principles shall govern th e
exercise of the taxing and other revenue-raising powers of local government units:
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer’s ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or in restraint
of trade;
(c) The collection of local taxes, fees, charges and other impositions shall in no case be
left to any private person;
 (d) The revenue collected pursuant to the provisions of this Code shall inure solely to
the benefit of, and be subject to the disposition by, the local government unit levying
the tax, fee, charge or other imposition unless otherwise specifically provided herein;
and,
(e) Each local government unit shall, as far as practicable, evolve a progressive system of
taxation.
SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa,
except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharage on wharves, tonnage dues,
and all other kinds of customs fees, charges and dues except wharfage on wharves
constructed and maintained by the local government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or
passing through, the territorial jurisdictions of local government units in the guise of
charges for wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in
any form whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or
non-pioneer for a period of six (6) and four (4) years, respectively from the date of
registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or
water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as
otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine
hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the
Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.
SECTION 151. Scope of Taxing Powers. – Except as otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes.
SECTION 186. Power to Levy Other Taxes, Fees or Charges. – Local government units may
exercise the power to levy taxes, fees or charges on any base or subject not otherwise
specifically enumerated herein or taxed under the provisions of the National Internal Revenue
Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall not
be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: Provided,
further, That the ordinance levying such taxes, fees or charges shall not be enacted without any
prior public hearing conducted for the purpose.
On the Socialized Housing Tax
Contrary to petitioner’s submission, the 1987 Constitution explicitly espouses the view that the
use of property bears a social function and that all economic agents shall contribute to the
common good.90 The Court already recognized this in Social Justice Society (SJS), et al. v. Hon.
Atienza, Jr.:91
Property has not only an individual function, insofar as it has to provide for the needs of the
owner, but also a social function insofar as it has to provide for the needs of the other members
of society. The principle is this:
Police power proceeds from the principle that every holder of property, however absolute and
unqualified may be his title, holds it under the implied liability that his use of it shall not be
injurious to the equal enjoyment of others having an equal right to the enjoyment of their
property, no r injurious to the right of the community. Rights of property, like all other social
and conventional rights, are subject to reasonable limitations in their enjoyment as shall prevent
them from being injurious, and to such reasonable restraints and regulations established by law
as the legislature, under the governing an d controlling power vested in them by the
constitution, may think necessary and expedient.92
Police power, which flows from the recognition that salus populi est suprema lex (the welfare of
the people is the supreme law), is the plenary power vested in the legislature to make statutes
and ordinances to promote the health, morals, peace, education, good order or safety and
general welfare of the people.93 Property rights of individuals may be subjected to restraints and
burdens in order to fulfill the objectives of the government in the exercise of police power. 94 In
this jurisdiction, it is well-entrenched that taxation may be made the implement of the state’s
police power.95
Ordinance No. SP-2095 imposes a Socialized Housing Tax equivalent to 0.5% on the assessed
value of land in excess of Php100,000.00. This special assessment is the same tax referred to in
R.A. No. 7279 or the UDHA.96 The SHT is one of the sources of funds for urban development and
housing program.97 Section 43 of the law provides:
Sec. 43. Socialized Housing Tax . – Consistent with the constitutional principle that the
ownership and enjoyment of property bear a social function and to raise funds for the Program,
all local government units are hereby authorized to impose an additional one-half percent
(0.5%) tax on the assessed value of all lands in urban areas in excess of Fifty thousand pesos
(₱50,000.00).
The rationale of the SHT is found in the preambular clauses of the subject ordinance, to wit:
WHEREAS, the imposition of additional tax is intended to provide the City Government with
sufficient funds to initiate, implement and undertake Socialized Housing Projects and other
related preliminary activities;
WHEREAS, the imposition of 0.5% tax will benefit the Socialized Housing Programs and Projects
of the City Government, specifically the marginalized sector through the acquisition of
properties for human settlements;
WHEREAS, the removal of the urban blight will definitely increase fair market value of properties
in the city[.]
The above-quoted are consistent with the UDHA, which the LGUs are charged to implement in
their respective localities in coordination with the Housing and Urban Development
Coordinating Council, the national housing agencies, the Presidential Commission for the Urban
Poor, the private sector, and other non-government organizations.98 It is the declared policy of
the State to undertake a comprehensive and continuing urban development and housing
program that shall, among others, uplift the conditions of the underprivileged and homeless
citizens in urban areas and in resettlement areas, and provide for the rational use and
development of urban land in order to bring a bout, among others, reduction in urban
dysfunctions, particularly those that adversely affect public health, safety and ecology, and
access to land and housing by the underprivileged and homeless citizens. 99 Urban renewal and
resettlement shall include the rehabilitation and development of blighted and slum areas100 and
the resettlement of program beneficiaries in accordance with the provisions of the
UDHA.101 Under the UDHA, socialized housing102 shall be the primary strategy in providing shelter
for the underprivileged and homeless.103 The LGU or the NHA, in cooperation with the private
developers and concerned agencies, shall provide socialized housing or re settlement areas with
basic services and facilities such as potable water, power and electricity, and an adequate power
distribution system, sewerage facilities, and an efficient and adequate solid waste disposal
system; and access to primary roads and transportation facilities.104 The provisions for health,
education, communications, security, recreation, relief and welfare shall also be planned and be
given priority for implementation by the LGU and concerned agencies in cooperation with the
private sector and the beneficiaries themselves.105
Moreover, within two years from the effectivity of the UDHA, the LGUs, in coordination with the
NHA, are directed to implement the relocation and resettlement of persons living in danger
areas such as esteros , railroad tracks, garbage dumps, riverbanks, shorelines, waterways, and
other public places like sidewalks, roads, parks, and playgrounds. 106 In coordination with the
NHA, the LG Us shall provide relocation or resettlement sites with basic services and facilities
and access to employment and livelihood opportunities sufficient to meet the basic needs of the
affected families.107
Clearly, the SHT charged by the Quezon City Government is a tax which is within its power to
impose. Aside from the specific authority vested by Section 43 of the UDHA, cities are allowed to
exercise such other powers and discharge such other functions and responsibilities as are
necessary, appropriate, or incidental to efficient and effective provision of the basic services and
facilities which include, among others, programs and projects for low-cost housing and other
mass dwellings.108 The collections made accrue to its socialized housing programs and projects.
The tax is not a pure exercise of taxing power or merely to raise revenue; it is levied with a
regulatory purpose. The levy is primarily in the exercise of the police power for the general
welfare of the entire city. It is greatly imbued with public interest. Removing slum areas in
Quezon City is not only beneficial to the underprivileged and homeless constituents but
advantageous to the real property owners as well. The situation will improve the value of the
their property investments, fully enjoying the same in view of an orderly, secure, and safe
community, and will enhance the quality of life of the poor, making them law-abiding
constituents and better consumers of business products.
Though broad and far-reaching, police power is subordinate to constitutional limitations and is
subject to the requirement that its exercise must be reasonable and for the public good.109 In the
words of City of Manila v. Hon. Laguio, Jr.:110
The police power granted to local government units must always be exercised with utmost
observance of the rights of the people to due process and equal protection of the law. Such
power cannot be exercised whimsically, arbitrarily or despotically as its exercise is subject to a
qualification, limitation or restriction demanded by the respect and regard due to the
prescription of the fundamental law, particularly those forming part of the Bill of Rights.
Individual rights, it bears emphasis, may be adversely affected only to the extent that may fairly
be required by the legitimate demands of public interest or public welfare. Due process requires
the intrinsic validity of the law in interfering with the rights of the person to his life, liberty and
property.
xxxx
To successfully invoke the exercise of police power as the rationale for the enactment of the
Ordinance, and to free it from the imputation of constitutional infirmity, not only must it appear
that the interests of the public generally, as distinguished from those of a particular class,
require an interference with private rights, but the means adopted must be reasonably
necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. It
must be evident that no other alternative for the accomplishment of the purpose less intrusive
of private rights can work. A reasonable relation must exist between the purposes of the police
measure and the means employed for its accomplishment, for even under the guise of
protecting the public interest, personal rights and those pertaining to private property will not
be permitted to be arbitrarily invaded.
Lacking a concurrence of these two requisites, the police measure shall be struck down as an
arbitrary intrusion into private rights – a violation of the due process clause.111
As with the State, LGUs may be considered as having properly exercised their police power only
if there is a lawful subject and a lawful method or, to be precise, if the following requisites are
met: (1) the interests of the public generally, as distinguished from those of a particular class,
require its exercise and (2) the mean s employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon individuals.112
In this case, petitioner argues that the SHT is a penalty imposed on real property owners
because it burdens them with expenses to provide funds for the housing of informal settlers,
and that it is a class legislation since it favors the latter who occupy properties which is not their
own and pay no taxes.
We disagree.
Equal protection requires that all persons or things similarly situated should be treated alike,
both as to rights conferred and responsibilities imposed.113 The guarantee means that no person
or class of persons shall be denied the same protection of laws which is enjoyed by other
persons or other classes in like circumstances.114 Similar subjects should not be treated
differently so as to give undue favor to some and unjustly discriminate against others.115 The law
may, therefore, treat and regulate one class differently from another class provided there are
real and substantial differences to distinguish one class from another.116
An ordinance based on reasonable classification does not violate the constitutional guaranty of
the equal protection of the law. The requirements for a valid and reasonable classification are:
(1) it must rest on substantial distinctions; (2) it must be germane to the purpose of the law; (3)
it must not be limited to existing conditions only; and (4) it must apply equally to all members of
the same class.117For the purpose of undertaking a comprehensive and continuing urban
development and housing program, the disparities between a real property owner and an
informal settler as two distinct classes are too obvious and need not be discussed at length. The
differentiation conforms to the practical dictates of justice and equity and is not discriminatory
within the meaning of the Constitution. Notably, the public purpose of a tax may legally exist
even if the motive which impelled the legislature to impose the tax was to favor one over
another.118 It is inherent in the power to tax that a State is free to select the subjects of
taxation.119Inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation.120
Further, the reasonableness of Ordinance No. SP-2095 cannot be disputed. It is not confiscatory
or oppressive since the tax being imposed therein is below what the UDHA actually allows. As
pointed out by respondents, while the law authorizes LGUs to collect SHT on lands with an
assessed value of more than ₱50,000.00, the questioned ordinance only covers lands with an
assessed value exceeding ₱100,000.00. Even better, on certain conditions, the ordinance grants
a tax credit equivalent to the total amount of the special assessment paid beginning in the sixth
(6th) year of its effectivity. Far from being obnoxious, the provisions of the subject ordinance are
fair and just.
On the Garbage Fee
In the United States of America, it has been held that the authority of a municipality to regulate
garbage falls within its police power to protect public health, safety, and welfare. 121 As opined,
the purposes and policy underpinnings of the police power to regulate the collection and
disposal of solid waste are: (1) to preserve and protect the public health and welfare as well as
the environment by minimizing or eliminating a source of disease and preventing and abating
nuisances; and (2) to defray costs and ensure financial stability of the system for the benefit of
the entire community, with the sum of all charges marshalled and designed to pay for the
expense of a systemic refuse disposal scheme.122
Ordinances regulating waste removal carry a strong presumption of
validity.123 Not surprisingly, the overwhelming majority of U.S. cases addressing a city's authority
to impose mandatory garbage service and fees have upheld the ordinances against
constitutional and statutory challenges.124
A municipality has an affirmative duty to supervise and control the collection of garbage within
its corporate limits.125The LGC specifically assigns the responsibility of regulation and oversight
of solid waste to local governing bodies because the Legislature determined that such bodies
were in the best position to develop efficient waste management programs.126 To impose on
local governments the responsibility to regulate solid waste but not grant them the authority
necessary to fulfill the same would lead to an absurd result."127 As held in one U.S. case:
x x x When a municipality has general authority to regulate a particular subject matter, the
manner and means of exercising those powers, where not specifically prescribed by the
legislature, are left to the discretion of the municipal authorities. x x x Leaving the manner of
exercising municipal powers to the discretion of municipal authorities "implies a range of
reasonableness within which a municipality's exercise of discretion will not be interfered with or
upset by the judiciary."128
In this jurisdiction, pursuant to Section 16 of the LGC and in the proper exercise of its corporate
powers under Section 22 of the same, the Sangguniang Panlungsod of Quezon City, like other
local legislative bodies, is empowered to enact ordinances, approve resolutions, and appropriate
funds for the genera l welfare of the city and its inhabitants.129Section 16 of the LGC provides:
SECTION 16. General Welfare . – Every local government unit shall exercise the powers expressly
granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or
incidental for its efficient and effective governance, and those which are essential to the
promotion of the general welfare. Within their respective territorial jurisdictions, local
government units shall ensure and support, among other things, the preservation and
enrichment of culture, promote health and safety, enhance the right of the people to a balanced
ecology, encourage and support the development of appropriate and self-reliant scientific and
technological capabilities, improve public morals, enhance economic prosperity and social
justice, promote full employment among their residents, maintain peace and order, and
preserve the comfort and convenience of their inhabitants.
The general welfare clause is the delegation in statutory form of the police power of the State to
LGUs.130 The provisions related thereto are liberally interpreted to give more powers to LGUs in
accelerating economic development and upgrading the quality of life for the people in the
community.131 Wide discretion is vested on the legislative authority to determine not only what
the interests of the public require but also what measures are necessary for the protection of
such interests since the Sanggunian is in the best position to determine the needs of its
constituents.132
One of the operative principles of decentralization is that, subject to the provisions of the LGC
and national policies, the LGUs shall share with the national government the responsibility in the
management and maintenance of ecological balance within their territorial jurisdiction.133 In this
regard, cities are allowed to exercise such other powers and discharge such other functions and
responsibilities as are necessary, appropriate, or incidental to efficient and effective provision of
the basic services and facilities which include, among others, solid waste disposal system or
environmental management system and services or facilities related to general hygiene and
sanitation.134R.A. No. 9003, or the Ecological Solid Waste Management Act of 2000,135 affirms
this authority as it expresses that the LGUs shall be primarily responsible for the implementation
and enforcement of its provisions within their respective jurisdictions while establishing a
cooperative effort among the national government, other local government units, non-
government organizations, and the private sector.136
Necessarily, LGUs are statutorily sanctioned to impose and collect such reasonable fees and
charges for services rendered.137 "Charges" refer to pecuniary liability, as rents or fees against
persons or property, while "Fee" means a charge fixed by law or ordinance for the regulation or
inspection of a business or activity.138
The fee imposed for garbage collections under Ordinance No. SP-2235 is a charge fixed for the
regulation of an activity. The basis for this could be discerned from the foreword of said
Ordinance, to wit:
WHEREAS, Quezon City being the largest and premiere city in the Philippines in terms of
population and urban geographical areas, apart from being competent and efficient in the
delivery of public service, apparently requires a big budgetary allocation in order to address the
problems relative and connected to the prompt and efficient delivery of basic services such as
the effective system of waste management, public information programs on proper garb age
and proper waste disposal, including the imposition of waste regulatory measures;
WHEREAS, to help augment the funds to be spent for the city’s waste management system, the
City Government through the Sangguniang Panlungsod deems it necessary to impose a schedule
of reasonable fees or charges for the garbage collection services for residential (domestic
household) that it renders to the public.
Certainly, as opposed to petitioner’s opinion, the garbage fee is not a tax. In Smart
Communications, Inc. v. Municipality of Malvar, Batangas ,139the Court had the occasion to
distinguish these two concepts:
In Progressive Development Corporation v. Quezon City, the Court declared that "if the
generating 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 incidentally revenue is also
obtained does not make the imposition a tax."
In Victorias Milling Co., Inc. v. Municipality of Victorias, the Court reiterated that the purpose
and effect of the imposition determine whether it is a tax or a fee, and that the lack of any
standards for such imposition gives the presumption that the same is a tax.
We accordingly say that the designation given by the municipal authorities does not decide
whether the imposition is properly a license tax or a license fee.1awp++i1 The determining
factors are the purpose and effect of the imposition as may be apparent from the provisions of
the ordinance. Thus, "[w]hen no police inspection, supervision, or regulation is provided, nor
any standard set for the applicant to establish, or that he agrees to attain or maintain, but any
and all persons engaged in the business designated, without qualification or hindrance, may
come, and a license on payment of the stipulated sum will issue, to do business, subject to no
prescribed rule of conduct and under no guardian eye, but according to the unrestrained
judgment or fancy of the applicant and licensee, the presumption is strong that the power of
taxation, and not the police power, is being exercised."
In Georgia, U.S.A., assessments for garbage collection services have been consistently treated as
a fee and not a tax.140
In another U.S. case,141 the garbage fee was considered as a "service charge" rather than a tax as
it was actually a fee for a service given by the city which had previously been provided at no cost
to its citizens.
Hence, not being a tax, the contention that the garbage fee under Ordinance No. SP-2235
violates the rule on double taxation142 must necessarily fail.
Nonetheless, although a special charge, tax, or assessment may be imposed by a municipal
corporation, it must be reasonably commensurate to the cost of providing the garbage
service.143 To pass judicial scrutiny, a regulatory fee must not produce revenue in excess of the
cost of the regulation because such fee will be construed as an illegal tax when the revenue
generated by the regulation exceeds the cost of the regulation.144
Petitioner argues that the Quezon City Government already collects garbage fee under Section
47 of R.A. No. 9003, which authorizes LGUs to impose fees in amounts sufficient to pay the costs
of preparing, adopting, and implementing a solid waste management plan, and that it has access
to the SWM Fund under Section 46 of the same law. Moreover, Ordinance No. S-2235 is
inconsistent with R.A. No. 9003, because the ordinance emphasizes the collection and payment
of garbage fee with no concern for segregation, composting and recycling of wastes. It also skips
the mandate of the law calling for the active involvement of the barangay in the collection,
segregation, and recycling of garbage.
We now turn to the pertinent provisions of R.A. No. 9003.
Under R.A. No. 9003, it is the declared policy of the State to adopt a systematic, comprehensive
and ecological solid waste management program which shall, among others, ensure the proper
segregation, collection, transport, storage, treatment and disposal of solid waste through the
formulation and adoption of the best environmental practices in ecological waste
management.145 The law provides that segregation and collection of solid waste shall be
conducted at the barangay level, specifically for biodegradable, compostable and reusable
wastes, while the collection of non-recyclable materials and special wastes shall be the
responsibility of the municipality or city.146Mandatory segregation of solid wastes shall primarily
be conducted at the source, to include household, institutional, industrial, commercial and
agricultural sources.147 Segregation at source refers to a solid waste management practice of
separating, at the point of origin, different materials found in soli d waste in order to promote
recycling and re-use of resources and to reduce the volume of waste for collection and
disposal.148 Based on Rule XVII of the Department of Environment and Natural Resources (DENR)
Administrative Order No. 2001-34, Series of 2001,149which is the Implementing Rules and
Regulations ( IRR ) of R.A. No. 9003, barangays shall be responsible for the collection,
segregation, and recycling of biodegradable, recyclable , compostable and reusable wastes.150
For the purpose, a Materials Recovery Facility (MRF), which shall receive biodegradable wastes
for composting and mixed non-biodegradable wastes for final segregation, re-use and recycling,
is to be established in every barangay or cluster of barangays.151
According to R.A. 9003, an LGU, through its local solid waste management board, is mandated
by law to prepare a 10-year solid waste management plan consistent with the National Solid
Waste Management Framework.152 The plan shall be for the re-use, recycling and composting of
wastes generated in its jurisdiction; ensure the efficient management of solid waste generated
within its jurisdiction; and place primary emphasis on implementation of all feasible re-use,
recycling, and composting programs while identifying the amount of landfill and transformation
capacity that will be needed for solid waste which cannot be re-used, recycled, or
composted.153 One of the components of the so lid waste management plan is source reduction:
(e) Source reduction – The source reduction component shall include a program and
implementation schedule which shows the methods by which the LGU will, in combination with
the recycling and composting components, reduce a sufficient amount of solid waste disposed
of in accordance with the diversion requirements of Section 20.
The source reduction component shall describe the following:
(1) strategies in reducing the volume of solid waste generated at source;
(2) measures for implementing such strategies and the resources necessary to carry out
such activities;
(3) other appropriate waste reduction technologies that may also be considered,
provide d that such technologies conform with the standards set pursuant to this Act;
(4) the types of wastes to be reduced pursuant to Section 15 of this Act;
(5) the methods that the LGU will use to determine the categories of solid wastes to be
diverted from disposal at a disposal facility through re-use , recycling and composting;
and
(6) new facilities and of expansion of existing facilities which will be needed to
implement re-use, recycling and composting.
The LGU source reduction component shall include the evaluation and identification of rate
structures and fees for the purpose of reducing the amount of waste generated, and other
source reduction strategies, including but not limited to, program s and economic incentives
provided under Sec. 45 of this Act to reduce the use of non-recyclable materials, replace
disposable materials and products with reusable materials and products, reduce packaging, and
increase the efficiency of the use of paper, cardboard, glass, metal, and other materials. The
waste reduction activities of the community shall al so take into account, among others, local
capability, economic viability, technical requirements, social concerns, disposition of residual
waste and environmental impact: Provided , That, projection of future facilities needed and
estimated cost shall be incorporated in the plan. x x x154
The solid waste management pl an shall also include an implementation schedule for solid waste
diversion:
SEC. 20. Establishing Mandatory Solid Waste Diversion. – Each LGU plan shall include an
implementation schedule which shows that within five (5) years after the effectivity of this Act,
the LGU shall divert at least 25% of all solid waste from waste disposal facilities through re-use,
recycling, and composting activities and other resource recovery activities: Provided , That the
waste diversion goals shall be increased every three (3) years thereafter: Provided , further, That
nothing in this Section prohibits a local government unit from implementing re-use, recycling,
and composting activities designed to exceed the goal.
The baseline for the twenty-five percent (25%) shall be derived from the waste characterization
result155 that each LGU is mandated to undertake.156In accordance with Section 46 of R.A. No.
9003, the LGUs are entitled to avail of the SWM Fund on the basis of their approved solid waste
management plan. Aside from this, they may also impose SWM Fees under Section 47 of the
law, which states:
SEC. 47. Authority to Collect Solid Waste Management Fees – The local government unit shall
impose fees in amounts sufficient to pay the costs of preparing, adopting, and implementing a
solid waste management plan prepared pursuant to this Act. The fees shall be based on the
following minimum factors:
(a) types of solid waste;
(b) amount/volume of waste; and
(c) distance of the transfer station to the waste management facility.
The fees shall be used to pay the actual costs incurred by the LGU in collecting the local fees. In
determining the amounts of the fees, an LGU shall include only those costs directly related to
the adoption and implementation of the plan and the setting and collection of the local fees.
Rule XVII of the IRR of R.A. No. 9003 sets forth the details:
Section 1. Power to Collect Solid Waste Management Fees . – The Local SWM Board/Local SWM
Cluster Board shall impose fees on the SWM services provided for by the LGU and/or any
authorized organization or unit. In determining the amounts of the fees, a Local SWM
Board/Local SWM Cluster Board shall include only those costs directly related to the adoption
and implementation of the SWM Plan and the setting and collection of the local fees. This power
to impose fees may be ceded to the private sector and civil society groups which have been duly
accredited by the Local SWM Boar d/Local SWM Cluster Board; provided, the SWM fees shall be
covered by a Contract or Memorandum of Agreement between the respective boa rd and the
private sector or civil society group.
The fees shall pay for the costs of preparing, adopting and implementing a SWM Plan prepared
pursuant to the Act. Further, the fees shall also be used to pay the actual costs incurred in
collecting the local fees and for project sustainability.
Section 2. Basis of SWM Service Fees
Reasonable SWM service fees shall be computed based on but not limited to the following
minimum factors:
a) Types of solid waste to include special waste
b) amount/volume of waste
c) distance of the transfer station to the waste management facility
d) capacity or type of LGU constituency
e) cost of construction
f) cost of management
g) type of technology
Section 3. Collection of Fees. – Fees may be collected corresponding to the following levels:
a) Barangay – The Barangay may impose fees for collection and segregation of
biodegradable, compostable and reusable wastes from households, commerce, other
sources of domestic wastes, and for the use of Barangay MRFs. The computation of the
fees shall be established by the respective SWM boards. The manner of collection of the
fees shall be dependent on the style of administration of respective Barangay Councils.
However, all transactions shall follow the Commission on Audit rules on collection of
fees.
b) Municipality – The municipal and city councils may impose fees on the barangay
MRFs for the collection and transport of non-recyclable and special wastes and for the
disposal of these into the sanitary landfill. The level and procedure for exacting fees
shall be defined by the Local SWM Board/Local SWM Cluster Board and supported by
 LGU ordinances; however, payments shall be consistent with the accounting system of Granting, for the sake of argument, that the 0.66 kilogram of solid waste per day refers only to
government. non-recyclable and special wastes, still, We cannot sustain the validity of Ordinance No. S-2235.
It violates the equal protection clause of the Constitution and the provisions of the LGC that an
c) Private Sector/Civil Society Group – On the basis of the stipulations of contract or ordinance must be equitable and based as far as practicable on the taxpayer’s ability to pay, and
Memorandum of Agreement, the private sector or civil society group shall impose fees not unjust, excessive, oppressive, confiscatory.158
for collection, transport and tipping in their SLFs. Receipts and invoices shall be issued to
the paying public or to the government. In the subject ordinance, the rates of the imposable fee depend on land or floor area and
whether the payee is an occupant of a lot, condominium, social housing project or apartment.
From the afore-quoted provisions, it is clear that the authority of a municipality or city to For easy reference, the relevant provision is again quoted below:
impose fees is limited to the collection and transport of non-recyclable and special wastes and
for the disposal of these into the sanitary landfill. Barangays, on the other hand, have the On all domestic households in Quezon City;
authority to impose fees for the collection and segregation of biodegradable, compostable and
reusable wastes from households, commerce, other sources of domestic wastes, and for the use
LAND AREA IMPOSABLE FEE
of barangay MRFs. This is but consistent with
Less than 200 sq. m. PHP 100.00
Section 10 of R.A. No. 9003 directing that segregation and collection of biodegradable,
compostable and reusable wastes shall be conducted at the barangay level, while the collection 201 sq. m. – 500 sq. m. PHP 200.00
of non-recyclable materials and special wastes shall be the responsibility of the municipality or
city. 501 sq. m. – 1,000 sq. m. PHP 300.00

1,001 sq. m. – 1,500 sq. m. PHP 400.00

In this case, the alleged bases of Ordinance No. S-2235 in imposing the garbage fee is the
volume of waste currently generated by each person in Quezon City, which purportedly stands 1,501 sq. m. – 2,000 sq. m. or more PHP 500.00
at 0.66 kilogram per day, and the increasing trend of waste generation for the past three
years.157 Respondents
On all condominium unit and socialized housing projects/units in Quezon City;
did not elaborate any further. The figure presented does not reflect the specific types of wastes
generated – whether residential, market, commercial, industrial, construction/demolition, street FLOOR AREA IMPOSABLE FEE
waste, agricultural, agro-industrial, institutional, etc. It is reasonable, therefore, for the Court to
Less than 40 sq. m. PHP 25.00
presume that such amount pertains to the totality of wastes, without any distinction, generated
by Quezon City constituents. To reiterate, however, the authority of a municipality or city to 41 sq. m. – 60 sq. m. PHP 50.00
impose fees extends only to those related to the collection and transport of non-recyclable and
special wastes. 61 sq. m. – 100 sq. m. PHP 75.00

101 sq. m. – 150 sq. m. PH₱100.00

 151 sq. m. – 200 sq. [m.] or more PHP 200.00
On high-rise Condominium Units
a) High-rise Condominium – The Homeowners Association of high rise condominiums
shall pay the annual garbage fee on the total size of the entire condominium and
socialized Housing Unit and an additional garbage fee shall be collected based on area
occupied for every unit already so ld or being amortized.
b) High-rise apartment units – Owners of high-rise apartment units shall pay the annual
garbage fee on the total lot size of the entire apartment and an additional garbage fee
based on the schedule prescribed herein for every unit occupied.
For the purpose of garbage collection, there is, in fact, no substantial distinction between an
occupant of a lot, on one hand, and an occupant of a unit in a condominium, socialized housing
project or apartment, on the other hand. Most likely, garbage output produced by these types
of occupants is uniform and does not vary to a large degree; thus, a similar schedule of fee is
both just and equitable.159
The rates being charged by the ordinance are unjust and inequitable: a resident of a 200 sq. m.
unit in a condominium or socialized housing project has to pay twice the amount than a resident
of a lot similar in size; unlike unit occupants, all occupants of a lot with an area of 200 sq. m. and
less have to pay a fixed rate of Php100.00; and the same amount of garbage fee is imposed
regardless of whether the resident is from a condominium or from a socialized housing project.
Indeed, the classifications under Ordinance No. S-2235 are not germane to its declared purpose
of "promoting shared responsibility with the residents to attack their common mindless attitude
in over-consuming the present resources and in generating waste." 160 Instead of simplistically
categorizing the payee into land or floor occupant of a lot or unit of a condominium, socialized
housing project or apartment, respondent City Council should have considered factors that
could truly measure the amount of wastes generated and the appropriate fee for its collection.
Factors include, among others, household age and size, accessibility to waste collection,
population density of the barangay or district, capacity to pay, and actual occupancy of the
property. R.A. No. 9003 may also be looked into for guidance. Under said law, WM service fees
may be computed based on minimum factors such as type s of solid waste to include special
waste, amount/volume of waste, distance of the transfer station to the waste management
facility, capacity or type of LGU constituency, cost of construction, cost of management, and
type of technology. With respect to utility rates set by municipalities, a municipality has the right
to classify consumers under reasonable classifications based upon factors such as the cost of
service, the purpose for which the service or the product is received, the quantity or the amount
received, the different character of the service furnished, the time of its use or any other matter
which presents a substantial difference as a ground of distinction.161[A] lack of uniformity in the
rate charged is not necessarily unlawful discrimination. The establishment of classifications and
the charging of different rates for the several classes is not unreasonable and does not violate
the requirements of equality and uniformity. Discrimination to be unlawful must draw an unfair
line or strike an unfair balance between those in like circumstances having equal rights and
privileges. Discrimination with respect to rates charged does not vitiate unless it is arbitrary and
without a reasonable fact basis or justification.162
On top of an unreasonable classification, the penalty clause of Ordinance No. SP-2235, which
states:
SECTION 3. Penalty Clause – A penalty of 25% of the garbage fee due plus an interest of 2% per
month or a fraction thereof (interest) shall be charged against a household owner who refuses
to pay the garbage fee herein imposed. lacks the limitation required by Section 168 of the LGC,
which provides:
SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. – The sanggunian
may impose a surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or
charges not paid on time and an interest at the rate not exceeding two percent (2%) per month
of the unpaid taxes, fees or charges including surcharges, until such amount is fully paid but in
no case shall the total interest on the unpaid amount or portion thereof exceed thirty-six (36)
months. (Emphasis supplied)
Finally, on the issue of publication of the two challenged ordinances.
Petitioner argues that the garbage fee was collected even if the required publication of its
approval had not yet elapsed. He notes that he paid his realty tax on January 7, 2014 which
already included the garbage fee. Respondents counter that if the law provides for its own
effectivity, publication in the Official Gazette is not necessary so long as it is not penal in nature.
Allegedly, Ordinance No. SP-2095 took effect after its publication while Ordinance No. SP-2235
became effective after its approval on December 26, 2013.
The pertinent provisions of the LGC state:
SECTION 59. Effectivity of Ordinances or Resolutions. – (a) Unless otherwise stated in the
ordinance or the resolution approving the local development plan and public investment
program, the same shall take effect after ten (10) days from the date a copy thereof is posted in
a bulletin board at the entrance of the provincial capital or city, municipal, or barangay hall, as
the case may be, and in at least two (2) other conspicuous places in the local government unit
concerned.
(b) The secretary to the sanggunian concerned shall cause the posting of an ordinance
or resolution in the bulletin board at the entrance of the provincial capital and the city,
municipal, or barangay hall in at least two
(2) conspicuous places in the local government unit concerned not later than five (5)
days after approval thereof.
The text of the ordinance or resolution shall be disseminated and posted in Filipino or
English and in the language or dialect understood by the majority of the people in the
local government unit concerned, and the secretary to the sanggunian shall record such
fact in a book kept for the purpose, stating the dates of approval and posting.
(c) The gist of all ordinances with penal sanctions shall be published in a newspaper of
general circulation within the province where the local legislative body concerned
belongs. In the absence of any newspaper of general circulation within the province,
posting of such ordinances shall be made in all municipalities and cities of the province
where the sanggunian of origin is situated.
(d) In the case of highly urbanized and independent component cities, the main features
of the ordinance or resolution duly enacted or adopted shall, in addition to being
posted, be published once in a local newspaper of general circulation within the city:
Provided, That in the absence thereof the ordinance or resolution shall be published in
any newspaper of general circulation.
SECTION 188. Publication of Tax Ordinances and Revenue Measures. – Within ten (10) days after
their approval, certified true copies of all provincial, city, and municipal tax ordinances or
revenue measures shall be published in full for three (3) consecutive days in a newspaper of
local circulation: Provided, however, That in provinces, cities and municipalities where there are
no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and
publicly accessible places. (Emphasis supplied)
On October 17, 2011, respondent Quezon City Council enacted Ordinance No. SP-2095, which
provides that it would take effect after its publication in a newspaper of general
circulation.163 On the other hand, Ordinance No. SP-2235, which was passed by the City Council
on December 16, 2013, provides that it would be effective upon its approval.164
Ten (10) days after its enactment, or on December 26, 2013, respondent City Mayor approved
the same.165
The case records are bereft of any evidence to prove petitioner’s negative allegation that
respondents did not comply with the posting and publication requirements of the law. Thus, We
are constrained not to give credit to his unsupported claim.
WHEREFORE, the petition is PARTIALLY GRANTED. The constitutionality and legality of Ordinance
No. SP-2095, S-2011, or the "Socialized Housing Tax of Quezon City," is· SUSTAINED for being
consistent ·with Section·43 of Republic Act No. ·7279. On the other hand, Ordinance No. SP-
2235, S-2013, which collects an annual garbage fee on all domestic households in Quezon City, is
hereby declared as UNCONSTITUTIONAL AND ILLEGAL. Respondents are DIRECTED to REFUND
with reasonable dispatch the sums of money collected relative to its enforcement. The
temporary restraining order issued by the Court on February 5, 2014 is LIFTED with respect to
Ordinance No. SP-2095. In contrast, respondents are PERMANENTLY ENJOINED from taking any
further action to enforce Ordinance No. SP. 2235.
SO ORDERED. in question, if the amount is less than P6,000.00, the remainder must be returned to the
Director of Pedro Borgonia, who represents the plaintiff herein; 

That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial
must be returned to said Municipal Treasurer of Bangued, Abra; 

And finally the case is hereby ordered dismissed with costs against the plaintiff. 

SO ORDERED. (Rollo, pp. 22-23) 

Petitioner, an educational corporation and institution of higher learning duly incorporated with
the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the
respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to
annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building
G.R. No. L-39086 June 15, 1988 located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to
P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original Certificate
ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner,  of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by
vs. respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the
Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said
MILLARE, respondents.  college lot and building, which sale was held on the same date. Dr. Paterno Millare, then
Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly
IN VIEW OF ALL THE FOREGOING, the Court hereby declares:  accepted. The certificate of sale was correspondingly issued to him. 

That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial
Treasurer of said province against the lot and building of the Abra Valley Junior College, Inc.,
represented by Director Pedro Borgonia located at Bangued, Abra, is valid; 
That since the school is not exempt from paying taxes, it should therefore pay all back taxes in
the amount of P5,140.31 and back taxes and penalties from the promulgation of this decision;  Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended
That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be
confiscated to apply for the payment of the back taxes and for the redemption of the property
On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a
motion to dismiss the complaint.
On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then
Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents
answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo,
pp. 106-108).
On October 12, 1972, with the aforesaid sale of the school premises at public auction, the 5. That all other matters not particularly and specially covered by this stipulation of facts will be
respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered the subject of evidence by the parties. 
(Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and municipal treasurers to
deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this
petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00 stipulation of facts on the point agreed upon by the parties. 
evidenced by PNB Check No. 904369.
Bangued, Abra, April 12, 1973. 
On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the
trial court in its questioned decision. Said Stipulations reads: Sgd. Agripino Brillantes 
Typ AGRIPINO BRILLANTES 
STIPULATION OF FACTS  Attorney for Plaintiff 

COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into Sgd. Loreto Roldan 
the following agreed stipulation of facts:  Typ LORETO ROLDAN 
Provincial Fiscal 
1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is Counsel for Defendants 
admitted; but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by Provincial Treasurer of 
anyone who is actually holding the position of Provincial Treasurer of the Province of Abra;  Abra and the Municipal 
Treasurer of Bangued, Abra 
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon
located in Bangued, Abra under Original Certificate of Title No. 0-83;  Sgd. Demetrio V. Pre 
Typ. DEMETRIO V. PRE 
3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be Attorney for Defendant 
served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said Paterno Millare (Rollo, pp. 17-18) 
school under Original Certificate of Title No. 0-83 for the satisfaction of real property taxes
thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the complaint Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that
as Exhibit A;  the school is recognized by the government and is offering Primary, High School and College
Courses, and has a school population of more than one thousand students all in all; (b) that it is
4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at located right in the heart of the town of Bangued, a few meters from the plaza and about 120
public auction for the satisfaction of the unpaid real property taxes thereon and the same was meters from the Court of First Instance building; (c) that the elementary pupils are housed in a
sold to defendant Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of two-storey building across the street; (d) that the high school and college students are housed in
Sale in his favor was issued by the defendant Municipal Treasurer.  the main building; (e) that the Director with his family is in the second floor of the main building;
and (f) that the annual gross income of the school reaches more than one hundred thousand
pesos. 
From all the foregoing, the only issue left for the Court to determine and as agreed by the THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE
parties, is whether or not the lot and building in question are used exclusively for educational PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE
purposes. (Rollo, p. 20)  COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING. 

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z.
Montero, filed a Memorandum for the Government on March 25, 1974, and a Supplemental
Memorandum on May 7, 1974, wherein they opined "that based on the evidence, the laws
applicable, court decisions and jurisprudence, the school building and school lot used for
educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes."
(Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49). 
Nonetheless, the trial court disagreed because of the use of the second floor by the Director of
petitioner school for residential purposes. He thus ruled for the government and rendered the
assailed decision.  IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the
After having been granted by the trial court ten (10) days from August 6, 1974 within which to
perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner
instead availed of the instant petition for review on  certiorari  with prayer for preliminary
injunction before this Court, which petition was filed on August 17, 1974 (Rollo, p.2). 
In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition
(Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74).
Petitioner raised the following assignments of error:  otherwise known as the Assessment Law, are without legal basis and therefore void.
III 
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE
PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY
P5,140.31 AS REALTY TAXES. 
IV 
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE
Petitioner, pp. 1-2) 
The main issue in this case is the proper interpretation of the phrase "used exclusively for
educational purposes." 
Petitioner contends that the primary use of the lot and building for educational purposes, and
not the incidental use thereof, determines and exemption from property taxes under Section 22
(3), Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot and
building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470,
 

I  On the other hand, private respondents maintain that the college lot and building in question
which were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the
THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE educational purposes of the college; (2) as the permanent residence of the President and
LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.  Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren;
and (3) for commercial purposes because the ground floor of the college building is being used
II and rented by a commercial establishment, the Northern Marketing Corporation (See
photograph attached as Annex "8" (Comment; Rollo, p. 90]). 
Due to its time frame, the constitutional provision which finds application in the case at bar is purposes but serves solely as a sort of lodging place, also qualifies for exemption because this
Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly constitutes incidental use in religious functions.
grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used exclusively  for religious, The phrase "exclusively used for educational purposes" was further clarified by this Court in the
charitable or educational purposes ...  cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961]
and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965],
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic thus — 
Act No. 409, otherwise known as the Assessment Law, provides: 
Moreover, the exemption in favor of property used exclusively for charitable or educational
The following are exempted from real property tax under the Assessment Law:  purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2,
p. 1430), but extends to facilities which are incidental to and reasonably necessary for the
xxx xxx xxx accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses,
a nurses' home, property use to provide housing facilities for interns, resident doctors,
(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and superintendents, and other members of the hospital staff, and recreational facilities for student
improvements used exclusively for religious, charitable, scientific or educational purposes.  nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for
the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430). 
xxx xxx xxx
The test of exemption from taxation is the use of the property for purposes mentioned in the
In this regard petitioner argues that the primary use of the school lot and building is the basic Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).
and controlling guide, norm and standard to determine tax exemption, and not the mere
incidental use thereof.  It must be stressed however, that while this Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for educational purposes" as provided for in
As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has
Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and always been made that exemption extends to facilities which are incidental to and reasonably
maintains a restaurant for its members, still these do not constitute business in the ordinary necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school
acceptance of the word, but an institution used exclusively for religious, charitable and building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence.
educational purposes, and as such, it is entitled to be exempted from taxation.  Thus, while the use of the second floor of the main building in the case at bar for residential
purposes of the Director and his family, may find justification under the concept of incidental
In the case of Bishop of  Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], use, which is complimentary to the main or primary purpose—educational, the lease of the first
this Court included in the exemption a vegetable garden in an adjacent lot and another lot floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination
formerly used as a cemetery. It was clarified that the term "used exclusively" considers be considered incidental to the purpose of education. 
incidental use also. Thus, the exemption from payment of land tax in favor of the convent
includes, not only the land actually occupied by the building but also the adjacent garden It will be noted however that the aforementioned lease appears to have been raised for the first
devoted to the incidental use of the parish priest. The lot which is not used for commercial time in this Court. That the matter was not taken up in the to court is really apparent in the
decision of respondent Judge. No mention thereof was made in the stipulation of facts, not even
in the description of the school building by the trial judge, both embodied in the decision nor as
one of the issues to resolve in order to determine whether or not said properly may be
exempted from payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is
noteworthy that such fact was not disputed even after it was raised in this Court. 

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first
time on appeal. Nonetheless, as an exception to the rule, this Court has held that although a
factual issue is not squarely raised below, still in the interest of substantial justice, this Court is
not prevented from considering a pivotal factual matter. "The Supreme Court is clothed with
ample authority to review palpable errors not assigned as such if it finds that their consideration
is necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]). 

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school
building as well as the lot where it is built, should be taxed, not because the second floor of the
same is being used by the Director and his family for residential purposes, but because the first
floor thereof is being used for commercial purposes. However, since only a portion is used for
purposes of commerce, it is only fair that half of the assessed tax be returned to the school
involved. 

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby
AFFIRMED subject to the modification that half of the assessed tax be returned to the
petitioner. 

SO ORDERED. 
 walls still standing, and a portion where formerly stood a tower, the base of which still be seen,
containing a total area of 8,955 square meters. 
As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on
the lot adjoining the convent and the lot which formerly was the cemetery with the portion
where the tower stood. 
The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of
land tax, alleging that the collection of this tax is illegal. The lower court absolved the
defendants from the complaint in regard to the lot adjoining convent and declared that the tax
collected on the lot, which formerly was the cemetery and on the portion where the lower
stood, was illegal. Both parties appealed from this judgment. 
The exemption in favor of the convent in the payment of the land tax (sec. 344 [c]
Administrative Code) refers to the home of the parties who presides over the church and who
has to take care of himself in order to discharge his duties. In therefore must, in the sense,
include not only the land actually occupied by the church, but also the adjacent ground destined
to the ordinary incidental uses of man. Except in large cities where the density of the population
and the development of commerce require the use of larger tracts of land for buildings, a
vegetable garden belongs to a house and, in the case of a convent, it use is limited to the
necessities of the priest, which comes under the exemption.lawphi1.net
G.R. No. L-27588 December 31, 1927 In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither
THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as representative of the Roman Catholic is it used for commercial purposes and, according to the evidence, is now being used as a
Apostolic Church, plaintiff-appellant,  lodging house by the people who participate in religious festivities, which constitutes an
vs. incidental use in religious functions, which also comes within the exemption. 
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET AL., defendants-appellants. The judgment appealed from is reversed in all it parts and it is held that both lots are exempt
Vicente Llanes and Proceso Coloma for plaintiff-appellant. from land tax and the defendants are ordered to refund to plaintiff whatever was paid as such
Provincial Fiscal Santos for defendant-appellants. tax, without any special pronouncement as to costs. So ordered. 

AVANCEÑA, J.:
The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia,
possesses and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all
four sides of which face on public streets. On the south side is a part of the churchyard, the
convent and an adjacent lot used for a vegetable garden, containing an area off 1,624 square
meters, in which there is a stable and a well for the use of the convent. In the center is the
remainder of the churchyard and the church. On the north is an old cemetery with two of its
 canteen and small store spaces, and to medical or professional practitioners who use the same
as their private clinics for their patients whom they charge for their professional services. Almost
one-half of the entire area on the left side of the building along Quezon Avenue is vacant and
idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is
being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and
Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical services to out-
patients, both paying and non-paying. Aside from its income from paying patients, the petitioner
receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of ₱4,554,860 by the City Assessor of Quezon City. 3 Accordingly,
Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the
land and the hospital building, respectively.4 On August 25, 1993, the petitioner filed a Claim for
Exemption5 from real property taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioner’s request was denied, and a petition was, thereafter, filed
before the Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the
reversal of the resolution of the City Assessor. The petitioner alleged that under Section 28,
paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It
G.R. No. 144104             June 29, 2004 averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and
LUNG CENTER OF THE PHILIPPINES, petitioner,  that the major thrust of its hospital operation is to serve charity patients. The petitioner
vs. contends that it is a charitable institution and, as such, is exempt from real property taxes. The
QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon QC-LBAA rendered judgment dismissing the petition and holding the petitioner liable for real
City, respondents. property taxes.6
DECISION The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of Assessment
CALLEJO, SR., J.: Appeals of Quezon City (CBAA, for brevity)7 which ruled that the petitioner was not a charitable
institution and that its real properties were not actually, directly and exclusively used for
The Antecedents charitable purposes; hence, it was not entitled to real property tax exemption under the
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on constitution and the law. The petitioner sought relief from the Court of Appeals, which rendered
January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the registered owner of a parcel judgment affirming the decision of the CBAA.8
of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Undaunted, the petitioner filed its petition in this Court contending that:
Avenue corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX
square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF
Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE
Center of the Philippines. A big space at the ground floor is being leased to private parties, for PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER,
PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article
VI of the 1987 Constitution. It asserts that its character as a charitable institution is not altered
by the fact that it admits paying patients and renders medical services to them, leases portions
of the land to private parties, and rents out portions of the hospital to private medical
practitioners from which it derives income to be used for operational expenses. The petitioner
points out that for the years 1995 to 1999, 100% of its out-patients were charity patients and of
the hospital’s 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients. It
asserts that the fact that it receives subsidies from the government attests to its character as a
charitable institution. It contends that the "exclusivity" required in the Constitution does not
necessarily mean "solely." Hence, even if a portion of its real estate is leased out to private
individuals from whom it derives income, it does not lose its character as a charitable institution,
and its exemption from the payment of real estate taxes on its real property. The petitioner
cited our ruling in Herrera v. QC-BAA9 to bolster its pose. The petitioner further contends that
even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not
precluded from seeking tax exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a charitable
entity. The petitioner’s real property is not exempt from the payment of real estate taxes under
P.D. No. 1823 and even under the 1987 Constitution because it failed to prove that it is a
charitable institution and that the said property is actually, directly and exclusively used for
charitable purposes. The respondents noted that in a newspaper report, it appears that graft
charges were filed with the Sandiganbayan against the director of the petitioner, its
administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden
Center, for entering into a lease contract over 7,663.13 square meters of the property in 1990
for only ₱20,000 a month, when the monthly rental should be ₱357,000 a month as determined
by the Commission on Audit; and that instead of complying with the directive of the COA for the
cancellation of the contract for being grossly prejudicial to the government, the petitioner
renewed the same on March 13, 1995 for a monthly rental of only ₱24,000. They assert that the
petitioner uses the subsidies granted by the government for charity patients and uses the rest of
its income from the property for the benefit of paying patients, among other purposes. They
aver that the petitioner failed to adduce substantial evidence that 100% of its out-patients and
170 beds in the hospital are reserved for indigent patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service.
That before a patient is admitted for treatment in the Center, first impression is that it is pay-
patient and required to pay a certain amount as deposit. That even if a patient is living below
the poverty line, he is charged with high hospital bills. And, without these bills being first settled,
the poor patient cannot be allowed to leave the hospital or be discharged without first paying
the hospital bills or issue a promissory note guaranteed and indorsed by an influential agency or
person known only to the Center; that even the remains of deceased poor patients suffered the
same fate. Moreover, before a patient is admitted for treatment as free or charity patient, one
must undergo a series of interviews and must submit all the requirements needed by the
Center, usually accompanied by endorsement by an influential agency or person known only to
the Center. These facts were heard and admitted by the Petitioner LCP during the hearings
before the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent patients,
instead of seeking treatment with the Center, they prefer to be treated at the Quezon Institute.
Can such practice by the Center be called charitable?10
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable institution
within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and
Section 234(b) of Republic Act No. 7160; and (b) whether the real properties of the petitioner
are exempt from real property taxes.
The Court’s Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context of the
1973 and 1987 Constitutions. To determine whether an enterprise is a charitable
institution/entity or not, the elements which should be considered include the statute creating
the enterprise, its corporate purposes, its constitution and by-laws, the methods of
administration, the nature of the actual work performed, the character of the services rendered,
the indefiniteness of the beneficiaries, and the use and occupation of the properties.11
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing
laws, for the benefit of an indefinite number of persons, either by bringing their minds and
hearts under the influence of education or religion, by assisting them to establish themselves in
life or otherwise lessening the burden of government.12 It may be applied to almost anything
that tend to promote the well-doing and well-being of social man. It embraces the improvement
and promotion of the happiness of man.13 The word "charitable" is not restricted to relief of the
poor or sick.14 The test of a charity and a charitable organization are in law the same. The test
whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized
in law as charitable or whether it is maintained for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to
the provisions of the decree, is to be administered by the Office of the President of the
Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized
for the welfare and benefit of the Filipino people principally to help combat the high incidence
of lung and pulmonary diseases in the Philippines. The raison d’etre for the creation of the
petitioner is stated in the decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern, having been the
leading cause of illness and death in the Philippines, comprising more than 45% of the total
annual deaths from all causes, thus, exacting a tremendous toll on human resources, which
ailments are likely to increase and degenerate into serious lung diseases on account of unabated
pollution, industrialization and unchecked cigarette smoking in the country;lavvph!l.net
Whereas, the more common lung diseases are, to a great extent, preventable, and curable with
early and adequate medical care, immunization and through prompt and intensive prevention
and health education programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and
efforts at preventing, treating and rehabilitating people affected by lung diseases, and to
undertake research and training on the cure and prevention of lung diseases, through a Lung
Center which will house and nurture the above and related activities and provide tertiary-level
care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material and financial
support towards the establishment and maintenance of a Lung Center for the welfare and
benefit of the Filipino people.15
The purposes for which the petitioner was created are spelled out in its Articles of
Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated medical
institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung and
allied diseases in line with the concern of the government to assist and provide material and
financial support in the establishment and maintenance of a lung center primarily to benefit the
people of the Philippines and in pursuance of the policy of the State to secure the well-being of
the people by providing them specialized health and medical services and by minimizing the
incidence of lung diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research related to the prevention of lung or
pulmonary ailments and the care of lung patients, including the holding of a series of relevant
congresses, conventions, seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the biological,
demographic, social, economic, eugenic and physiological aspects of lung or pulmonary diseases
and their control; and to collect and publish the findings of such research for public
consumption;
4. To facilitate the dissemination of ideas and public acceptance of information on lung
consciousness or awareness, and the development of fact-finding, information and reporting
facilities for and in aid of the general purposes or objects aforesaid, especially in human lung
requirements, general health and physical fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social workers and medical
and technical personnel in the practical and scientific implementation of services to lung
patients;
6. To assist universities and research institutions in their studies about lung diseases, to
encourage advanced training in matters of the lung and related fields and to support
educational programs of value to general health;
7. To encourage the formation of other organizations on the national, provincial and/or city and
local levels; and to coordinate their various efforts and activities for the purpose of achieving a
more effective programmatic approach on the common problems relative to the objectives
enumerated herein;
8. To seek and obtain assistance in any form from both international and local foundations and
organizations; and to administer grants and funds that may be given to the organization;
9. To extend, whenever possible and expedient, medical services to the public and, in general, to
promote and protect the health of the masses of our people, which has long been recognized as
an economic asset and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the
people in any and all walks of life, including those who are poor and needy, all without regard to
or discrimination, because of race, creed, color or political belief of the persons helped; and to
enable them to obtain treatment when such disorders occur;
11. To participate, as circumstances may warrant, in any activity designed and carried on to
promote the general health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment, educational materials
and supplies by purchase, donation, or otherwise and to dispose of and distribute the same in
such manner, and, on such basis as the Center shall, from time to time, deem proper and best,
under the particular circumstances, to serve its general and non-profit purposes and
objectives;lavvphil.net
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of
properties, whether real or personal, for purposes herein mentioned; and
14. To do everything necessary, proper, advisable or convenient for the accomplishment of any
of the powers herein set forth and to do every other act and thing incidental thereto or
connected therewith.16
Hence, the medical services of the petitioner are to be rendered to the public in general in any
and all walks of life including those who are poor and the needy without discrimination. After
all, any person, the rich as well as the poor, may fall sick or be injured or wounded and become
a subject of charity.17
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether out-
patient, or confined in the hospital, or receives subsidies from the government, so long as the
money received is devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons managing or operating the
institution.18 In Congregational Sunday School, etc. v. Board of Review,19 the State Supreme
Court of Illinois held, thus:
… [A]n institution does not lose its charitable character, and consequent exemption from
taxation, by reason of the fact that those recipients of its benefits who are able to pay are
required to do so, where no profit is made by the institution and the amounts so received are
applied in furthering its charitable purposes, and those benefits are refused to none on account
of inability to pay therefor. The fundamental ground upon which all exemptions in favor of
charitable institutions are based is the benefit conferred upon the public by them, and a
consequent relief, to some extent, of the burden upon the state to care for and advance the
interests of its citizens.20
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of
South Dakota v. Baker:21
… [T]he fact that paying patients are taken, the profits derived from attendance upon these
patients being exclusively devoted to the maintenance of the charity, seems rather to enhance
the usefulness of the institution to the poor; for it is a matter of common observation amongst
those who have gone about at all amongst the suffering classes, that the deserving poor can
with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects
of charity; and that their honest pride is much less wounded by being placed in an institution in
which paying patients are also received. The fact of receiving money from some of the patients
does not, we think, at all impair the character of the charity, so long as the money thus received
is devoted altogether to the charitable object which the institution is intended to further.22
The money received by the petitioner becomes a part of the trust fund and must be devoted to
public trust purposes and cannot be diverted to private profit or benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose
its character as a charitable institution simply because the gift or donation is in the form of
subsidies granted by the government. As held by the State Supreme Court of Utah in Yorgason
v. County Board of Equalization of Salt Lake County:24
Second, the … government subsidy payments are provided to the project. Thus, those payments
are like a gift or donation of any other kind except they come from the government. In
both Intermountain Health Careand the present case, the crux is the presence or absence of
material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a
private benefactor, chose to make up the deficit resulting from the exchange between St.
Mark’s Tower and the tenants by making a contribution to the landlord, just as it would have
been irrelevant in Intermountain Health Care if the patients’ income supplements had come
from private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the
government rather than private charitable contributions does not dictate the denial of a
charitable exemption if the facts otherwise support such an exemption, as they do here.25
In this case, the petitioner adduced substantial evidence that it spent its income, including the
subsidies from the government for 1991 and 1992 for its patients and for the operation of the
hospital. It even incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue,
that those portions of its real property that are leased to private entities are not exempt from
real property taxes as these are not actually, directly and exclusively used for charitable
purposes. 
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to
an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken.26 As held in Salvation Army v. Hoehn:27
An intention on the part of the legislature to grant an exemption from the taxing power of the
state will never be implied from language which will admit of any other reasonable construction.
Such an intention must be expressed in clear and unmistakable terms, or must appear by
necessary implication from the language used, for it is a well settled principle that, when a
special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to
be construed strictly against the property owner and in favor of the public. This principle applies
with peculiar force to a claim of exemption from taxation . …28
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides
that the petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized
primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines,
all donations, contributions, endowments and equipment and supplies to be imported by
authorized entities or persons and by the Board of Trustees of the Lung Center of the
Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from income
and gift taxes, the same further deductible in full for the purpose of determining the maximum
deductible amount under Section 30, paragraph (h), of the National Internal Revenue Code, as
amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees
imposed by the Government or any political subdivision or instrumentality thereof with respect
to equipment purchases made by, or for the Lung Center.29
It is plain as day that under the decree, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed thereon. If the
intentions were otherwise, the same should have been among the enumeration of tax exempt
privileges under Section 2:
It is a settled rule of statutory construction that the express mention of one person, thing, or
consequence implies the exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation
of the rule is the principle that what is expressed puts an end to that which is
implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly
limited to certain matters, it may not, by interpretation or construction, be extended to other
matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons of restrictive
interpretation. They are based on the rules of logic and the natural workings of the human mind.
They are predicated upon one’s own voluntary act and not upon that of others. They proceed
from the premise that the legislature would not have made specified enumeration in a statute
had the intention been not to restrict its meaning and confine its terms to those expressly
mentioned.30
The exemption must not be so enlarged by construction since the reasonable presumption is
that the State has granted in express terms all it intended to grant at all, and that unless the
privilege is limited to the very terms of the statute the favor would be intended beyond what
was meant.31
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.32
The tax exemption under this constitutional provision covers property taxes only.33 As Chief
Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained:
". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are
lands, buildings and improvements actually, directly and exclusively used for religious, charitable
or educational purposes."34
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No.
7160 (otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. – The following are exempted from payment
of the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly,
and exclusivelyused for religious, charitable or educational purposes.35
We note that under the 1935 Constitution, "... all lands, buildings, and improvements used
‘exclusively’ for … charitable … purposes shall be exempt from taxation." 36 However, under the
1973 and the present Constitutions, for "lands, buildings, and improvements" of the charitable
institution to be considered exempt, the same should not only be "exclusively" used for
charitable purposes; it is required that such property be used "actually" and "directly" for such
purposes.37
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on petitioner’s evidence shows that it collected ₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28
our ruling in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on for 1992 from the said lessees.
September 30, 1961 before the 1973 and 1987 Constitutions took effect.38 As this Court held Accordingly, we hold that the portions of the land leased to private entities as well as those
in Province of Abra v. Hernando:39 parts of the hospital leased to private individuals are not exempt from such taxes. 45 On the other
… Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents hand, the portions of the land occupied by the hospital and portions of the hospital used for its
appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, patients, whether paying or non-paying, are exempt from real property taxes.
charitable, or educational purposes shall be exempt from taxation." The present Constitution IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon
added "charitable institutions, mosques, and non-profit cemeteries" and required that for the City Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the
exemption of "lands, buildings, and improvements," they should not only be "exclusively" but land and the area thereof which are leased to private persons, and to compute the real property
also "actually" and "directly" used for religious or charitable purposes. The Constitution is taxes due thereon as provided for by law.
worded differently. The change should not be ignored. It must be duly taken into consideration. SO ORDERED.
Reliance on past decisions would have sufficed were the words "actually" as well as "directly"
not added. There must be proof therefore of the actual and direct use of the lands, buildings,
and improvements for religious or charitable purposes to be exempt from taxation. …
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used
for charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of
others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to
exclude; as enjoying a privilege exclusively."40 If real property is used for one or more
commercial purposes, it is not exclusively used for the exempted purposes but is subject to
taxation.41 The words "dominant use" or "principal use" cannot be substituted for the words
"used exclusively" without doing violence to the Constitutions and the law.42 Solely is
synonymous with exclusively.43
What is meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.44
The petitioner failed to discharge its burden to prove that the entirety of its real property is
actually, directly and exclusively used for charitable purposes. While portions of the hospital are
used for the treatment of patients and the dispensation of medical services to them, whether
paying or non-paying, other portions thereof are being leased to private individuals for their
clinics and a canteen. Further, a portion of the land is being leased to a private individual for her
business enterprise under the business name "Elliptical Orchids and Garden Center." Indeed, the

G.R. No. 195909               September 26, 2012
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, 
vs.
ST. LUKE'S MEDICAL CENTER, INC., RESPONDENT.
x-----------------------x
G.R. No. 195960
ST. LUKE'S MEDICAL CENTER, INC., PETITIONER, 
vs.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DECISION
CARPIO, J.:
The Case
These are consolidated 1 petitions for review on certiorari under Rule 45 of the Rules of Court
assailing the Decision of 19 November 2010 of the Court of Tax Appeals (CTA) En Banc and its
Resolution 2 of 1 March 2011 in CTA Case No. 6746. This Court resolves this case on a pure
question of law, which involves the interpretation of Section 27(B) vis-à-vis Section 30(E) and (G)
of the National Internal Revenue Code of the Philippines (NIRC), on the income tax treatment of
proprietary non-profit hospitals.
The Facts
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-profit
corporation. Under its articles of incorporation, among its corporate purposes are:
(a) To establish, equip, operate and maintain a non-stock, non-profit Christian, benevolent,
charitable and scientific hospital which shall give curative, rehabilitative and spiritual care to the
sick, diseased and disabled persons; provided that purely medical and surgical services shall be
performed by duly licensed physicians and surgeons who may be freely and individually
contracted by patients;
(b) To provide a career of health science education and provide medical services to the
community through organized clinics in such specialties as the facilities and resources of the
corporation make possible;
(c) To carry on educational activities related to the maintenance and promotion of health as well
as provide facilities for scientific and medical researches which, in the opinion of the Board of
Trustees, may be justified by the facilities, personnel, funds, or other requirements that are
available;
(d) To cooperate with organized medical societies, agencies of both government and private
sector; establish rules and regulations consistent with the highest professional ethics;
x x x x 3  interest. There is no ground for this Court to undertake such a factual review. Under the
On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes Constitution 10 and the Rules of Court, 11 this Court's review power is generally limited to "cases
amounting to ₱76,063,116.06 for 1998, comprised of deficiency income tax, value-added tax, in which only an error or question of law is involved." 12 This Court cannot depart from this
withholding tax on compensation and expanded withholding tax. The BIR reduced the amount limitation if a party fails to invoke a recognized exception.
to ₱63,935,351.57 during trial in the First Division of the CTA. 4  The Ruling of the Court of Tax Appeals
On 14 January 2003, St. Luke's filed an administrative protest with the BIR against the deficiency The CTA En Banc Decision on 19 November 2010 affirmed in toto the CTA First Division Decision
tax assessments. The BIR did not act on the protest within the 180-day period under Section 228 dated 23 February 2009 which held:
of the NIRC. Thus, St. Luke's appealed to the CTA. WHEREFORE, the Amended Petition for Review [by St. Luke's] is hereby PARTIALLY GRANTED.
The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a 10% preferential Accordingly, the 1998 deficiency VAT assessment issued by respondent against petitioner in the
tax rate on the income of proprietary non-profit hospitals, should be applicable to St. Luke's. amount of ₱110,000.00 is hereby CANCELLED and WITHDRAWN. However, petitioner is hereby
According to the BIR, Section 27(B), introduced in 1997, "is a new provision intended to amend ORDERED to PAY deficiency income tax and deficiency expanded withholding tax for the taxable
the exemption on non-profit hospitals that were previously categorized as non-stock, non-profit year 1998 in the respective amounts of ₱5,496,963.54 and ₱778,406.84 or in the sum of
corporations under Section 26 of the 1997 Tax Code x x x." 5 It is a specific provision which ₱6,275,370.38, x x x.
prevails over the general exemption on income tax granted under Section 30(E) and (G) for non- xxxx
stock, non-profit charitable institutions and civic organizations promoting social welfare. 6  In addition, petitioner is hereby ORDERED to PAY twenty percent (20%) delinquency interest on
The BIR claimed that St. Luke's was actually operating for profit in 1998 because only 13% of its the total amount of ₱6,275,370.38 counted from October 15, 2003 until full payment thereof,
revenues came from charitable purposes. Moreover, the hospital's board of trustees, officers pursuant to Section 249(C)(3) of the NIRC of 1997.
and employees directly benefit from its profits and assets. St. Luke's had total revenues of SO ORDERED. 13 
₱1,730,367,965 or approximately ₱1.73 billion from patient services in 1998. 7  The deficiency income tax of ₱5,496,963.54, ordered by the CTA En Banc to be paid, arose from
St. Luke's contended that the BIR should not consider its total revenues, because its free the failure of St. Luke's to prove that part of its income in 1998 (declared as "Other Income-
services to patients was ₱218,187,498 or 65.20% of its 1998 operating income (i.e., total Net") 14 came from charitable activities. The CTA cancelled the remainder of the ₱63,113,952.79
revenues less operating expenses) of ₱334,642,615. 8 St. Luke's also claimed that its income does deficiency assessed by the BIR based on the 10% tax rate under Section 27(B) of the NIRC, which
not inure to the benefit of any individual. the CTA En Banc held was not applicable to St. Luke's. 15 
St. Luke's maintained that it is a non-stock and non-profit institution for charitable and social The CTA ruled that St. Luke's is a non-stock and non-profit charitable institution covered by
welfare purposes under Section 30(E) and (G) of the NIRC. It argued that the making of profit per Section 30(E) and (G) of the NIRC. This ruling would exempt all income derived by St. Luke's from
se does not destroy its income tax exemption. services to its patients, whether paying or non-paying. The CTA reiterated its earlier decision in
The petition of the BIR before this Court in G.R. No. 195909 reiterates its arguments before the St. Luke's Medical Center, Inc. v. Commissioner of Internal Revenue, 16 which examined the
CTA that Section 27(B) applies to St. Luke's. The petition raises the sole issue of whether the primary purposes of St. Luke's under its articles of incorporation and various
enactment of Section 27(B) takes proprietary non-profit hospitals out of the income tax documents 17 identifying St. Luke's as a charitable institution.
exemption under Section 30 of the NIRC and instead, imposes a preferential rate of 10% on their The CTA adopted the test in Hospital de San Juan de Dios, Inc. v. Pasay City, 18 which states that
taxable income. The BIR prays that St. Luke's be ordered to pay ₱57,659,981.19 as deficiency "a charitable institution does not lose its charitable character and its consequent exemption
income and expanded withholding tax for 1998 with surcharges and interest for late payment. from taxation merely because recipients of its benefits who are able to pay are required to do
The petition of St. Luke's in G.R. No. 195960 raises factual matters on the treatment and so, where funds derived in this manner are devoted to the charitable purposes of the institution
withholding of a part of its income, 9 as well as the payment of surcharge and delinquency
x x x." 19 The generation of income from paying patients does not per se destroy the charitable
nature of St. Luke's.
Hospital de San Juan cited Jesus Sacred Heart College v. Collector of Internal Revenue, 20 which
ruled that the old NIRC (Commonwealth Act No. 466, as amended) 21 "positively exempts from
taxation those corporations or associations which, otherwise, would be subject thereto, because
of the existence of x x x net income." 22 The NIRC of 1997 substantially reproduces the provision
on charitable institutions of the old NIRC. Thus, in rejecting the argument that tax exemption is
lost whenever there is net income, the Court in Jesus Sacred Heart College declared: "[E]very
responsible organization must be run to at least insure its existence, by operating within the
limits of its own resources, especially its regular income. In other words, it should always strive,
whenever possible, to have a surplus." 23  includes only deficiency interest under Section 249(A) and (B) of the NIRC and not delinquency
The CTA held that Section 27(B) of the present NIRC does not apply to St. Luke's. 24 The CTA
explained that to apply the 10% preferential rate, Section 27(B) requires a hospital to be "non-
profit." On the other hand, Congress specifically used the word "non-stock" to qualify a
charitable "corporation or association" in Section 30(E) of the NIRC. According to the CTA, this is
unique in the present tax code, indicating an intent to exempt this type of charitable
organization from income tax. Section 27(B) does not require that the hospital be "non-stock."
The CTA stated, "it is clear that non-stock, non-profit hospitals operated exclusively for
charitable purpose are exempt from income tax on income received by them as such, applying
the provision of Section 30(E) of the NIRC of 1997, as amended." 25  reproduced in Section 30(E) of the NIRC of 1997. 33 Section 27(B) of the present NIRC provides:
The Issue
The sole issue is whether St. Luke's is liable for deficiency income tax in 1998 under Section
27(B) of the NIRC, which imposes a preferential tax rate of 10% on the income of proprietary
non-profit hospitals.
The Ruling of the Court
St. Luke's Petition in G.R. No. 195960
As a preliminary matter, this Court denies the petition of St. Luke's in G.R. No. 195960 because
the petition raises factual issues. Under Section 1, Rule 45 of the Rules of Court, "[t]he petition
shall raise only questions of law which must be distinctly set forth." St. Luke's cites Martinez v.
Court of Appeals 26 which permits factual review "when the Court of Appeals [in this case, the
CTA] manifestly overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion." 27  educational institution' is any private school maintained and administered by private individuals
This Court does not see how the CTA overlooked relevant facts. St. Luke's itself stated that the
CTA "disregarded the testimony of [its] witness, Romeo B. Mary, being allegedly self-serving, to
show the nature of the 'Other Income-Net' x x x." 28 This is not a case of overlooking or failing to
consider relevant evidence. The CTA obviously considered the evidence and concluded that it is
self-serving. The CTA declared that it has "gone through the records of this case and found no
other evidence aside from the self-serving affidavit executed by [the] witnesses [of St. Luke's] x x
x." 29 
The deficiency tax on "Other Income-Net" stands. Thus, St. Luke's is liable to pay the 25%
surcharge under Section 248(A)(3) of the NIRC. There is "[f]ailure to pay the deficiency tax within
the time prescribed for its payment in the notice of assessment[.]" 30 St. Luke's is also liable to
pay 20% delinquency interest under Section 249(C)(3) of the NIRC. 31 As explained by the CTA En
Banc, the amount of ₱6,275,370.38 in the dispositive portion of the CTA First Division Decision
interest. 32 
The Main Issue
The issue raised by the BIR is a purely legal one. It involves the effect of the introduction of
Section 27(B) in the NIRC of 1997 vis-à-vis Section 30(E) and (G) on the income tax exemption of
charitable and social welfare institutions. The 10% income tax rate under Section 27(B)
specifically pertains to proprietary educational institutions and proprietary non-profit hospitals.
The BIR argues that Congress intended to remove the exemption that non-profit hospitals
previously enjoyed under Section 27(E) of the NIRC of 1977, which is now substantially
SEC. 27. Rates of Income Tax on Domestic Corporations. -
xxxx
(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and
hospitals which are non-profit shall pay a tax of ten percent (10%) on their taxable income
except those covered by Subsection (D) hereof: Provided, That if the gross income from
unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income
derived by such educational institutions or hospitals from all sources, the tax prescribed in
Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this
Subsection, the term 'unrelated trade, business or other activity' means any trade, business or
other activity, the conduct of which is not substantially related to the exercise or performance
by such educational institution or hospital of its primary purpose or function. A 'proprietary
or groups with an issued permit to operate from the Department of Education, Culture and
Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and
Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and
regulations. (Emphasis supplied)
St. Luke's claims tax exemption under Section 30(E) and (G) of the NIRC. It contends that it is a
charitable institution and an organization promoting social welfare. The arguments of St. Luke's
focus on the wording of Section 30(E) exempting from income tax non-stock, non-profit
charitable institutions. 34 St. Luke's asserts that the legislative intent of introducing Section 27(B)
was only to remove the exemption for "proprietary non-profit" hospitals. 35 The relevant
provisions of Section 30 state:
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed
under this Title in respect to income received by them as such:
xxxx
(E) Nonstock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part
of its net income or asset shall belong to or inure to the benefit of any member, organizer,
officer or any specific person;
xxxx
(G) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
xxxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code. (Emphasis supplied)
The Court partly grants the petition of the BIR but on a different ground. We hold that Section
27(B) of the NIRC does not remove the income tax exemption of proprietary non-profit hospitals
under Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the other
hand, can be construed together without the removal of such tax exemption. The effect of the
introduction of Section 27(B) is to subject the taxable income of two specific institutions,
namely, proprietary non-profit educational institutions 36 and proprietary non-profit hospitals,
among the institutions covered by Section 30, to the 10% preferential rate under Section 27(B)
instead of the ordinary 30% corporate rate under the last paragraph of Section 30 in relation to
Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary
non-profit educational institutions and (2) proprietary non-profit hospitals. The only
qualifications for hospitals are that they must be proprietary and non-profit. "Proprietary"
means private, following the definition of a "proprietary educational institution" as "any private
school maintained and administered by private individuals or groups" with a government
permit. "Non-profit" means no net income or asset accrues to or benefits any member or
specific person, with all the net income or asset devoted to the institution's purposes and all its
activities conducted not for profit.
"Non-profit" does not necessarily mean "charitable." In Collector of Internal Revenue v. Club
Filipino Inc. de Cebu, 37 this Court considered as non-profit a sports club organized for recreation
and entertainment of its stockholders and members. The club was primarily funded by
membership fees and dues. If it had profits, they were used for overhead expenses and
improving its golf course. 38 The club was non-profit because of its purpose and there was no
evidence that it was engaged in a profit-making enterprise. 39 
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The
Court defined "charity" in Lung Center of the Philippines v. Quezon City 40 as "a gift, to be applied
consistently with existing laws, for the benefit of an indefinite number of persons, either by
bringing their minds and hearts under the influence of education or religion, by assisting them to
establish themselves in life or [by] otherwise lessening the burden of government." 41 A non-
profit club for the benefit of its members fails this test. An organization may be considered as
non-profit if it does not distribute any part of its income to stockholders or members. However,
despite its being a tax exempt institution, any income such institution earns from activities
conducted for profit is taxable, as expressly provided in the last paragraph of Section 30.
To be a charitable institution, however, an organization must meet the substantive test of
charity in Lung Center. The issue in Lung Center concerns exemption from real property tax and
not income tax. However, it provides for the test of charity in our jurisdiction. Charity is
essentially a gift to an indefinite number of persons which lessens the burden of government. In
other words, charitable institutions provide for free goods and services to the public which
would otherwise fall on the shoulders of government. Thus, as a matter of efficiency, the
government forgoes taxes which should have been spent to address public needs, because
certain private entities already assume a part of the burden. This is the rationale for the tax
exemption of charitable institutions. The loss of taxes by the government is compensated by its
relief from doing public works which would have been funded by appropriations from the
Treasury. 42 
Charitable institutions, however, are not ipso facto entitled to a tax exemption. The
requirements for a tax exemption are specified by the law granting it. The power of Congress to
tax implies the power to exempt from tax. Congress can create tax exemptions, subject to the
constitutional provision that "[n]o law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of Congress." 43 The requirements for a tax
exemption are strictly construed against the taxpayer 44 because an exemption restricts the
collection of taxes necessary for the existence of the government.
The Court in Lung Center declared that the Lung Center of the Philippines is a charitable
institution for the purpose of exemption from real property taxes. This ruling uses the same
premise as Hospital de San Juan 45 and Jesus Sacred Heart College 46 which says that receiving
income from paying patients does not destroy the charitable nature of a hospital.
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether out-
patient, or confined in the hospital, or receives subsidies from the government, so long as the
money received is devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons managing or operating the
institution. 47  proper," but must be "devoted or used altogether to the charitable object which it is intended
For real property taxes, the incidental generation of income is permissible because the test of
exemption is the use of the property. The Constitution provides that "[c]haritable institutions,
churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from taxation." 48 The test of exemption is
not strictly a requirement on the intrinsic nature or character of the institution. The test requires
that the institution use the property in a certain way, i.e. for a charitable purpose. Thus, the
Court held that the Lung Center of the Philippines did not lose its charitable character when it
used a portion of its lot for commercial purposes. The effect of failing to meet the use
requirement is simply to remove from the tax exemption that portion of the property not
devoted to charity.
The Constitution exempts charitable institutions only from real property taxes. In the NIRC,
Congress decided to extend the exemption to income taxes. However, the way Congress crafted
Section 30(E) of the NIRC is materially different from Section 28(3), Article VI of the Constitution.
Section 30(E) of the NIRC defines the corporation or association that is exempt from income tax.
On the other hand, Section 28(3), Article VI of the Constitution does not define a charitable
institution, but requires that the institution "actually, directly and exclusively" use the property
for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution must be devoted
"exclusively" for charitable purposes. The organization of the institution refers to its corporate
form, as shown by its articles of incorporation, by-laws and other constitutive documents.
Section 30(E) of the NIRC specifically requires that the corporation or association be non-stock,
which is defined by the Corporation Code as "one where no part of its income is distributable as
dividends to its members, trustees, or officers" 49 and that any profit "obtain[ed] as an incident
to its operations shall, whenever necessary or proper, be used for the furtherance of the
purpose or purposes for which the corporation was organized." 50 However, under Lung Center,
any profit by a charitable institution must not only be plowed back "whenever necessary or
to achieve." 51 
The operations of the charitable institution generally refer to its regular activities. Section 30(E)
of the NIRC requires that these operations be exclusive to charity. There is also a specific
requirement that "no part of [the] net income or asset shall belong to or inure to the benefit of
any member, organizer, officer or any specific person." The use of lands, buildings and
improvements of the institution is but a part of its operations.
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable
institution. However, this does not automatically exempt St. Luke's from paying taxes. This only
refers to the organization of St. Luke's. Even if St. Luke's meets the test of charity, a charitable
institution is not ipso facto tax exempt. To be exempt from real property taxes, Section 28(3),
Article VI of the Constitution requires that a charitable institution use the property "actually,
directly and exclusively" for charitable purposes. To be exempt from income taxes, Section 30(E)
of the NIRC requires that a charitable institution must be "organized and operated exclusively"
for charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC
requires that the institution be "operated exclusively" for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words "organized and
operated exclusively" by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the disposition made of such income,
₱1,395,725,350.00
shall be subject to tax imposed under this Code. (Emphasis supplied)
In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution INCOME FROM OPERATIONS ₱334,642,615.00 100%
conducts "any" activity for profit, such activity is not tax exempt even as its not-for-profit
activities remain tax exempt. This paragraph qualifies the requirements in Section 30(E) that the Free Services -218,187,498.00 -65.20%
"[n]on-stock corporation or association [must be] organized and operated exclusively for x x x
charitable x x x purposes x x x." It likewise qualifies the requirement in Section 30(G) that the INCOME FROM OPERATIONS, Net of FREE SERVICES ₱116,455,117.00 34.80%
civic organization must be "operated exclusively" for the promotion of social welfare.
Thus, even if the charitable institution must be "organized and operated exclusively" for OTHER INCOME 17,482,304.00
charitable purposes, it is nevertheless allowed to engage in "activities conducted for profit"
without losing its tax exempt status for its not-for-profit activities. The only consequence is that EXCESS OF REVENUES OVER EXPENSES ₱133,937,421.00
the "income of whatever kind and character" of a charitable institution "from any of its activities
conducted for profit, regardless of the disposition made of such income, shall be subject to tax."
Prior to the introduction of Section 27(B), the tax rate on such income from for-profit activities In Lung Center, this Court declared:
was the ordinary corporate rate under Section 27(A). With the introduction of Section 27(B), the "[e]xclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from
tax rate is now 10%. participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a
In 1998, St. Luke's had total revenues of ₱1,730,367,965 from services to paying patients. It privilege exclusively." x x x The words "dominant use" or "principal use" cannot be substituted
cannot be disputed that a hospital which receives approximately ₱1.73 billion from paying for the words "used exclusively" without doing violence to the Constitution and the law. Solely is
patients is not an institution "operated exclusively" for charitable purposes. Clearly, revenues synonymous with exclusively. 54 
from paying patients are income received from "activities conducted for profit." 52 Indeed, St. The Court cannot expand the meaning of the words "operated exclusively" without violating the
Luke's admits that it derived profits from its paying patients. St. Luke's declared ₱1,730,367,965 NIRC. Services to paying patients are activities conducted for profit. They cannot be considered
as "Revenues from Services to Patients" in contrast to its "Free Services" expenditure of any other way. There is a "purpose to make profit over and above the cost" of services. 55 The
₱218,187,498. In its Comment in G.R. No. 195909, St. Luke's showed the following "calculation" ₱1.73 billion total revenues from paying patients is not even incidental to St. Luke's charity
to support its claim that 65.20% of its "income after expenses was allocated to free or charitable expenditure of ₱218,187,498 for non-paying patients.
services" in 1998. 53  St. Luke's claims that its charity expenditure of ₱218,187,498 is 65.20% of its operating income
REVENUES FROM SERVICES TO PATIENTS ₱1,730,367,965.00 in 1998. However, if a part of the remaining 34.80% of the operating income is reinvested in
property, equipment or facilities used for services to paying and non-paying patients, then it
OPERATING EXPENSES cannot be said that the income is "devoted or used altogether to the charitable object which it is
intended to achieve." 56 The income is plowed back to the corporation not entirely for charitable
Professional care of patients ₱1,016,608,394.00 purposes, but for profit as well. In any case, the last paragraph of Section 30 of the NIRC
expressly qualifies that income from activities for profit is taxable "regardless of the disposition
Administrative 287,319,334.00 made of such income."
Jesus Sacred Heart College declared that there is no official legislative record explaining the
Household and Property 91,797,622.00
phrase "any activity conducted for profit." However, it quoted a deposition of Senator Mariano
Jesus Cuenco, who was a member of the Committee of Conference for the Senate, which
introduced the phrase "or from any activity conducted for profit."
P. Cuando ha hablado de la Universidad de Santo Tomás que tiene un hospital, no cree Vd. que
es una actividad esencial dicho hospital para el funcionamiento del colegio de medicina de dicha
universidad?
xxxx
R. Si el hospital se limita a recibir enformos pobres, mi contestación seria afirmativa; pero
considerando que el hospital tiene cuartos de pago, y a los mismos generalmente van enfermos
de buena posición social económica, lo que se paga por estos enfermos debe estar sujeto a
'income tax', y es una de las razones que hemos tenido para insertar las palabras o frase 'or from
any activity conducted for profit.' 57  However, St. Luke's has good reasons to rely on the letter dated 6 June 1990 by the BIR, which
The question was whether having a hospital is essential to an educational institution like the
College of Medicine of the University of Santo Tomas. Senator Cuenco answered that if the
hospital has paid rooms generally occupied by people of good economic standing, then it should
be subject to income tax. He said that this was one of the reasons Congress inserted the phrase
"or any activity conducted for profit."
The question in Jesus Sacred Heart College involves an educational institution. 58 However, it is
applicable to charitable institutions because Senator Cuenco's response shows an intent to focus
on the activities of charitable institutions. Activities for profit should not escape the reach of
taxation. Being a non-stock and non-profit corporation does not, by this reason alone,
completely exempt an institution from tax. An institution cannot use its corporate form to
prevent its profitable activities from being taxed.
The Court finds that St. Luke's is a corporation that is not "operated exclusively" for charitable or
social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is
based not only on a strict interpretation of a provision granting tax exemption, but also on the
clear and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an
institution be "operated exclusively" for charitable or social welfare purposes to be completely
exempt from income tax. An institution under Section 30(E) or (G) does not lose its tax
exemption if it earns income from its for-profit activities. Such income from for-profit activities,
under the last paragraph of Section 30, is merely subject to income tax, previously at the
ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27(B).
A tax exemption is effectively a social subsidy granted by the State because an exempt
institution is spared from sharing in the expenses of government and yet benefits from them.
Tax exemptions for charitable institutions should therefore be limited to institutions beneficial
to the public and those which improve social welfare. A profit-making entity should not be
allowed to exploit this subsidy to the detriment of the government and other
taxpayers.1âwphi1
St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit hospital
under Section 27(B) of the NIRC as long as it does not distribute any of its profits to its members
and such profits are reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary
non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-
profit activities.
St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC.
opined that St. Luke's is "a corporation for purely charitable and social welfare purposes"59 and
thus exempt from income tax. 60 In Michael J. Lhuillier, Inc. v. Commissioner of Internal
Revenue, 61 the Court said that "good faith and honest belief that one is not subject to tax on the
basis of previous interpretation of government agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of surcharges and interest." 62 
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No. 195909 is PARTLY
GRANTED. The Decision of the Court of Tax Appeals En Banc dated 19 November 2010 and its
Resolution dated 1 March 2011 in CTA Case No. 6746 are MODIFIED. St. Luke's Medical Center,
Inc. is ORDERED TO PAY the deficiency income tax in 1998 based on the 10% preferential income
tax rate under Section 27(B) of the National Internal Revenue Code. However, it is not liable for
surcharges and interest on such deficiency income tax under Sections 248 and 249 of the
National Internal Revenue Code. All other parts of the Decision and Resolution of the Court of
Tax Appeals are AFFIRMED.
The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for violating Section
1, Rule 45 of the Rules of Court.
SO ORDERED.
 DECISION
LEONARDO-DE CASTRO, J.:
This is a clear opportunity for this Court to clarify the effects of our two previous decisions,
issued a decade apart, on the power of local government units to collect real property taxes
from airport authorities located within their area, and the nature or the juridical personality of
said airport authorities.
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure seeking to reverse and set aside the October 8, 2007 Decision 1 of the Court of
Appeals (Cebu City) in CA-G.R. SP No. 01360 and the February 12, 2008 Resolution2 denying
petitioner's motion for reconsideration.
THE FACTS
Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on
July 31, 1990 under Republic Act No. 69583 to "undertake the economical, efficient and effective
control, management and supervision of the Mactan International Airport in the Province of
Cebu and the Lahug Airport in Cebu City x x x and such other airports as may be established in
the Province of Cebu." It is represented in this case by the Office of the Solicitor General.
Respondent City of Lapu-Lapu is a local government unit and political subdivision, created and
existing under its own charter with capacity to sue and be sued. Respondent Elena T. Pacaldo
was impleaded in her capacity as the City Treasurer of respondent City.
Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision
of Republic Act No. 6958:
Section 14. Tax Exemptions.– The Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and instrumentalities:
Provided, That no tax exemption herein granted shall extend to any subsidiary which may be
organized by the Authority.
On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International
Airport Authority v. Marcos4 (the 1996 MCIAA case) declaring that upon the effectivity of
Republic Act No. 7160 (The Local Government Code of 1991), petitioner was no longer exempt
from real estate taxes. The Court held:
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
G.R. No. 181756               June 15, 2015 exemptions from payment of real property taxes granted to natural or juridical persons,
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner,  including government-owned or controlled corporations, except as provided in the said section,
vs. and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that
CITY OF LAPU-LAPU and ELENA T. PACALDO, Respondents.
its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. x x x.
On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax
assessing the lots comprising the Mactan International Airport in the amount of
₱162,058,959.52. Petitioner complained that there were discrepancies in said Statement of Real
Estate Tax as follows:
(a) [T]he statement included lots and buildings not found in the inventory of petitioner’s real
properties;
(b) [S]ome of the lots were covered by two separate tax declarations which resulted in double
assessment;
(c) [There were] double entries pertaining to the same lots; and
(d) [T]he statement included lots utilized exclusively for governmental purposes.5
Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner in
the amount of ₱151,376,134.66. Petitioner averred that this amount covered real estate taxes
on the lots utilized solely and exclusively for public or governmental purposes such as the
airfield, runway and taxiway, and the lots on which they are situated.6
Petitioner paid respondent City the amount of four million pesos (₱4,000,000.00) monthly,
which was later increased to six million pesos (₱6,000,000.00) monthly. As of December 2003,
petitioner had paid respondent City a total of ₱275,728,313.36.7
Upon request of petitioner’s General Manager, the Secretary of the Department of Justice (DOJ)
issued Opinion No. 50, Series of 1998,8 and we quote the pertinent portions of said Opinion
below:
You further state that among the real properties deemed transferred to MCIAA are the airfield,
runway, taxiway and the lots on which the runway and taxiway are situated, the tax declarations
of which were transferred in the name of the MCIAA. In 1997, the City of Lapu-Lapu imposed
real estate taxes on these properties invoking the provisions of the Local Government Code.
It is your view that these properties are not subject to real property tax because they are
exclusively used for airport purposes. You said that the runway and taxiway are not only used by
the commercial airlines but also by the Philippine Air Force and other government agencies. As
such and in conjunction with the above interpretation of Section 15 of R.A. No. 6958, you
believe that these properties are considered owned by the Republic of the Philippines. Hence,
this request for opinion.
The query is resolved in the affirmative. The properties used for airport purposes (i.e. airfield,
runway, taxiway and the lots on which the runway and taxiway are situated) are owned by the
Republic of the Philippines.
xxxx
Under the Law on Public Corporations, the legislature has complete control over the property
which a municipal corporation has acquired in its public or governmental capacity and which is
devoted to public or governmental use. The municipality in dealing with said property is subject
to such restrictions and limitations as the legislature may impose. On the other hand, property
which a municipal corporation acquired in its private or proprietary capacity, is held by it in the
same character as a private individual. Hence, the legislature in dealing with such property, is
subject to the constitutional restrictions concerning property (Martin, Public Corporations
[1997], p. 30; see also Province of Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]).
The same may be said of properties transferred to the MCIAA and used for airport purposes,
such as those involved herein. Since such properties are of public dominion, they are deemed
held by the MCIAA in trust for the Government and can be alienated only as may be provided by
law.
Based on the foregoing, it is our considered opinion that the properties used for airport
purposes, such as the airfield, runway and taxiway and the lots on which the runway and
taxiway are located, are owned by the State or by the Republic of the Philippines and are merely
held in trust by the MCIAA, notwithstanding that certificates of titles thereto may have been
issued in the name of the MCIAA. (Emphases added.)
Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement to the
City Treasurer of Lapu-Lapu dated August 3, 1998,9 which reads:
The distinction as to which among the MCIAA properties are still considered "owned by the
State or by the Republic of the Philippines," such as the resolution in the above-cited DOJ
Opinion No. 50, for purposes of real property tax exemption is hereby deemed tenable
considering that the subject "airfield, runway, taxiway and the lots on which the runway and
taxiway are situated" appears to be the subject of real property tax assessment and collection of
the city government of Lapu-Lapu, hence, the same are definitely located within the jurisdiction
of Lapu-Lapu City. Moreover, then Undersecretary Antonio P. Belicena of the Department of
Finance, in his 1st Indorsement dated May 18, 1998, advanced that "this Department (DOF)
interposes no objection to the request of Mactan Cebu International Airport Authority for
exemption from payment of real property tax on the property used for airport purposes"
mentioned above.
The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject
airfield, runway, taxiway and the lots on which the runway and taxiway are situated, from the
"Taxable Roll" to the "Exempt Roll" of real properties.
The City Treasurer thereat should be informed on the action taken for his immediate
appropriate action. (Emphases added.)
Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax
Balances up to the year 2002 reflecting the amount of ₱246,395,477.20. Petitioner claimed that
the statement again included the lots utilized solely and exclusively for public purpose such as
the airfield, runway, and taxiway and the lots on which these are built. Respondent Pacaldo then
issued Notices of Levy on 18 sets of real properties of petitioner.10
Petitioner filed a petition for prohibition11 with the Regional Trial Court (RTC) of Lapu-Lapu City
with prayer for the issuance of a temporary restraining order (TRO) and/or a writ of preliminary
injunction, docketed as SCA No. 6056-L. Branch 53 of RTC Lapu-Lapu City then issued a 72-hour
TRO. The petition for prohibition sought to enjoin respondent City from issuing a warrant of levy
against petitioner’s properties and from selling them at public auction for delinquency in realty
tax obligations. The petition likewise prayed for a declaration that the airport terminal building,
the airfield, runway, taxiway and the lots on which they are situated are exempted from real
estate taxes after due hearing. Petitioner based its claim of exemption on DOJ Opinion No. 50.
The RTC issued an Order denying the motion for extension of the TRO. Thus, on December10,
2003, respondent City auctioned 27 of petitioner’s properties. As there was no interested bidder
who participated in the auction sale, respondent City forfeited and purchased said properties.
The corresponding Certificates of Sale of Delinquent Property were issued to respondent City.12
Petitioner claimed before the RTC that it had discovered that respondent City did not pass any
ordinance authorizing the collection of real property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment. Petitioner argued that without the
corresponding tax ordinances, respondent City could not impose and collect real property tax,
an additional tax for the SEF, and penalty interest from petitioner.13
The RTC issued an Order14 on December 28, 2004 granting petitioner’s application for a writ of
preliminary injunction. The pertinent portions of the Order are quoted below:
The supervening legal issue has rendered it imperative that the matter of the consolidation of
the ownership of the auctioned properties be placed on hold. Furthermore, it is the view of the
Court that great prejudice and damage will be suffered by petitioner if it were to lose its
dominion over these properties now when the most important legal issue has still to be resolved
by the Court. Besides, the respondents and the intervenor have not sufficiently shown cause
why petitioner’s application should not be granted.
WHEREFORE, the foregoing considered, petitioner’s application for a writ of preliminary
injunction is granted. Consequently, upon the approval of a bond in the amount of one million
pesos (₱1,000,000.00), let a writ of preliminary injunction issue enjoining the respondents, the
intervenor, their agents or persons acting in [their] behalf, to desist from consolidating and
exercising ownership over the properties of the petitioner.
However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an
Order15 dated December 5, 2005. The RTC reasoned as follows:
The respondent City, in the courseof the hearing of its motion, presented to this Court a
certified copy of its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section
25 whereof authorized the collection of a rate of one and one-half (1 1/2) [per centum] from
owners, executors or administrators of any real estate lying within the jurisdiction of the City of
Lapu-Lapu, based on the assessed value as shown in the latest revision.
Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local
Government Code of 1991), to the mind of the Court this ordinance is still a valid and effective
ordinance in view of Sec. 529 of RA 7160 x x x [and the] Implementing Rules and Regulations of
RA 7160 x x x.
xxxx
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the
25% penalty collected is higher than the 2% interest allowed under Sec. 255 of the said law
which provides:
In case of failure to pay the basic real property tax or any other tax levied under this Title upon
the expiration of the periods as provided in Section 250, or when due, as the case may be, shall
subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on
the unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid:
Provided, however, That in no case shall the total interest on the unpaid tax or portion thereof
exceed thirty-six (36) months.
This difference does not however detract from the essential enforceability and effectivity of
Ordinance No. 44 pursuant to Section 529 of RA 7160 and Article 278 of the Implementing Rules
and Regulations. The outcome of this disparity is simply that respondent City can only collect an
interest of 2% per month on the unpaid tax. Consequently, respondent City [has] to recompute
the petitioner’s tax liability.
It is also the Court’s perception that respondent City can still collect the additional 1% tax on
real property without an ordinance to this effect. It may be recalled that Republic Act No. 5447
has created the Special Education Fund which is constituted from the proceeds of the additional
tax on real property imposed by the law. Respondent City has collected this tax as mandated by
this law without any ordinance for the purpose, as there is no need for it. Even when RA 5447
was amended by PD 464 (Real Property Tax Code), respondent City had continued to collect the
tax, as it used to.
It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3,
a(3) and b(2) which concern the allocation of the additional tax, considering that under RA 7160,
the proceeds of the additional 1% tax on real property accrue exclusively to the Special
Education Fund. Nevertheless, RA 5447 has not been totally repealed; there is only a partial
repeal.
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax. This is so since RA 5447 is still in force and effect,
and the declared policy of the government in enacting the law, which is to contribute to the
financial support of the goals of education as provided in the Constitution, necessitates the
continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would
be to place the collection of the tax at the option of the local legislature. This would run counter
to the declared policy of the government when the SEF was created and the tax imposed.
As regards the allegation of respondents that this Court has no jurisdiction to entertain the
instant petition, the Court deems it proper, at this stage of the proceedings, not to treat this
issue, as it involves facts which are yet to be established.
x x x [T]he Court’s issuance of a writ of preliminary injunction may appear to be a futile gesture
in the light of Section 263 of RA 7160. x x x.
xxxx
It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the
one-year period, ownership fully vests on the local government unit concerned. Thus, when in
the present case petitioner failed to redeem the parcels of land acquired by respondent City, the
ownership thereof became fully vested on respondent City without the latter having to perform
any other acts to perfect its ownership. Corollary thereto, ownership on the part of respondent
City has become a fait accompli.
WHEREFORE, in the light of the foregoing considerations, respondents’ motion for
reconsideration is granted, and the order of this Court dated December 28, 2004 is hereby
reconsidered. Consequently, the writ of preliminary injunction issued by this Court is hereby
lifted.
Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals (Cebu City), with
urgent prayer for the issuance of a TRO and/or writ of preliminary injunction, docketed as CA-
G.R. SP No. 01360. The Court of Appeals (Cebu City) issued a TRO 17 on January 5, 2006 and
shortly thereafter, issued a writ of preliminary injunction18 on February 17, 2006.
RULING OF THE COURT OF APPEALS
The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007,
holding that petitioner is a government-owned or controlled corporation and its properties are
subject to realty tax. The dispositive portion of the questioned Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:
a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which
they are situated NOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-
Lapu;
b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the
Special Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to
Section 255 of the Local Government Code, respondent city can only collect an interest of 2%
per month on the unpaid tax which total interest shall, in no case, exceed thirty-six (36) months;
c. We DECLARE the sale in public auction of the aforesaid properties and the eventual forfeiture
and purchase of the subject property by the respondent City of Lapu-Lapu as NULL and VOID.
However, petitioner MCIAA’s property is encumbered only by a limited lien possessed by the
respondent City of Lapu-Lapu in accord with Section 257 of the Local Government
Code.19Petitioner filed a Motion for Partial Reconsideration 20 of the questioned Decision
covering only the portion of said decision declaring that petitioner is a GOCC and, therefore, not
exempt from the realty tax and special education fund imposed by respondent City. Petitioner
cited Manila International Airport Authority v. Court of Appeals21 (the 2006 MIAA case) involving
the City of Parañaque and the Manila International Airport Authority. Petitioner claimed that it
had been described by this Court as a government instrumentality, and that it followed "as a
logical consequence that petitioner is exempt from the taxing powers of respondent City of
Lapu-Lapu."22 Petitioner alleged that the 1996 MCIAA case had been overturned by the Court in
the 2006 MIAA case. Petitioner thus prayed that it be declared exempt from paying the realty
tax, special education fund, and interest being collected by respondent City.
On February 12, 2008, the Court of Appeals denied petitioner’s motion for partial
reconsideration in the questioned Resolution.
The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case
and refused to apply the 2006 MIAA case. The Court of Appeals wrote in the questioned
Decision: "We find that our position is in line with the coherent and cohesive interpretation of
the relevant provisions of the Local Government Code on local taxation enunciated in the [1996
MCIAA] case which to our mind is more elegant and rational and provides intellectual clarity
than the one provided by the Supreme Court in the [2006] MIAA case."23
In the questioned Decision, the Court of Appeals held that petitioner’s airport terminal building,
airfield, runway, taxiway, and the lots on which they are situated are not exempt from real
estate tax reasoning as follows:
Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional
mandate of local autonomy, all natural and juridical persons, including government-owned or
controlled corporations (GOCCs), instrumentalities and agencies, are no longer exempt from
local taxes even if previously granted an exemption. The only exemptions from local taxes are
those specifically provided under the Code itself, or those enacted through subsequent
legislation.
Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the
exercise by local government units of their power to tax, the scope thereof or its limitations, and
the exemptions from local taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units. x x x.
xxxx
The above-stated provision, however, qualified the exemption of the National Government, its
agencies and instrumentalities from local taxation with the phrase "unless otherwise provided
herein."
Section 232 of the LGC provides for the power of the local government units (LGUs for brevity)
to levy real property tax. x x x.
xxxx
Section 234 of the LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions granted to natural and juridical persons, including government-
owned and controlled corporations, except as provided therein. x x x.
xxxx
Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. x x
x.24 (Citations omitted.)
The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the
2006 MIAA case, it finds and rules that:
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the
National Government, its agencies and instrumentalities as the same is qualified by Sections
193, 232 and 234 which "otherwise provided"; and
b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)
The Court of Appeals ratiocinated in the following manner:
Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by
persons, whether natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon
the effectivity of the Code. Further, the last paragraph of Section 234 of the Code also
unequivocally withdrew, upon the Code’s effectivity, exemptions from payment of real property
taxes previously granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section. Petitioner MCIAA, undoubtedly a
juridical person, it follows that its exemption from such tax granted under Section 14 of R.A.
6958 has been withdrawn.
xxxx
From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC,
instrumentalities were generally exempt from all forms of local government taxation, unless
otherwise provided in the Code. On the other hand, Section 232 "otherwise provided" insofar as
it allowed local government units to levy an ad valorem real property tax, irrespective of who
owned the property. At the same time, the imposition of real property taxes under Section 232
is, in turn, qualified by the phrase "not hereinafter specifically exempted." The exemptions from
real property taxes are enumerated in Section 234 of the Code which specifically states that only
real properties owned by the Republic of the Philippines or any of its political subdivisions are
exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within
the exceptions under Section 234 of the LGC.
Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its
agencies and instrumentalities under Section 133 is qualified by Sections 232 and 234, and
accordingly, the only relevant exemption now applicable to these bodies is what is now
provided under Section 234(a) of the Code. It may be noted that the express withdrawal of
previously granted exemptions to persons from the payment of real property tax by the LGC
does not even make any distinction as to whether the exempt person is a governmental entity
or not. As Sections 193 and 234 of the Code both state, the withdrawal applies to "all persons,
including GOCCs," thus encompassing the two classes of persons recognized under our laws,
natural persons and juridical persons.
xxxx
The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already
been lengthily but soundly, cogently and lucidly answered in the [1996 MCIAA] case x x x.
xxxx
Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case
that MIAA (and also petitioner MCIAA) is not a government-owned or controlled corporation but
an instrumentality based on Section 2(10) of the Administrative Code of 1987 appears to be
unsound. In the [2006 MIAA] case, the majority justifies MIAA’s purported exemption on Section
133(o)of the Local Government Code which places "agencies and instrumentalities: as generally
exempt from the taxation powers of the LGUs. It further went on to hold that "By express
mandate of the Local Government Code, local governments cannot impose any kind of tax on
national government instrumentalities like the MIAA." x x x.26 (Citations omitted.)
The Court of Appeals further cited Justice Tinga’s dissent in the 2006 MIAA case as well as
provisions from petitioner MCIAA’s charter to show that petitioner is a GOCC.27 The Court of
Appeals wrote:
These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal
relations. Under its charter, it has the power to acquire, possess and incur obligations. It also has
the power to contract in its own name and to acquire title to movable or immovable property.
More importantly, it may likewise exercise powers of a corporation under the Corporation Code.
Moreover, based on its own allegation, it even recognized itself as a GOCC when it alleged in its
petition for prohibition filed before the lower court that it "is a body corporate organized and
existing under Republic Act No. 6958 x x x."
We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city
can no longer challenge the tax-exempt character of the properties since it is estopped from
doing so when respondent City of Lapu-Lapu, through its former mayor, Ernest H. Weigel, Jr.,
had long ago conceded that petitioner’s properties are exempt from real property tax.
It is not denied by the respondent city that it considered, through its former mayor, Ernest H.
Weigel, Jr., petitioner’s subject properties, specifically the runway and taxiway, as exempt from
taxes. However, as astutely pointed out by the respondent city it "can never be in estoppel,
particularly in matters involving taxes. It is a well-known rule that erroneous application and
enforcement of the law by public officers do not preclude subsequent correct application of the
statute, and that the Government is never estopped by mistake or error on the part of its
agents."28 (Citations omitted.)
The Court of Appeals established the following:
a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance for
the imposition of realty tax against petitioner MCIAA;
b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is
authorized by law, Republic Act No. 5447; and
c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is
likewise [sanctioned] by respondent City’s ordinance.29
The Court of Appeals likewise held that respondent City has a valid and existing local tax
ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which provided
for the imposition of real property tax. The relevant provision reads:
Chapter 5 – Tax on Real Property Ownership
Section 25. RATE OF TAX. - A rate of one and one-half (1 1/2) percentum shall be collected from
owners, executors or administrators of any real estate lying within the territorial jurisdiction of
the City of Lapu-Lapu, based on the assessed value as shown in the latest revision.30
The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity of
the LGC, it remained in force and effect, citing Section 529 of the LGC and Article 278 of the
LGC’s Implementing Rules and Regulations.31
As regards the Special Education Fund, the Court of Appeals held that respondent City can still
collect the additional 1% tax on real property even without an ordinance to this effect, as this is
authorized by Republic Act No. 5447, as amended by Presidential Decree No. 464 (the Real
Property Tax Code), which does not require an enabling tax ordinance. The Court of Appeals
affirmed the RTC’s ruling that Republic Act No. 5447 was still in force and effect notwithstanding
the passing of the LGC, as the latter only partially repealed the former law. What Section 534 of
the LGC repealed was Section 3 a(3) and b(2) of Republic Act No. 5447, and not the entire law
that created the Special Education Fund.32 The repealed provisions referred to allocation of
taxes on Virginia type cigarettes and duties on imported leaf tobacco and the percentage
remittances to the taxing authority concerned. The Court of Appeals, citing The Commission on
Audit of the Province of Cebu v. Province of Cebu,33 held that "[t]he failure to add a specific
repealing clause particularly mentioning the statute to be repealed indicates that the intent was
not to repeal any existing law on the matter, unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and the old laws."34 The Court of Appeals quoted the
RTC’s discussion on this issue, which we reproduce below:
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax. This is so since R.A. 5447 is still in force and effect,
and the declared policy of the government in enacting the law, which is to contribute to the
financial support of the goals of education as provided in the Constitution, necessitates the
continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would
be to place the collection of the tax at the option of the local legislature. This would run counter
to the declared policy of the government when the SEF was created and the tax
imposed.35 Regarding the penalty interest, the Court of Appeals found that Section 30 of
Ordinance No. 44 of respondent City provided for a penalty surcharge of 25% of the tax due for
a given year. Said provision reads:
Section 30. – PENALTY FOR FAILURE TO PAY TAX. – Failure to pay the tax provided for under this
Chapter within the time fixed in Section 27, shall subject the taxpayer to a surcharge of twenty-
five percent (25%), without interest.36
The Court of Appeals however declared that after the effectivity of the Local Government Code,
the respondent City could only collect penalty surcharge up to the extent of 72%, covering a
period of three years or 36 months, for the entire delinquent property.37 This was lower than the
25% per annum surcharge imposed by Ordinance No. 44.38The Court of Appeals affirmed
the findings of the RTC in the decision quoted below:
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the
25% penalty collected is higher than the 2% allowed under Sec. 255 of the said law which
provides:
xxxx
This difference does not however detract from the essential enforceability and effectivity of
Ordinance No. 44 pursuant to Section 529 of RA No. 7160 and Article 278 of the Implementing
Rules and Regulations. The outcome of this disparity is simply that respondent City can only
collect an interest of 2% per month on the unpaid tax. Consequently, respondent city will have
to [recompute] the petitioner’s tax liability.39
It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that
respondent City has the power to impose real property taxes over petitioner, "it is also
evident and categorical that, under Republic Act No. 6958, the properties of petitioner MCIAA
may not be conveyed or transferred to any person or entity except to the national
government."40 The relevant provisions of the said law are quoted below:
Section 4. Functions, Powers and Duties.– The Authority shall have the following functions,
powers and duties:
xxxx
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any
land, building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or mortgage by the
Authority nor to transfer to any entity other than the National Government[.]
Section 13. Borrowing Power.– The Authority may, in accordance with Section 21, Article XII of
the Constitution and other existing laws, rules and regulations on local or foreign borrowing,
raise funds, either from local or international sources, by way of loans, credit or securities, and
other borrowing instruments with the power to create pledges, mortgages and other voluntary
liens or encumbrances on any of its assets or properties, subject to the prior approval of the
President of the Philippines.
All loans contracted by the Authority under this section, together with all interests and other
sums payable in respect thereof, shall constitute a charge upon all the revenues and assets of
the Authority and shall rank equally with one another, but shall have priority over any other
claim or charge on the revenue and assets of the Authority: Provided, That this provision shall
not be construed as a prohibition or restriction on the power of the Authority to create pledges,
mortgages and other voluntary liens or encumbrances on any asset or property of the Authority.
The payment of the loans or other indebtedness of the Authority may be guaranteed by the
National Government subject to the approval of the President of the Philippines.
The Court of Appeals concluded that "it is clear that petitioner MCIAA is denied by its charter
the absolute right to dispose of its property to any person or entity except to the national
government and it is not empowered to obtain loans or encumber its property without the
approval of the President."41 The questioned Decision contained the following conclusion:
With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested
exclusively on Congress. LGUs, through its local legislative bodies, are now given direct authority
to levy taxes, fees and other charges pursuant to Article X, Section 5 of the 1987 Constitution.
And one of the most significant provisions of the LGC is the removal of the blanket inclusion of
instrumentalities and agencies of the national government from the coverage of local taxation.
The express withdrawal by the Code of previously granted exemptions from realty taxes applied
to instrumentalities and government-owned or controlled corporations (GOCCs) such as the
petitioner Mactan-Cebu International Airport Authority. Thus, petitioner MCIAA became a
taxable person in view of the withdrawal of the realty tax exemption that it previously enjoyed
under Section 14 of RA No. 6958 of its charter. As expressed and categorically held in the
Mactan case, the removal and withdrawal of tax exemptions previously enjoyed by persons,
natural or juridical, are consistent with the State policy to ensure autonomy to local
governments and the objective of the Local Government Code that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of national goals.
However, in the case at bench, petitioner MCIAA’s charter expressly bars the alienation or
mortgage of its property to any person or entity except to the national government. Therefore,
while petitioner MCIAA is a taxable person for purposes of real property taxation, respondent
City of Lapu-Lapu is prohibited from seizing, selling and owning these properties by and through
a public auction in order to satisfy petitioner MCIAA’s tax liability.42 (Citations omitted.)
In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied
petitioner’s motion for reconsideration based on the following grounds:
First, the MCIAA case remains the controlling law on the matter as the same is the established
precedent; not the MIAA case but the MCIAA case since the former, as keenly pointed out by
the respondent City of Lapu-Lapu, has not yet attained finality as there is still yet a pending
motion for reconsideration filed with the Supreme Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot be
similarly invoked in the case at bench. The said case cannot be considered as the "law of the
case." The "law of the case" doctrine has been defined as that principle under which
determinations of questions of law will generally be held to govern a case throughout all its
subsequent stages where such determination has already been made on a prior appeal to a
court of last resort. It is merely a rule of procedure and does not go to the power of the court,
and will not be adhered to where its application will result in an unjust decision. It relates
entirely to questions of law, and is confined in its operation to subsequent proceedings in the
same case. According to said doctrine, whatever has been irrevocably established constitutes
the law of the case only as to the same parties in the same case and not to different parties in an
entirely different case. Besides, pending resolution of the aforesaid motion for reconsideration
in the MIAA case, the latter case has not irrevocably established anything.
Thus, after a thorough and judicious review of the allegations in petitioner’s motion for
reconsideration, this Court resolves to deny the same as the matters raised therein had already
been exhaustively discussed in the decision sought to be reconsidered, and that no new matters
were raised which would warrant the modification, much less reversal, thereof. 43 (Emphasis
added, citations omitted.)
PETITIONER’S THEORY
Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly
declared that petitioner, while vested with corporate powers, is not considered a government-
owned or controlled corporation, but is a government instrumentality like the Manila
International Airport Authority (MIAA), Philippine Ports Authority (PPA), University of the
Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed by
respondent City.44Petitioner alleges that Republic Act No. 6958 placed "a limitation on
petitioner’s administration of its assets and properties" as it provides under Section 4(e) that
"any asset in the international airport important to national security cannot be alienated or
mortgaged by petitioner or transferred to any entity other than the National Government."45
Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the
following:
I
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY THE
HONORABLE COURT IN THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL ESTATE
TAXES IMPOSED BY RESPONDENT CITY OF LAPULAPU.
II
THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL BUILDING, AIRFIELD,
RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE SITUATED, ARE EXEMPT FROM
REAL PROPERTY TAXES.
III
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX WITHOUT ANY
APPROPRIATE ORDINANCE.
IV
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR THE SPECIAL
EDUCATION FUND IN THE ABSENCE OF ANY CORRESPONDING ORDINANCE.
V
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANSANY ORDINANCE
MANDATING ITS IMPOSITION.46
Petitioner claims the following similarities with MIAA:
1. MCIAA belongs to the same class and performs identical functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international and domestic airport in Paranaque City for
public use, while MCIAA was organized to operate the international and domestic airport in
Mactan for public use.
4. Both are attached agencies of the Department of Transportation and Communications.47
Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order No.
903).
Section 3 of Executive Order No. 903 provides:
Sec. 3. Creation of the Manila International Airport Authority. There is hereby established a body
corporate to be known as the Manila International Airport Authority which shall be attached to
the Ministry of Transportation and Communications. The principal office of the Authority shall
be located at the New Manila International Airport. The Authority may establish such offices,
branches, agencies or subsidiaries as it may deem proper and necessary; x x x.
Section 2 of Republic Act No. 6958 reads:
Section 2. Creation of the Mactan-Cebu International Airport Authority.– There is hereby
established a body corporate to be known as the Mactan-Cebu International Airport Authority
which shall be attached to the Department of Transportation and Communications. The
principal office of the Authority shall be located at the Mactan International Airport, Province of
Cebu.
The Authority may have such branches, agencies or subsidiaries as it may deem proper and
necessary.
As to MIAA’s purposes and objectives, Section 4 of Executive Order No. 903 reads:
Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and objectives:
(a) To help encourage and promote international and domestic air traffic in the Philippines as a
means of making the Philippines a center of international trade and tourism and accelerating
the development of the means of transportation and communications in the country;
(b) To formulate and adopt for application in the Airport internationally acceptable standards of
airport accommodation and service; and
(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and
domestic air travel.
Petitioner claims that the above purposes and objectives are analogous to those enumerated in
its charter, specifically Section 3 of Republic Act No. 6958, which reads:
Section 3. Primary Purposes and Objectives.– The Authority shall principally undertake the
economical, efficient and effective control, management and supervision of the Mactan
International Airport in the Province of Cebu and the Lahug Airport in Cebu City, hereinafter
collectively referred to as the airports, and such other airports as may be established in the
Province of Cebu. In addition, it shall have the following objectives:
(a) To encourage, promote and develop international and domestic air traffic in the central
Visayas and Mindanao regions as a means of making the regions centers of international trade
and tourism, and accelerating the development of the means of transportation and
communications in the country; and
(b) To upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.
The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903 are:
Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions, powers
and duties:
(a) To formulate, in coordination with the Bureau of Air Transportation and other appropriate
government agencies, a comprehensive and integrated policy and program for the Airport and
to implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as
shall be necessary for the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the Airport, and to control and/or supervise as may be necessary
the construction of any structure or the rendition of any services within the Airport;
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time to time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein;
(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;
(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport premises,
works, appliances, facilities or concessions or for any service provided by the Authority, subject
to the approval of the Minister of Transportation and Communications in consultation with the
Minister of Finance, and subject further to the provisions of Batas Pambansa Blg. 325 where
applicable;
(l) To invest its idle funds, as it may deem proper, in government securities and other evidences
of indebtedness of the government;
(m) To provide services, whether on its own or otherwise, within the Airport and the approaches
thereof, which shall include but shall not be limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the care, convenience and security
of passengers, visitors and other airport users; and
(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.
(n) To perform such other acts and transact such other business, directly or indirectly necessary,
incidental or conducive to the attainment of the purposes and objectives of the Authority,
including the adoption of necessary measures to remedy congestion in the Airport; and
(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these
powers are not inconsistent with the provisions of this Executive Order.
Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of
Republic Act No. 6958, as shown in the provision quoted below:
Section 4. Functions, Powers and Duties.– The Authority shall have the following functions,
powers and duties:
(a) To formulate a comprehensive and integrated development policy and program for the
airports and to implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as
shall be necessary for the efficient functioning of the airports;
(c) To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the airports, and to control and supervise the construction of
any structure or the rendition of any service within the airports;
(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines,
insofar as those powers are not inconsistent with the provisions of this Act;
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any
land, building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or mortgage by the
Authority nor to transfer to any entity other than the National Government;
(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;
(g) To levy and collect dues, charges, fees or assessments for the use of airport premises, works,
appliances, facilities or concessions, or for any service provided by the Authority;
(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the
use of airport premises for such measures as may be necessary to make the Authority more
effective and efficient in the discharge of its assigned tasks;
(i) To invest its idle funds, as it may deem proper, in government securities and other evidences
of indebtedness; and
(j) To provide services, whether on its own or otherwise, within the airports and the approaches
thereof as may be necessary or in connection with the maintenance and operation of the
airports and their facilities.
Petitioner claims that like MIAA, it has police authority within its premises, as shown in their
respective charters quoted below:
EO 903, Sec. 6. Police Authority. — The Authority shall have the power to exercise such police
authority as may be necessary within its premises to carry out its functions and attain its
purposes and objectives, without prejudice to the exercise of functions within the same
premises by the Ministry of National Defense through the Aviation Security Command
(AVSECOM) as provided in LOI 961: Provided, That the Authority may request the assistance of
law enforcement agencies, including request for deputization as may be required. x x x.
R.A. No. 6958, Section 5. Police Authority.– The Authority shall have the power to exercise such
police authority as may be necessary within its premises or areas of operation to carry out its
functions and attain its purposes and objectives: Provided, That the Authority may request the
assistance of law enforcement agencies, including request for deputization as may be required.
x x x.
Petitioner pointed out other similarities in the two charters, such as:
1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section 15,
Executive Order No. 903; Section 12, Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903;
Section 14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to the President an annual report generally
dealing with their activities and operations (Section 14, Executive Order No. 903; Section 11,
Republic Act No. 6958); and
4. Both have borrowing power subject to the approval of the President (Section 16, Executive
Order No. 903; Section 13, Republic Act No. 6958).48
Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006 MIAA
case, placed it in the same class as MIAA and considered it as a government instrumentality.
Petitioner submits that since it is also a government instrumentality like MIAA, the following
conclusion arrived by the Court in the 2006 MIAA case is also applicable to petitioner:
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the
entire government machinery, MIAA is a government instrumentality and not a government-
owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA
as a government instrumentality is not a taxable person because it is not subject to "[t]axes,
fees or charges of any kind" by local governments. The only exception is when MIAA leases its
real property to a "taxable person" as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased becomes subject to real estate tax. Thus,
only portions of the Airport Lands and Buildings leased to taxable persons like private parties
are subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of
the Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which
includes public airports and seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax
under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that
properties of public dominion are not subject to execution or foreclosure sale. 49 (Emphases
added.)
Petitioner insists that its properties consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated are not subject to real property tax because
they are actually, solely and exclusively used for public purposes.50 They are indispensable to the
operation of the Mactan International Airport and by their very nature, these properties are
exempt from tax. Said properties belong to the State and are merely held by petitioner in trust.
As earlier mentioned, petitioner claims that these properties are important to national security
and cannot be alienated, mortgaged, or transferred to any entity except the National
Government.
Petitioner prays that judgment be rendered:
a) Declaring petitioner exempt from paying real property taxes as it is a government
instrumentality;
b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the basic
real property tax, the additional tax for the SEF and the penalty interest for its failure to pass the
corresponding tax ordinances; and
c) Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real
property taxes as they are used solely and exclusively for public purpose.51
In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling has
overturned the 1996 MCIAA ruling. Petitioner cites Justice Dante O. Tinga’s dissent in the MIAA
ruling, as follows:
[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The
majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local
Government Code than that employed by the Court in Mactan. Moreover, the parties in Mactan
and in this case are similarly situated, as can be obviously deducted from the fact that both
petitioners are airport authorities operating under similarly worded charters. And the fact that
the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda
evinces an intent to go against the Court’s jurisprudential trend adopting the philosophy of
expanded local government rule under the Local Government Code.
x x x The majority is obviously inconsistent with Mactan and there is no way these two rulings
can stand together. Following basic principles in statutory construction, Mactan will be deemed
as giving way to this new ruling.
xxxx
There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the
MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly engaged
in the business of operating an airport. They are the owners of airport properties they
respectively maintain and hold title over these properties in their name. These entities are both
owned by the State, and denied by their respective charters the absolute right to dispose of
their properties without prior approval elsewhere. Both of them are not empowered to obtain
loans or encumber their properties without prior approval the prior approval of the
President.52 (Citations omitted.)
Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on
respondent City’s part that it must have a tax measure to be able to impose a tax or special
assessment. Petitioner avers that assuming that it is a non-exempt entity or that its airport lands
and buildings are not exempt, it was only upon the effectivity of Ordinance No. 070-2007 on
January 1,2008 that respondent City could properly impose the basic real property tax, the
additional tax for the SEF, and the interest in case of nonpayment.53
Petitioner filed its Memorandum54 on June 17, 2009.
RESPONDENTS’ THEORY
In their Comment,55 respondents point out that petitioner partially moved for a reconsideration
of the questioned Decision only as to the issue of whether petitioner is a GOCC or not. Thus,
respondents declare that the other portions of the questioned decision had already attained
finality and ought not to be placed in issue in this petition for certiorari. Thus, respondents
discussed the other issues raised by petitioner with reservation as to this objection.
Respondents summarized the issues and the grounds relied upon as follows:
STATEMENT OF THE ISSUES
WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT FROM PAYING
REAL PROPERTY TAXES
WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL EDUCATION FUND
AND PENALTY INTEREST
WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY
INCLUDING THE LOTS ON WHICH THEY ARE SITUATED ARE EXEMPT FROM REALTY TAXES
GROUNDS RELIED UPON
1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY TAXES
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT
4. CITY CAN COLLECT REALTY TAX AND INTEREST
5. CITY CAN COLLECT SEF
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING INJUNCTIVE RELIEF
7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC56
Respondents claim that "the mere mention of MCIAA in the MIAA v. [Court of Appeals] case
does not make it the controlling case on the matter."57 Respondents further claim that the 1996
MCIAA case where this Court held that petitioner is a GOCC is the controlling jurisprudence.
Respondents point out that petitioner and MIAA are two very different entities. Respondents
argue that petitioner is a GOCC contrary to its assertions, based on its Charter and on DOJ
Opinion No. 50.
Respondents contend that if petitioner is not a GOCC but an instrumentality of the government,
still the following statement in the 1996 MCIAA case applies:
Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of
the Government performing governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy, no one can doubt its
wisdom.58 Respondents argue that MCIAA properties such as the terminal building, taxiway and
runway are not exempt from real property taxation. As discussed in the 1996 MCIAA case,
Section 234 of the LGC omitted GOCCs such as MCIAA from entities enjoying tax exemptions.
Said decision also provides that the transfer of ownership of the land to petitioner was absolute
and petitioner cannot evade payment of taxes.59
Even if the following issues were not raised by petitioner in its motion for reconsideration of the
questioned Decision, and thus the ruling pertaining to these issues in the questioned decision
had become final, respondents still discussed its side over its objections as to the propriety of
bringing these up before this Court.
1. Estoppel does not lie against the government.
2. Respondent City can collect realty taxes and interest.
a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 241, 247).
b. The City of Lapu-Lapu passed in1980 Ordinance No. 44, or the Omnibus Tax Ordinance,
wherein the imposition of real property tax was made. This Ordinance was in force and effect by
virtue of Article 278 of the IRR of Republic Act No. 7160.60
c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, imposed real
property taxes, special education fund and further provided for the payment of interest and
surcharges. Thus, the issue is passé and is moot and academic.
3. Respondent City can collect Special Education Fund.
a. The LGC does not require the enactment of an ordinance for the collection of the SEF.
b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need
not be covered by ordinance. Besides, the City has enacted the Revenue Code containing
provisions for the levy and collection of the SEF.61
Furthermore, respondents aver that:
1. Collection of taxes is beyond the ambit of injunction.
a. Respondents contend that the petition only questions the denial of the writ of preliminary
injunction by the RTC and the Court of Appeals. Petitioner failed to show irreparable injury.
b. Comparing the alleged damage that may be caused petitioner and the direct affront and
challenge against the power to tax, which is an attribute of sovereignty, it is but appropriate that
injunctive relief should be denied.
2. Petitioner did not comply with LGC provisions on payment under protest.
a. Petitioner should have protested the tax imposition as provided in Article 285 of the IRR of
Republic Act No. 7160. Section 252 of Republic Act No. 7160 62 requires that the taxpayer’s
protest can only be entertained if the tax is first paid under protest.63
Respondents submitted their Memorandum64 on June 30, 2009, wherein they allege that the
1996 MCIAA case is still good law, as shown by the following cases wherein it was quoted:
1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545 Phil. 92
(2007)];
2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting Corporation[588 Phil. 785 (2008)]; and
4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].
Respondents assert that the constant reference to the 1996 MCIAA case "could hardly mean
that the doctrine has breathed its last" and that the 1996 MCIAA case stands as precedent and is
controlling on petitioner MCIAA.65
Respondents allege that the issue for consideration is whether it is proper for petitioner to raise
the issue of whether it is not liable to pay real property taxes, special education fund (SEF),
interests and/or surcharges.66 Respondents argue that the Court of Appeals was correct in
declaring petitioner liable for realty taxes, etc., on the terminal building, taxiway, and runway.
Respondent City relies on the following grounds:
1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991
authorizes the collection of real property taxes (etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt
from realty taxes, special education fund and interest;
5. Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from
MCIAA; [and]
6. Estoppel does not lie against the government.67
THIS COURT’S RULING
The petition has merit. The petitioner is an instrumentality of the government; thus, its
properties actually, solely and exclusively used for public purposes, consisting of the airport
terminal building, airfield, runway, taxiway and the lots on which they are situated, are not
subject to real property tax and respondent City is not justified in collecting taxes from
petitioner over said properties.
DISCUSSION
The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and
that petitioner is a GOCC. The 2006 MIAA case governs.
The Court of Appeals’ reliance on the 1996 MCIAA case is misplaced and its staunch refusal to
apply the 2006 MIAA case is patently erroneous. The Court of Appeals, finding for respondents,
refused to apply the ruling in the 2006 MIAA case on the premise that the same had not yet
reached finality, and that as far as MCIAA is concerned, the 1996 MCIAA case is still good law.68
While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of
cases,69 still, in 2006, the Court en banc decided a case that in effect reversed the 1996 Mactan
ruling. The 2006 MIAA case had, since the promulgation of the questioned Decision and
Resolution, reached finality and had in fact been either affirmed or cited in numerous cases by
the Court.70 The decision became final and executory on November 3, 2006.71Furthermore, the
2006 MIAA case was decided by the Court en banc while the 1996 MCIAA case was decided by a
Division. Hence, the 1996 MCIAA case should be read in light of the subsequent and unequivocal
ruling in the 2006 MIAA case.
To recall, in the 2006 MIAA case, we held that MIAA’s airport lands and buildings are exempt
from real estate tax imposed by local governments; that it is not a GOCC but an instrumentality
of the national government, with its real properties being owned by the Republic of the
Philippines, and these are exempt from real estate tax. Specifically referring to petitioner, we
stated as follows:
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. However, they
are not government-owned or controlled corporations in the strict sense as understood under
the Administrative Code, which is the governing law defining the legal relationship and status of
government entities.72 (Emphases ours.)
In the 2006 MIAA case, the issue before the Court was "whether the Airport Lands and Buildings
of MIAA are exempt from real estate tax under existing laws."73 We quote the extensive
discussion of the Court that led to its finding that MIAA’s lands and buildings were exempt from
real estate tax imposed by local governments:
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
xxxx
There is no dispute that a government-owned or controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13)
of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned
or controlled corporation as follows:
SEC. 2. General Terms Defined. - x x x (13) Government-owned or controlled corporation refers
to any agency organized as a stock or non-stock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in the case of
stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x.
A government-owned or controlled corporation must be "organized as a stock or non-stock
corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares. x x x
xxxx
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x
x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting
shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation must
have members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot
distribute any part of their income to their members. Section 11 of the MIAA Charter mandates
MIAA to remit 20% of its annual gross operating income to the National Treasury. This prevents
MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like
chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized
to operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference
is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. - x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x.
When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or
non-stock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers. Thus, MIAA exercises the governmental powers of
eminent domain, police authority and the levying of fees and charges. At the same time, MIAA
exercises "all the powers of a corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order."
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated
with the department framework. The MIAA Charter expressly states that transforming MIAA
into a "separate and autonomous body" will make its operation more "financially viable."
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. However, they
are not government-owned or controlled corporations in the strict sense as understood under
the Administrative Code, which is the governing law defining the legal relationship and status of
government entities.74 (Emphases ours, citations omitted.)
The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the
local governments as against the national government or its instrumentality:
A government instrumentality like MIAA falls under Section 133(o) of the Local Government
Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.- Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. x x x.
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While
the 1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."
When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved against taxation. This rule applies with greater
force when local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. x x x.
xxxx
There is, moreover, no point in national and local governments taxing each other, unless a
sound and compelling policy requires such transfer of public funds from one government pocket
to another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be express
language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the
Code, local governments cannot tax national government instrumentalities. x x x.75 (Emphases
ours, citations omitted.)
The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic
and belong to the public domain. The Court said:
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned
by the State or the Republic of the Philippines. x x x.
xxxx
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are
owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands
and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code,
the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the
State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public
for international and domestic travel and transportation. The fact that the MIAA collects
terminal fees and other charges from the public does not remove the character of the Airport
Lands and Buildings as properties for public use. x x x.
xxxx
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection
of such fees does not change the character of MIAA as an airport for public use. Such fees are
often termed user’s tax. This means taxing those among the public who actually use a public
facility instead of taxing all the public including those who never use the particular public facility.
A user’s tax is more equitable - a principle of taxation mandated in the 1987 Constitution.
The Airport Lands and Buildings of MIAA x x x are properties of public dominion because they
are intended for public use. As properties of public dominion, they indisputably belong to the
State or the Republic of the Philippines.76 (Emphases supplied, citations omitted.)
The Court also held in the 2006 MIAA case that airport lands and buildings are outside the
commerce of man.
As properties of public dominion, the Airport Lands and Buildings are outside the commerce of
man. The Court has ruled repeatedly that properties of public dominion are outside the
commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas
that properties devoted to public use are outside the commerce of man, thus:
xxxx
The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, x x x.
xxxx
The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.
Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale
of any property of public dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale
of the 600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw
from public use the Airport Lands and Buildings. x x x.
xxxx
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings
from public use, these properties remain properties of public dominion and are inalienable.
Since the Airport Lands and Buildings are inalienable in their present status as properties of
public dominion, they are not subject to levy on execution or foreclosure sale. As long as the
Airport Lands and Buildings are reserved for public use, their ownership remains with the State
or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. - (1) The
President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by
law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;
xxxx
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by
law or presidential proclamation from public use, they are properties of public dominion, owned
by the Republic and outside the commerce of man.77
Thus, the Court held that MIAA is "merely holding title to the Airport Lands and Buildings in trust
for the Republic. [Under] Section 48, Chapter 12, Book I of the Administrative Code [which]
allows instrumentalities like MIAA to hold title to real properties owned by the Republic."78
The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and held
that said provision exempts from real estate tax any "[r]eal property owned by the Republic of
the Philippines."79 The Court emphasized, however, that "portions of the Airport Lands and
Buildings that MIAA leases to private entities are not exempt from real estate tax." The Court
further held:
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x." The real properties owned by the
Republic are titled either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code allows real property
owned by the Republic to be titled in the name of agencies or instrumentalities of the national
government. Such real properties remain owned by the Republic and continue to be exempt
from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an
agency or instrumentality even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its tax exemption only
if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of
the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the
beneficial use of the Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases
to private corporations is subject to real estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a consideration to a taxable person and therefore such land
area is subject to real estate tax. x x x.80
Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila
International Airport Authority v. City of Pasay,81 thus:
The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case
involved airport lands and buildings located in Parañaque City while this case involved airport
lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same
threshold issue: whether the local government can impose real property tax on the airport
lands, consisting mostly of the runways, as well as the airport buildings, of MIAA. x x x.
xxxx
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase "includes x x x government-owned or controlled
corporations" which means that a government "instrumentality" may or may not be a
"government-owned or controlled corporation." Obviously, the term government
"instrumentality" is broader than the term "government-owned or controlled corporation." x x
x.
xxxx
The fact that two terms have separate definitions means that while a government
"instrumentality" may include a "government-owned or controlled corporation," there may be a
government "instrumentality" that will not qualify as a "government-owned or controlled
corporation."  the national government, not integrated within the department framework, vested with special
A close scrutiny of the definition of "government-owned or controlled corporation" in Section
2(13) will show that MIAA would not fall under such definition. MIAA is a government
"instrumentality" that does not qualify as a "government-owned or controlled corporation." x x
x.
xxxx
Thus, MIAA is not a government-owned or controlled corporation but a government
instrumentality which is exempt from any kind of tax from the local governments. Indeed, the
exercise of the taxing power of local government units is subject to the limitations enumerated
in Section 133 of the Local Government Code. Under Section 133(o) of the Local Government
Code, local government units have no power to tax instrumentalities of the national government
like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of public dominion
intended for public use, and as such are exempt from real property tax under Section 234(a) of
the Local Government Code. However, under the same provision, if MIAA leases its real
property to a taxable person, the specific property leased becomes subject to real property tax.
In this case, only those portions of the NAIA Pasay properties which are leased to taxable
persons like private parties are subject to real property tax by the City of Pasay. (Emphases
added, citations omitted.)
The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also mentioned
several other government instrumentalities, among which was the Philippine Fisheries
Development Authority. Thus, applying the 2006 MIAA ruling, the Court, in Philippine Fisheries
Development Authority v. Court of Appeals,82 held:
On the basis of the parameters set in the MIAA case, the Authority should be classified as an
instrumentality of the national government. As such, it is generally exempt from payment of real
property tax, except those portions which have been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the
instrumentalities of the national government. x x x.
xxxx
Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority
has a capital stock but it is not divided into shares of stocks. Also, it has no stockholders or
voting shares. Hence, it is not a stock corporation. Neither [is it] a non-stock corporation
because it has no members.
The Authority is actually a national government instrumentality which is defined as an agency of
functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter. When the law
vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers.
Thus, the Authority which is tasked with the special public function to carry out the
government’s policy "to promote the development of the country’s fishing industry and improve
the efficiency in handling, preserving, marketing, and distribution of fish and other aquatic
products," exercises the governmental powers of eminent domain, and the power to levy fees
and charges. At the same time, the Authority exercises "the general corporate powers conferred
by laws upon private and government-owned or controlled corporations."
xxxx
In light of the foregoing, the Authority should be classified as an instrumentality of the national
government which is liable to pay taxes only with respect to the portions of the property, the
beneficial use of which were vested in private entities. When local governments invoke the
power to tax on national government instrumentalities, such power is construed strictly against
local governments. The rule is that a tax is never presumed and there must be clear language in
the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local governments seek to tax
national government instrumentalities.
Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with
respect to the portions leased to private persons.1âwphi1 In case the Authority fails to pay the
real property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax
delinquency. x x x.
xxxx
In sum, the Court finds that the Authority is an instrumentality of the national government,
hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with
respect to those portions which are leased to private entities. Notwithstanding said tax
delinquency on the leased portions of the IFPC, the latter or any part thereof, being a property
of public domain, cannot be sold at public auction. This means that the City of Iloilo has to
satisfy the tax delinquency through means other than the sale at public auction of the IFPC.
(Citations omitted.) Another government instrumentality specifically mentioned in the 2006
MIAA case was the Philippine Ports Authority (PPA). Hence, in Curata v. Philippine Ports
Authority,83 the Court held that the PPA is similarly situated as MIAA, and ruled in this wise:
This Court’s disquisition in Manila International Airport Authority v. Court of Appeals –– ruling
that MIAA is not a government-owned and/or controlled corporation (GOCC), but an
instrumentality of the National Government and thus exempt from local taxation, and that its
real properties are owned by the Republic of the Philippines –– is instructive. x x x. These
findings are squarely applicable to PPA, as it is similarly situated as MIAA. First, PPA is likewise
not a GOCC for not having shares of stocks or members. Second, the docks, piers and buildings it
administers are likewise owned by the Republic and, thus, outside the commerce of man. Third,
PPA is a mere trustee of these properties. Hence, like MIAA, PPA is clearly a government
instrumentality, an agency of the government vested with corporate powers to perform
efficiently its governmental functions.
Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and
such may not be garnished absent an allocation by its Board or by statutory grant. If the PPA
funds cannot be garnished and its properties, being government properties, cannot be levied via
a writ of execution pursuant to a final judgment, then the trial court likewise cannot grant
discretionary execution pending appeal, as it would run afoul of the established jurisprudence
that government properties are exempt from execution. What cannot be done directly cannot
be done indirectly. (Citations omitted.)
In Government Service Insurance System v. City Treasurer and City Assessor of the City of
Manila84 the Court found that the GSIS was also a government instrumentality and not a GOCC,
applying the 2006 MIAA case even though the GSIS was not among those specifically mentioned
by the Court as similarly situated as MIAA. The Court said:
GSIS an instrumentality of the National Government
Apart from the foregoing consideration, the Court’s fairly recent ruling in Manila International
Airport Authority v. Court of Appeals, a case likewise involving real estate tax assessments by a
Metro Manila city on the real properties administered by MIAA, argues for the non-tax liability
of GSIS for real estate taxes. x x x.
xxxx
While perhaps not of governing sway in all fours inasmuch as what were involved in Manila
International Airport Authority, e.g., airfields and runways, are properties of the public dominion
and, hence, outside the commerce of man, the rationale underpinning the disposition in that
case is squarely applicable to GSIS, both MIAA and GSIS being similarly situated. First, while
created under CA 186 as a non-stock corporation, a status that has remained unchanged even
when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted
Sec. 193 of the LGC, a GOCC following the teaching of Manila International Airport Authority,
for, like MIAA, GSIS’s capital is not divided into unit shares. Also, GSIS has no members to speak
of. And by members, the reference is to those who, under Sec. 87 of the Corporation Code,
make up the non-stock corporation, and not to the compulsory members of the system who are
government employees. Its management is entrusted to a Board of Trustees whose members
are appointed by the President.
Second, the subject properties under GSIS’s name are likewise owned by the Republic. The GSIS
is but a mere trustee of the subject properties which have either been ceded to it by the
Government or acquired for the enhancement of the system. This particular property
arrangement is clearly shown by the fact that the disposal or conveyance of said subject
properties are either done by or through the authority of the President of the Philippines. x x x.
(Emphasis added, citations omitted.)
All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should be
classified as a government instrumentality, as its properties are being used for public purposes,
and should be exempt from real estate taxes. This is not to derogate in any way the delegated
authority of local government units to collect realty taxes, but to uphold the fundamental
doctrines of uniformity in taxation and equal protection of the laws, by applying all the
jurisprudence that have exempted from said taxes similar authorities, agencies, and
instrumentalities, whether covered by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock
corporation, which is a necessary condition before an agency or instrumentalityis deemed a
government-owned or controlled corporation. Like MIAA, petitioner MCIAA has capital under its
charter but it is not divided into shares of stock. It also has no stockholders or voting shares.
Republic Act No. 6958 provides:
Section 9. Capital.– The [Mactan-Cebu International Airport] Authority shall have an authorized
capital stock equal to and consisting of:
(a) The value of fixed assets (including airport facilities, runways and equipment) and such other
properties, movable and immovable, currently administered by or belonging to the airports as
valued on the date of the effectivity of this Act;
(b) The value of such real estate owned and/or administered by the airports; and
(c) Government contribution in such amount as may be deemed an appropriate initial
balance.1âwphi1 Such initial amount, as approved by the President of the Philippines, which
shall be more or less equivalent to six (6) months working capital requirement of the Authority,
is hereby authorized to be appropriated in the General Appropriations Act of the year following
its enactment into law. Thereafter, the government contribution to the capital of the Authority
shall be provided for in the General Appropriations Act.
Like in MIAA, the airport lands and buildings of MCIAA are properties of public dominion
because they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines, and are outside the commerce of man.
This, unless petitioner leases its real property to a taxable person, the specific property leased
becomes subject to real property tax; in which case, only those portions of petitioner’s
properties which are leased to taxable persons like private parties are subject to real property
tax by the City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in the
2006 MIAA case, and we quote:
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13)
of the Introductory Provisions of the Administrative Code because it is not organized as a stock
or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local Government Code. The exception to
the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity
under the Local Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus
are properties of public dominion. Properties of public dominion are owned by the State or the
Republic. x x x.
xxxx
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands
and Buildings of MIAA are intended for public use, and at the very least intended for public
service. Whether intended for public use or public service, the Airport Lands and Buildings are
properties of public dominion. As properties of public dominion, the Airport Lands and Buildings
are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the
Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or
charges of any kind" by local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which
includes public airports and seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever
that the Airport Lands and Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.85 (Emphases added.)
WHEREFORE, we hereby GRANT the petition. We REVERSE and SET ASIDE the Decision dated
October 8, 2007 and the Resolution dated February 12, 2008 of the Court of Appeals (Cebu City)
in CA-G.R. SP No. 01360. Accordingly, we DECLARE:
1. Petitioner's properties that are actually, solely and exclusively used for public purpose,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they
are situated, EXEMPT from real property tax imposed by the City of Lapu-Lapu.
2. VOID all the real property tax assessments, including the additional tax for the special
education fund and the penalty interest, as well as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on petitioner's properties, except the assessment
covering the portions that petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioner's properties and the eventual
forfeiture and purchase of the said properties by respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of Sale of Delinquent Property issued to respondent G.R. No. L-9637             April 30, 1957
City of Lapu-Lapu. AMERICAN BIBLE SOCIETY, plaintiff-appellant, 
SO ORDERED. vs.
CITY OF MANILA, defendant-appellee.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Nañawa for appellee.
FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly
registered and doing business in the Philippines through its Philippine agency established in
Manila in November, 1898, with its principal office at 636 Isaac Peral in said City. The defendant
appellee is a municipal corporation with powers that are to be exercised in conformity with the
provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles
and/or gospel portions thereof (except during the Japanese occupation) throughout the
Philippines and translating the same into several Philippine dialects. On May 29 1953, the acting
City Treasurer of the City of Manila informed plaintiff that it was conducting the business of
general merchandise since November, 1945, without providing itself with the necessary Mayor's
permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances
Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding
permit and license fees, together with compromise covering the period from the 4th quarter of
1st quarter 1946  2,206.85
1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff 2nd quarter 1946  1,950.38
deposit and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding
the same (Annex B). To avoid the closing of its business as well as further fines and penalties in 3rd quarter 1946  2,235.99
the premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit
and license fees in the aforementioned amount, giving at the same time notice to the City 4th quarter 1946  3,256.04
Treasurer that suit would be taken in court to question the legality of the ordinances under
which, the said fees were being collected (Annex C), which was done on the same date by filing 1st quarter 1947  13,241.07
the complaint that gave rise to this action. In its complaint plaintiff prays that judgment be
rendered declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2nd quarter 1947  15,774.55
2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to refund
to the plaintiff the sum of P5,891.45 paid under protest, together with legal interest thereon, 3rd quarter 1947  14,654.13
and the costs, plaintiff further praying for such other relief and remedy as the court may deem
just equitable. 4th quarter 1947  12,590.94
Defendant answered the complaint, maintaining in turn that said ordinances were enacted by
the Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, 1st quarter 1948  11,143.90
subsection (m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section
18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City of Manila, 2nd quarter 1948  14,715.26
and praying that the complaint be dismissed, with costs against plaintiff. This answer was replied
by the plaintiff reiterating the unconstitutionality of the often-repeated ordinances. 3rd quarter 1948  38,333.83
Before trial the parties submitted the following stipulation of facts:
COME NOW the parties in the above-entitled case, thru their undersigned attorneys and 4th quarter 1948  16,179.90
respectfully submit the following stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, 1st quarter 1949  23,975.10
Manila, Bibles, New Testaments, bible portions and bible concordance in English and other
foreign languages imported by it from the United States as well as Bibles, New Testaments and 2nd quarter 1949  17,802.08
bible portions in the local dialects imported and/or purchased locally; that from the fourth
quarter of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as 3rd quarter 1949  16,640.79
follows:
4th quarter 1949  15,961.38
Quarter Amount of Sales
1st quarter 1950  18,562.46
4th quarter 1945  P1,244.21
 maintain its operating cost it obtains substantial remittances from its New York office and
2nd quarter 1950  21,816.32
voluntary contributions and gifts from certain churches, both in the United States and in the
3rd quarter 1950  25,004.55
Philippines, which are interested in its missionary work. Regarding plaintiff's contention of lack
of profit in the sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone
4th quarter 1950  45,287.92 witness who testified on cross-examination that bibles bearing the price of 70 cents each from
plaintiff-appellant's New York office are sold here by plaintiff-appellant at P1.30 each; those
1st quarter 1951  37,841.21 bearing the price of $4.50 each are sold here at P10 each; those bearing the price of $7 each are
sold here at P15 each; and those bearing the price of $11 each are sold here at P22 each, clearly
2nd quarter 1951  29,103.98 show that plaintiff's contention that it never makes any profit from the sale of its bible, is
evidently untenable.
3rd quarter 1951  20,181.10 After hearing the Court rendered judgment, the last part of which is as follows:
As may be seen from the repealed section (m-2) of the Revised Administrative Code and the
4th quarter 1951  22,968.91 repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in
the way the legislative intent is expressed, yet their meaning is practically the same for the
1st quarter 1952  23,002.65 purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to be
levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of Ordinance No.
2nd quarter 1952  17,626.96 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance No.
3364).
3rd quarter 1952  17,921.01 IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that
this case should be dismissed, as it is hereby dismissed, for lack of merits, with costs against the
4th quarter 1952  24,180.72 plaintiff.
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified
1st quarter 1953  29,516.21 the case to Us for the reason that the errors assigned to the lower Court involved only questions
2. That the parties hereby reserve the right to present evidence of other facts not herein of law.
stipulated. Appellant contends that the lower Court erred:
WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may 1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not
present further evidence on their behalf. (Record on Appeal, pp. 15-16). unconstitutional;
When the case was set for hearing, plaintiff proved, among other things, that it has been in 2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under
existence in the Philippines since 1899, and that its parent society is in New York, United States which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of
of America; that its, contiguous real properties located at Isaac Peral are exempt from real Republic Act No. 409;
estate taxes; and that it was never required to pay any municipal license fee or tax before the 3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order
war, nor does the American Bible Society in the United States pay any license fee or sales tax for to be valid under the new Charter of the City of Manila, must first be approved by the President
the sale of bible therein. Plaintiff further tried to establish that it never made any profit from the of the Philippines; and
sale of its bibles, which are disposed of for as low as one third of the cost, and that in order to
4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial
proportions, it cannot escape from the operation of said municipal ordinances under the cloak
of religious privilege.
The issues. — As may be seen from the proceeding statement of the case, the issues involved in
the present controversy may be reduced to the following: (1) whether or not the ordinances of
the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and
valid; and (2) whether the provisions of said ordinances are applicable or not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines,
provides that:
(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise
thereof, and the free exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. No religion test shall be required for the
exercise of civil or political rights.
Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos.
2529 and 3000, as respectively amended, are unconstitutional and illegal in so far as its society is
concerned, because they provide for religious censorship and restrain the free exercise and
enjoyment of its religious profession, to wit: the distribution and sale of bibles and other
religious literature to the people of the Philippines.
Before entering into a discussion of the constitutional aspect of the case, We shall first consider
the provisions of the questioned ordinances in relation to their application to the sale of bibles,
etc. by appellant. The records, show that by letter of May 29, 1953 (Annex A), the City Treasurer
required plaintiff to secure a Mayor's permit in connection with the society's alleged business of
distributing and selling bibles, etc. and to pay permit dues in the sum of P35 for the period
covered in this litigation, plus the sum of P35 for compromise on account of plaintiff's failure to
secure the permit required by Ordinance No. 3000 of the City of Manila, as amended. This
Ordinance is of general application and not particularly directed against institutions like the
plaintiff, and it does not contain any provisions whatever prescribing religious censorship nor
restraining the free exercise and enjoyment of any religious profession. Section 1 of Ordinance
No. 3000 reads as follows:
SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or entity to conduct or
engage in any of the businesses, trades, or occupations enumerated in Section 3 of this
Ordinance or other businesses, trades, or occupations for which a permit is required for the
proper supervision and enforcement of existing laws and ordinances governing the sanitation,
security, and welfare of the public and the health of the employees engaged in the business
specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR
FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY TREASURER.
The business, trade or occupation of the plaintiff involved in this case is not particularly
mentioned in Section 3 of the Ordinance, and the record does not show that a permit is required
therefor under existing laws and ordinances for the proper supervision and enforcement of their
provisions governing the sanitation, security and welfare of the public and the health of the
employees engaged in the business of the plaintiff. However, sections 3 of Ordinance 3000
contains item No. 79, which reads as follows:
79. All other businesses, trades or occupations not 
mentioned in this Ordinance, except those upon which the 
City is not empowered to license or to tax P5.00
Therefore, the necessity of the permit is made to depend upon the power of the City to license
or tax said business, trade or occupation.
As to the license fees that the Treasurer of the City of Manila required the society to pay from
the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of
P50 as compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028
prescribes the following:
SEC. 1. FEES. — Subject to the provisions of section 578 of the Revised Ordinances of the City of
Manila, as amended, there shall be paid to the City Treasurer for engaging in any of the
businesses or occupations below enumerated, quarterly, license fees based on gross sales or
receipts realized during the preceding quarter in accordance with the rates herein prescribed:
PROVIDED, HOWEVER, That a person engaged in any businesses or occupation for the first time
shall pay the initial license fee based on the probable gross sales or receipts for the first quarter
beginning from the date of the opening of the business as indicated herein for the
corresponding business or occupation.
xxx     xxx     xxx
GROUP 2. — Retail dealers in new (not yet used) merchandise, which dealers are not yet subject
to the payment of any municipal tax, such as (1) retail dealers in general merchandise; (2) retail
dealers exclusively engaged in the sale of . . . books, including stationery.
xxx     xxx     xxx
As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No.
2529, as amended, are not imposed directly upon any religious institution but upon those
engaged in any of the business or occupations therein enumerated, such as retail "dealers in
general merchandise" which, it is alleged, cover the business or occupation of selling bibles,
books, etc.
Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of
said legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the
Municipal Board of the City of Manila:
(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both, and
(b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the
payment of any municipal tax.
For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in general
merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . . (e) books,
including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That the combined
total tax of any debtor or manufacturer, or both, enumerated under these subsections (m-1) and
(m-2), whether dealing in one or all of the articles mentioned herein, SHALL NOT BE IN EXCESS
OF FIVE HUNDRED PESOS PER ANNUM.
and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were
enacted in virtue of the power that said Act No. 3669 conferred upon the City of Manila.
Appellant, however, contends that said ordinances are longer in force and effect as the law
under which they were promulgated has been expressly repealed by Section 102 of Republic Act
No. 409 passed on June 18, 1949, known as the Revised Manila Charter.
Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly
repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of
the trial Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of
the new seemingly differ in the way the legislative intent was expressed, yet their meaning is
practically the same for the purpose of taxing the merchandise mentioned in both legal
provisions and, consequently, Ordinances Nos. 2529 and 3000, as amended, are to be
considered as still in full force and effect uninterruptedly up to the present.
Often the legislature, instead of simply amending the pre-existing statute, will repeal the old
statute in its entirety and by the same enactment re-enact all or certain portions of the
preexisting law. Of course, the problem created by this sort of legislative action involves mainly
the effect of the repeal upon rights and liabilities which accrued under the original statute. Are
those rights and liabilities destroyed or preserved? The authorities are divided as to the effect of
simultaneous repeals and re-enactments. Some adhere to the view that the rights and liabilities
accrued under the repealed act are destroyed, since the statutes from which they sprang are
actually terminated, even though for only a very short period of time. Others, and they seem to
be in the majority, refuse to accept this view of the situation, and consequently maintain that all
rights an liabilities which have accrued under the original statute are preserved and may be
enforced, since the re-enactment neutralizes the repeal, therefore, continuing the law in force
without interruption. (Crawford-Statutory Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and
wider concept of taxation and is different from the provisions of Section 2444(m-2) that the
former cannot be considered as a substantial re-enactment of the provisions of the latter. We
have quoted above the provisions of section 2444(m-2) of the Revised Administrative Code and
We shall now copy hereunder the provisions of Section 18, subdivision (o) of Republic Act No.
409, which reads as follows:
(o) To tax and fix the license fee on dealers in general merchandise, including importers and
indentors, except those dealers who may be expressly subject to the payment of some other
municipal tax under the provisions of this section.
Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers.
For purposes of the tax on retail dealers, general merchandise shall be classified into four main
classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4)
miscellaneous articles. A separate license shall be prescribed for each class but where
commodities of different classes are sold in the same establishment, it shall not be compulsory
for the owner to secure more than one license if he pays the higher or highest rate of tax
prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be provided
by ordinance.
For purposes of this section, the term "General merchandise" shall include poultry and livestock,
agricultural products, fish and other allied products.
The only essential difference that We find between these two provisions that may have any
bearing on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax
of any dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2),
whether dealing in one or all of the articles mentioned therein, shall not be in excess of P500 per
annum, the corresponding section 18, subsection (o) of Republic Act No. 409, does not contain
any limitation as to the amount of tax or license fee that the retail dealer has to pay per annum.
Hence, and in accordance with the weight of the authorities above referred to that maintain
that "all rights and liabilities which have accrued under the original statute are preserved and
may be enforced, since the reenactment neutralizes the repeal, therefore continuing the law in
force without interruption", We hold that the questioned ordinances of the City of Manila are
still in force and effect.
Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by
the President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which
reads as follows:
(ii) To tax, license and regulate any business, trade or occupation being conducted within the
City of Manila, not otherwise enumerated in the preceding subsections, including percentage
taxes based on gross sales or receipts, subject to the approval of the PRESIDENT, except
amusement taxes.
but this requirement of the President's approval was not contained in section 2444 of the
former Charter of the City of Manila under which Ordinance No. 2529 was promulgated.
Anyway, as stated by appellee's counsel, the business of "retail dealers in general merchandise"
is expressly enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an
ordinance prescribing a municipal tax on said business does not have to be approved by the
President to be effective, as it is not among those referred to in said subsection (ii). Moreover,
the questioned ordinances are still in force, having been promulgated by the Municipal Board of
the City of Manila under the authority granted to it by law.
The question that now remains to be determined is whether said ordinances are inapplicable,
invalid or unconstitutional if applied to the alleged business of distribution and sale of bibles to
the people of the Philippines by a religious corporation like the American Bible Society, plaintiff
herein.
With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028,
appellant contends that it is unconstitutional and illegal because it restrains the free exercise
and enjoyment of the religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the
freedom of religious profession and worship. "Religion has been spoken of as a profession of
faith to an active power that binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil.,
201).It has reference to one's views of his relations to His Creator and to the obligations they
impose of reverence to His being and character, and obedience to His Will (Davis vs. Beason, 133
U.S., 342). The constitutional guaranty of the free exercise and enjoyment of religious profession
and worship carries with it the right to disseminate religious information. Any restraints of such
right can only be justified like other restraints of freedom of expression on the grounds that
there is a clear and present danger of any substantive evil which the State has the right to
prevent". (Tañada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297).
In the case at bar the license fee herein involved is imposed upon appellant for its distribution
and sale of bibles and other religious literature:
In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license be
obtained before a person could canvass or solicit orders for goods, paintings, pictures, wares or
merchandise cannot be made to apply to members of Jehovah's Witnesses who went about
from door to door distributing literature and soliciting people to "purchase" certain religious
books and pamphlets, all published by the Watch Tower Bible & Tract Society. The "price" of the
books was twenty-five cents each, the "price" of the pamphlets five cents each. It was shown
that in making the solicitations there was a request for additional "contribution" of twenty-five
cents each for the books and five cents each for the pamphlets. Lesser sum were accepted,
however, and books were even donated in case interested persons were without funds.
On the above facts the Supreme Court held that it could not be said that petitioners were
engaged in commercial rather than a religious venture. Their activities could not be described as
embraced in the occupation of selling books and pamphlets. Then the Court continued:
"We do not mean to say that religious groups and the press are free from all financial burdens of
government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct.
444. We have here something quite different, for example, from a tax on the income of one who
engages in religious activities or a tax on property used or employed in connection with
activities. It is one thing to impose a tax on the income or property of a preacher. It is quite
another to exact a tax from him for the privilege of delivering a sermon. The tax imposed by the
City of Jeannette is a flat license tax, payment of which is a condition of the exercise of these
constitutional privileges. The power to tax the exercise of a privilege is the power to control or
suppress its enjoyment. . . . Those who can tax the exercise of this religious practice can make its
exercise so costly as to deprive it of the resources necessary for its maintenance. Those who can
tax the privilege of engaging in this form of missionary evangelism can close all its doors to all
those who do not have a full purse. Spreading religious beliefs in this ancient and honorable
manner would thus be denied the needy. . . .
It is contended however that the fact that the license tax can suppress or control this activity is
unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax
— a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to
impose a license tax on the exercise of these freedom is indeed as potent as the power of
censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as a
regulatory measure to defray the expenses of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities
whose enjoyment is guaranteed by the constitutional liberties of press and religion and
inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent
vice and evil of this flat license tax."
Nor could dissemination of religious information be conditioned upon the approval of an official
or manager even if the town were owned by a corporation as held in the case of Marsh vs. State
of Alabama (326 U.S. 501), or by the United States itself as held in the case of Tucker vs. Texas
(326 U.S. 517). In the former case the Supreme Court expressed the opinion that the right to
enjoy freedom of the press and religion occupies a preferred position as against the
constitutional right of property owners.
"When we balance the constitutional rights of owners of property against those of the people to
enjoy freedom of press and religion, as we must here, we remain mindful of the fact that the
latter occupy a preferred position. . . . In our view the circumstance that the property rights to
the premises where the deprivation of property here involved, took place, were held by others
than the public, is not sufficient to justify the State's permitting a corporation to govern a
community of citizens so as to restrict their fundamental liberties and the enforcement of such
restraint by the application of a State statute." (Tañada and Fernando on the Constitution of the
Philippines, Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue
Code, provides:
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The following organizations shall not
be taxed under this Title in respect to income received by them as such —  to the free exercise and enjoyment of its religious profession and worship, as well as its rights of
(e) Corporations or associations organized and operated exclusively for religious, charitable, . . .
or educational purposes, . . .: Provided, however, That the income of whatever kind and
character from any of its properties, real or personal, or from any activity conducted for profit,
regardless of the disposition made of such income, shall be liable to the tax imposed under this
Code;
Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff
from this tax and says that such exemption clearly indicates that the act of distributing and
selling bibles, etc. is purely religious and does not fall under the above legal provisions.
It may be true that in the case at bar the price asked for the bibles and other religious pamphlets
was in some instances a little bit higher than the actual cost of the same but this cannot mean
that appellant was engaged in the business or occupation of selling said "merchandise" for
profit. For this reason We believe that the provisions of City of Manila Ordinance No. 2529, as
amended, cannot be applied to appellant, for in doing so it would impair its free exercise and
enjoyment of its religious profession and worship as well as its rights of dissemination of
religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's
permit before any person can engage in any of the businesses, trades or occupations
enumerated therein, We do not find that it imposes any charge upon the enjoyment of a right
granted by the Constitution, nor tax the exercise of religious practices. In the case of Coleman
vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows:
An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or
otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles are
being delivered free, or whether same are being sold within the city limits of the City of Griffin,
without first obtaining written permission from the city manager of the City of Griffin, shall be
deemed a nuisance and punishable as an offense against the City of Griffin, does not deprive
defendant of his constitutional right of the free exercise and enjoyment of religious profession
and worship, even though it prohibits him from introducing and carrying out a scheme or
purpose which he sees fit to claim as a part of his religious system.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even
if applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is
not applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the
business of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right
dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also
inapplicable to said business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision
appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected
from it. Without pronouncement as to costs. It is so ordered.
G.R. No. 97787 August 1, 1996
The Anti-Graft League of the Philippines, Inc., represented by REYNALDO L. BAGATSING, in his
capacity as Chief Prosecutor/Investigator, petitioner, 
vs.
Hon. REYNALDO SAN JUAN, Provincial Governor, Hon. JOSE M. BARRETO, SR., Provincial Vice-
Governor, Hons. ERNESTO ESTRADA, ROMAN REYES, ISIDRO PACIS, LEONISA VERGEL DE DIOS,
REMEDIOS PARALEJAS, TIMOTEO PASCUAL, ALFREDO VILLANUEVA, AMOS REYES, Members of
the Provincial Board of Rizal, Hon. EUTROPIO MIGRIÑO, Presiding Judge, RTC-Pasig, Branch CLI
(151), Ortigas & Company Ltd., represented by ATTY. FRACISCO ORTIGAS, JR., Asian Appraisal
Co. Inc., Rizal Provincial Appraisal Assessor, Provincial Auditor and District Engineer, JESS DOE,
STEVE DOE and HECTOR DOE, respondents.
 
ROMERO, J.:p
It is fundamental in this jurisdiction that any party may only come to court if he has legal
standing and a valid cause of action. Petitioner Anti-Graft League of the Philippines, a self-
confessed "non-governmental, non-stock and non-profit organization, which was constituted to
protect the interest of the Republic and its instrumentalities and political subdivisions and its
constituents against abuses of its public officials and employees," claims the instant petition
for certiorari is a taxpayer's suit which it filed because the Provincial Board of Rizal (the Board)
allegedly illegally disbursed public funds in transactions involving four parcels of land in Ugong
Norte, Pasig. The allegation is denied by respondents who challenge the propriety of this action,
as well as the capacity of petitioner to file the same. Public respondents, officers of the Province
of Rizal (the Province), even intimate that the filing of this petition is politically-motivated.
On March 20, 1975, the President Ferdinand E. Marcos issued Presidential Decree No. 674,
establishing the Technological Colleges of Rizal. Among other things, it directed the Board to
provide funds for the purchase of a site and the construction of the necessary structures
thereon. Acting upon an authority granted by the office of the President, the Province was able
to negotiate with respondent Ortigas & Co., Ltd. (Ortigas) for the acquisition of four parcels of
land located in Ugong Norte, Pasig. Three deeds of absolute sale were executed on April 22 and
May 9, 1975, whereby Ortigas transferred its ownership over a total of 192,177 square meters
of land to the Province at P110.00 per square meter. The projected construction, however,
never materialized because of the decimation of the Province's resources brought about by the
creation of the Metro Manila Commission (MMC) in 1976.
Twelve years later, with the property lying idle and the Province needing funds to propel its 5-
years Comprehensive Development Program, the then incumbent Board passed Resolution No.
87-205 dated October 15, 1987 authorizing the Governor to sell the same. The said property was
eventually sold to Valley View Realty Development Corporation (Valley View) for P700.00 per
square meter or a total of P134,523,900.00, of which 30 million was given as downpayment. On
May 10, 1988, after learning about the sale, Ortigas filed before Branch 151 of the Regional Trial
Court of Pasig an action for recission of contract plus damages with preliminary injunction
against the Province. Docketed as Civil Case No. 55904, the complaint alleged that the Province
violated one of the terms of its contracts with Ortigas by selling the subject lots which were
intended to be utilized solely as a site for the construction of the Rizal Technological Colleges
and the Rizal Provincial Hospital.
Meanwhile, the new provincial officials, including herein public respondents, assumed office. On
April 21, 1988, the Board adopted Resolution No. 88-65 which provided for the rescission of the
deed of sale between the Province and Valley View on the ground that the sale price was
exceedingly low and, thus, prejudicial to the Province. Because of this, Valley View then filed a
complaint docketed as a Civil Case No. 55913 against the Province for specific performance and
damages. The case was, however, dismissed after the parties executed on August 12, 1988 a
compromise agreement whereby the Province returned the 30-million peso downpayment
earlier given by Valley View.
Civil Case No. 55904 was also resolved through a compromise agreement executed by and
between the Province and Ortigas on March 20, 1989. Under the said compromise agreement,
which was approved by respondent Judge Eutropio Migriño in his decision dated March 21,
1989, the Province agreed to reconvey the four parcels of land to Ortigas at a price of P2,250.00
per square meter, or a total of P432,398,250.00, payable within two years at an annual interest
rate of fourteen percent. This amount is higher than the market values separately determined
by respondents Asian Appraisal, Inc. and the Provincial Appraisal Committee, which respectively
pegged the price of the subject properties at P1,800.00 and P2,200.00 per square meter. Ortigas
made its final payment on March 30, 1991.
On April 1, 1991, petitioner filed the instant petition for certiorari with application for
preliminary injunction seeking the nullification of the March 20, 1989 compromise agreement,
and, corollarily, the decision of respondent Judge approving the same.
A reading of the petition immediately raises several questions: (1) Is the present action a
taxpayer's suit? Collarily, does petitioner possess the legal standing to question the transaction
entered into by the Provincial Board of Rizal with private respondent Ortigas? (2) Is the Supreme
Court the proper forum for the instant petition? (3) Assuming arguendo that the prior questions
may be answered in the affirmative, is the present action barred by laches?
Petitioner and respondents agree that to constitute a taxpayer's suit, two requisites must be
met, namely, that public funds are disbursed by a political subdivision or instrumentality and in
doing so, a law is violated or some irregularity is committed, and that the petitioner is directly
affected by the alleged ultra vires act.1 The same pronouncement was made in Kilosbayan,
Inc.  v.  Guingona, Jr.,2 where the Court also reiterated its liberal stance in entertaining so-called
taxpayer's suits, especially when important issues are involved. A closer examination of the facts
of this case would readily demonstrate that petitioner's standing should not even be made an
issue here, "since standing is a concept in constitutional law and here no constitutional question
is actually involved."3
In the case at bar, disbursement of public funds was only made in 1975 when the Province
bought the lands from Ortigas at P110.00 per square meter in line with the objectives of P.D.
674. Petitioner never referred to such purchase as an illegal disbursement of public funds but
focused on the alleged fraudulent reconveyance of said property to Ortigas because the price
paid was lower than the prevailing market value of neighboring lots. The first requirement,
therefore, which would make this petition a taxpayer's suit is absent. The only remaining
justification for petitioner to be allowed to pursue this action is whether it is, or would be,
directly affected by the act complained of. As we stated in Kilosbayan, Inc.  v.  Morato,4
Standing is a special concern in constitutional law because in some cases suits are brought not
by parties who have been personally injured by the operation of a law or by official action taken,
but by concerned citizens, taxpayers or voters who actually sue in the public interest. Hence the
question in standing is whether such parties have "alleged such a personal stake in the outcome
of the controversy as to assure that concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of difficult constitutional
questions." (Citing Baker v. Carr, 369 U.S. 186, 7 L. Ed. 2d 633 [1962])
Undeniably, as a taxpayer, petitioner would somehow be adversely affected by an illegal use of
public money. When, however, no such unlawful spending has been shown, as in the case at
bar, petitioner, even as a taxpayer, cannot question the transaction validly executed by and
between the Province and Ortigas for the simple reason that it is not privy to said contract. In
other words, petitioner has absolutely no cause of action, and consequently no locus standi, in
the instant case.
Petitioner committed further procedural error by filing its petition with this Court. While it is
ostensibly questioning the reconveyance of the subject lots to Ortigas, that is, the acts of the
Governor of Rizal and of the members of the Provincial Board, it is in effect mainly assailing the
March 21, 1989 judgment of respondent Judge Migriño who approved the compromise
agreement. The proper remedy which it should have taken was to file a petition for review of
the trial court's decision before the Court of Appeals because petitioner is questioning the
wisdom of the trial court's action which, in turn, calls for a factual determination of the
feasibility of an amicable settlement between the litigants. No legal issue cognizable by this
Court was ever raised by petitioner. Even if there was, such an action would have failed because
of petitioner's lack of legal standing to file the same.
Assuming arguendo that petitioner did have the personality and was justified in lodging this case
before the Court, did it do so seasonably? We think not. The questioned decision was
promulgated on March 21, 1989 and, no appeal having been made therefrom, became final and
executory on April 55, 1989. Petitioner filed the present action only on April 1, 1991, two years
later, contending that the trial court's decision merely adopted the compromise agreement
which provided, inter alia, that the last installment was due only on March 30, 1991. This
specious line of reasoning is easily demolished. Why should petitioner wait until the parties to
the transaction have fulfilled their respective obligations, which is two years from the date of
the contract, when it could have questioned the same much earlier, even at the contract's
inception, and in the process, spared everyone from unnecessary aggravation?
Accordingly, after concluding that, not only does petitioner lack the legal personality to file this
so-called taxpayer's suit, but that it filed the same beyond the reglementary period, this Court
no longer finds any reason to delve into the merits, or the lack of it, of the instant petition.
WHEREFORE, premises considered, the instant petition for certiorari  is hereby DISMISSED. Cost
against petitioner.
SO ORDERED.
G.R. No. 191667               April 17, 2013
LAND BANK OF THE PHILIPPINES, Petitioner, 
vs.
EDUARDO M. CACAYURAN, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this Petition for Review on Certiorari1 is the March 26, 2010 Decision2 of the Court of
Appeals (CA) in CA-G.R. CV. No. 89732 which affirmed with modification the April 10, 2007
Decision3 of the Regional Trial Court (RTC) of Agoo, La Union, Branch 31, declaring inter alia the
nullity of the loan agreements entered into by petitioner Land Bank of the Philippines (Land
Bank) and the Municipality of Agoo, La Union (Municipality).
The Facts
From 2005 to 2006, the Municipality’s Sangguniang Bayan (SB) passed certain resolutions to
implement a multi-phased plan (Redevelopment Plan) to redevelop the Agoo Public Plaza (Agoo
Plaza) where the Imelda Garden and Jose Rizal Monument were situated.
To finance phase 1 of the said plan, the SB initially passed Resolution No. 68-20054 on April 19,
2005, authorizing then Mayor Eufranio Eriguel (Mayor Eriguel) to obtain a loan from Land Bank
and incidental thereto, mortgage a 2,323.75 square meter lot situated at the southeastern
portion of the Agoo Plaza (Plaza Lot) as collateral. To serve as additional security, it further
authorized the assignment of a portion of its internal revenue allotment (IRA) and the monthly
income from the proposed project in favor of Land Bank.5 The foregoing terms were confirmed,
approved and ratified on October 4, 2005 through Resolution No. 139-2005. 6 Consequently, on
November 21, 2005, Land Bank extended a ₱4,000,000.00 loan in favor of the Municipality (First
Loan),7 the proceeds of which were used to construct ten (10) kiosks at the northern and
southern portions of the Imelda Garden. After completion, these kiosks were rented out.8
On March 7, 2006, the SB passed Resolution No. 58-2006, 9 approving the construction of a
commercial center on the Plaza Lot as part of phase II of the Redevelopment Plan. To finance
the project, Mayor Eriguel was again authorized to obtain a loan from Land Bank, posting as well
the same securities as that of the First Loan. All previous representations and warranties of
Mayor Eriguel related to the negotiation and obtention of the new loan10were ratified on
September 5, 2006 through Resolution No. 128-2006. 11 In consequence, Land Bank granted a
second loan in favor of the Municipality on October 20, 2006 in the principal amount of
₱28,000,000.00 (Second Loan).12
Unlike phase 1 of the Redevelopment Plan, the construction of the commercial center at the
Agoo Plaza was vehemently objected to by some residents of the Municipality. Led by
respondent Eduardo Cacayuran (Cacayuran), these residents claimed that the conversion of the
Agoo Plaza into a commercial center, as funded by the proceeds from the First and Second
Loans (Subject Loans), were "highly irregular, violative of the law, and detrimental to public
interests, and will result to wanton desecration of the said historical and public park." 13 The
foregoing was embodied in a Manifesto,14 launched through a signature campaign conducted by
the residents and Cacayuran.
In addition, Cacayuran wrote a letter15 dated December 8, 2006 addressed to Mayor Eriguel,
Vice Mayor Antonio Eslao (Vice Mayor Eslao), and the members of the SB namely, Violeta
Laroya-Balbin, Jaime Boado, Jr., Rogelio De Vera, James Dy, Crisogono Colubong, Ricardo
Fronda, Josephus Komiya, Erwina Eriguel, Felizardo Villanueva, and Gerard Mamuyac
(Implicated Officers), expressing the growing public clamor against the conversion of the Agoo
Plaza into a commercial center. He then requested the foregoing officers to furnish him certified
copies of various documents related to the aforementioned conversion including, among others,
the resolutions approving the Redevelopment Plan as well as the loan agreements for the sake
of public information and transparency.
Unable to get any response, Cacayuran, invoking his right as a taxpayer, filed a
Complaint16 against the Implicated Officers and Land Bank, assailing, among others, the validity
of the Subject Loans on the ground that the Plaza Lot used as collateral thereof is property of
public dominion and therefore, beyond the commerce of man.17
Upon denial of the Motion to Dismiss dated December 27, 2006,18 the Implicated Officers and
Land Bank filed their respective Answers.
For its part, Land Bank claimed that it is not privy to the Implicated Officers’ acts of destroying
the Agoo Plaza. It further asserted that Cacayuran did not have a cause of action against it since
he was not privy to any of the Subject Loans.19
During the pendency of the proceedings, the construction of the commercial center was
completed and the said structure later became known as the Agoo’s People Center (APC).
On May 8, 2007, the SB passed Municipal Ordinance No. 02-2007,20 declaring the area where the
APC stood as patrimonial property of the Municipality.
The Ruling of the RTC
In its Decision dated April 10, 2007,21 the RTC ruled in favor of Cacayuran, declaring the nullity of
the Subject Loans.22 It found that the resolutions approving the said loans were passed in a
highly irregular manner and thus, ultra vires; as such, the Municipality is not bound by the
same.23 Moreover, it found that the Plaza Lot is proscribed from collateralization given its nature
as property for public use.24
Aggrieved, Land Bank filed its Notice of Appeal on April 23, 2007.25 On the other hand, the
Implicated Officers’ appeal was deemed abandoned and dismissed for their failure to file an
appellants’ brief despite due notice.26 In this regard, only Land Bank’s appeal was given due
course by the CA.
Ruling of the CA
In its Decision dated March 26, 2010,27 the CA affirmed with modification the RTC’s ruling,
excluding Vice Mayor Eslao from any personal liability arising from the Subject Loans.28
It held, among others, that: (1) Cacayuran had locus standi to file his complaint, considering that
(a) he was born, raised and a bona fide resident of the Municipality; and (b) the issue at hand
involved public interest of transcendental importance;29 (2) Resolution Nos. 68-2005, 139-2005,
58-2006, 128-2006 and all other related resolutions (Subject Resolutions) were invalidly passed
due to the SB’s non-compliance with certain sections of Republic Act No. 7160, otherwise known
as the "Local Government Code of 1991" (LGC); (3) the Plaza Lot, which served as collateral for
the Subject Loans, is property of public dominion and thus, cannot be appropriated either by the
State or by private persons;30 and (4) the Subject Loans are ultra vires because they were
transacted without proper authority and their collateralization constituted improper
disbursement of public funds.
Dissatisfied, Land Bank filed the instant petition.
Issues Before the Court
The following issues have been raised for the Court’s resolution: (1) whether Cacayuran has
standing to sue; (2) whether the Subject Resolutions were validly passed; and (3) whether the
Subject Loans are ultra vires.
The Court’s Ruling
The petition lacks merit.
A. Cacayuran’s standing to sue
Land Bank claims that Cacayuran did not have any standing to contest the construction of the
APC as it was funded through the proceeds coming from the Subject Loans and not from public
funds. Besides, Cacayuran was not even a party to any of the Subject Loans and is thus,
precluded from questioning the same.
The argument is untenable.
It is hornbook principle that a taxpayer is allowed to sue where there is a claim that public funds
are illegally disbursed, or that public money is being deflected to any improper purpose, or that
there is wastage of public funds through the enforcement of an invalid or unconstitutional law.
A person suing as a taxpayer, however, must show that the act complained of directly involves
the illegal disbursement of public funds derived from taxation. In other words, for a taxpayer’s
suit to prosper, two requisites must be met namely, (1) public funds derived from taxation are
disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some
irregularity is committed; and (2) the petitioner is directly affected by the alleged act.31
Records reveal that the foregoing requisites are present in the instant case.
First, although the construction of the APC would be primarily sourced from the proceeds of the
Subject Loans, which Land Bank insists are not taxpayer’s money, there is no denying that public
funds derived from taxation are bound to be expended as the Municipality assigned a portion of
its IRA as a security for the foregoing loans. Needless to state, the Municipality’s IRA, which
serves as the local government unit’s just share in the national taxes, 32 is in the nature of public
funds derived from taxation. The Court believes, however, that although these funds may be
posted as a security, its collateralization should only be deemed effective during the incumbency
of the public officers who approved the same, else those who succeed them be effectively
deprived of its use.
In any event, it is observed that the proceeds from the Subject Loans had already been
converted into public funds by the Municipality’s receipt thereof. Funds coming from private
sources become impressed with the characteristics of public funds when they are under official
custody.33
Accordingly, the first requisite has been clearly met.
Second, as a resident-taxpayer of the Municipality, Cacayuran is directly affected by the
conversion of the Agoo Plaza which was funded by the proceeds of the Subject Loans. It is well-
settled that public plazas are properties for public use34 and therefore, belongs to the public
dominion.35 As such, it can be used by anybody and no one can exercise over it the rights of a
private owner.36 In this light, Cacayuran had a direct interest in ensuring that the Agoo Plaza
would not be exploited for commercial purposes through the APC’s construction. Moreover,
Cacayuran need not be privy to the Subject Loans in order to proffer his objections thereto. In
Mamba v. Lara, it has been held that a taxpayer need not be a party to the contract to challenge
its validity; as long as taxes are involved, people have a right to question contracts entered into
by the government.37
Therefore, as the above-stated requisites obtain in this case, Cacayuran has standing to file the
instant suit.
B. Validity of the Subject Resolutions
Land Bank avers that the Subject Resolutions provided ample authority for Mayor Eriguel to
contract the Subject Loans. It posits that Section 444(b)(1)(vi) of the LGC merely requires that
the municipal mayor be authorized by the SB concerned and that such authorization need not
be embodied in an ordinance.38
A careful perusal of Section 444(b)(1)(vi) of the LGC shows that while the authorization of the
municipal mayor need not be in the form of an ordinance, the obligation which the said local
executive is authorized to enter into must be made pursuant to a law or ordinance, viz:
Sec. 444. The Chief Executive: Powers, Duties, Functions and Compensation. -
xxxx
(b) For efficient, effective and economical governance the purpose of which is the general
welfare of the municipality and its inhabitants pursuant to Section 16 of this Code, the municipal
mayor shall:
xxxx
(vi) Upon authorization by the sangguniang bayan, represent the municipality in all its business
transactions and sign on its behalf all bonds, contracts, and obligations, and such other
documents made pursuant to law or ordinance; (Emphasis and underscoring supplied)
In the present case, while Mayor Eriguel’s authorization to contract the Subject Loans was not
contained – as it need not be contained – in the form of an ordinance, the said loans and even
the Redevelopment Plan itself were not approved pursuant to any law or ordinance but through
mere resolutions. The distinction between ordinances and resolutions is well-perceived. While
ordinances are laws and possess a general and permanent character, resolutions are merely
declarations of the sentiment or opinion of a lawmaking body on a specific matter and are
temporary in nature.39 As opposed to ordinances, "no rights can be conferred by and be inferred
from a resolution."40 In this accord, it cannot be denied that the SB violated Section 444(b)(1)(vi)
of the LGC altogether.
Noticeably, the passage of the Subject Resolutions was also tainted with other irregularities,
such as (1) the SB’s failure to submit the Subject Resolutions to the Sangguniang Panlalawigan of
La Union for its review contrary to Section 56 of the LGC;41 and (2) the lack of publication and
posting in contravention of Section 59 of the LGC.42
In fine, Land Bank cannot rely on the Subject Resolutions as basis to validate the Subject Loans.
C. Ultra vires nature of the Subject
Loans
Neither can Land Bank claim that the Subject Loans do not constitute ultra vires acts of the
officers who approved the same.
Generally, an ultra vires act is one committed outside the object for which a corporation is
created as defined by the law of its organization and therefore beyond the powers conferred
upon it by law.43 There are two (2) types of ultra vires acts. As held in Middletown Policemen's
Benevolent Association v. Township of Middletown:44
There is a distinction between an act utterly beyond the jurisdiction of a municipal corporation
and the irregular exercise of a basic power under the legislative grant in matters not in
themselves jurisdictional. The former are ultra vires in the primary sense and void; the latter,
ultra vires only in a secondary sense which does not preclude ratification or the application of
the doctrine of estoppel in the interest of equity and essential justice. (Emphasis and
underscoring supplied)
In other words, an act which is outside of the municipality’s jurisdiction is considered as a void
ultra vires act, while an act attended only by an irregularity but remains within the municipality’s
power is considered as an ultra vires act subject to ratification and/or validation. To the former
belongs municipal contracts which (a) are entered into beyond the express, implied or inherent
powers of the local government unit; and (b) do not comply with the substantive requirements
of law e.g., when expenditure of public funds is to be made, there must be an actual
appropriation and certificate of availability of funds; while to the latter belongs those which (a)
are entered into by the improper department, board, officer of agent; and (b)do not comply
with the formal requirements of a written contract e.g., the Statute of Frauds.45
Applying these principles to the case at bar, it is clear that the Subject Loans belong to the first
class of ultra vires acts deemed as void.
Records disclose that the said loans were executed by the Municipality for the purpose of
funding the conversion of the Agoo Plaza into a commercial center pursuant to the
Redevelopment Plan. However, the conversion of the said plaza is beyond the Municipality’s
jurisdiction considering the property’s nature as one for public use and thereby, forming part of
the public dominion. Accordingly, it cannot be the object of appropriation either by the State or
by private persons.46 Nor can it be the subject of lease or any other contractual undertaking.47 In
Villanueva v. Castañeda, Jr.,48 citing Espiritu v. Municipal Council of Pozorrubio, 49 the Court
pronounced that:
x x x Town plazas are properties of public dominion, to be devoted to public use and to be made
available to the public in general. They are outside the commerce of man and cannot be
disposed of or even leased by the municipality to private parties.1âwphi1
In this relation, Article 1409(1) of the Civil Code provides that a contract whose purpose is
contrary to law, morals, good customs, public order or public policy is considered void 50 and as
such, creates no rights or obligations or any juridical relations. 51 Consequently, given the
unlawful purpose behind the Subject Loans which is to fund the commercialization of the Agoo
Plaza pursuant to the Redevelopment Plan, they are considered as ultra vires in the primary
sense thus, rendering them void and in effect, non-binding on the Municipality.
At this juncture, it is equally observed that the land on which the Agoo Plaza is situated cannot
be converted into patrimonial property – as the SB tried to when it passed Municipal Ordinance
No. 02-200752 – absent any express grant by the national government.53 As public land used for
public use, the foregoing lot rightfully belongs to and is subject to the administration and control
of the Republic of the Philippines.54 Hence, without the said grant, the Municipality has no right
to claim it as patrimonial property.
Nevertheless, while the Subject Loans cannot bind the Municipality for being ultra vires, the
officers who authorized the passage of the Subject Resolutions are personally liable. Case law
states that public officials can be held personally accountable for acts claimed to have been
performed in connection with official duties where they have acted ultra vires,55 as in this case.
WHEREFORE, the petition is DENIED. Accordingly, the March 26, 2010 Decision of the Court of
Appeals in CA-G.R. CV. No. 89732 is hereby AFFIRMED.
SO ORDERED.

G.R. No. 171633               September 18, 2013

JUANITO VICTOR C. REMULLA, Petitioner, 
vs.
ERINEO S. MALIKSI, in his capacity as Governor of the Province of Cavite, RENATO A. IGNACIO,
in his capacity as Provincial Legal Officer of the Province of Cavite, MARIETTA O'HARA DE
VILLA, HEIRS OF HIGINO DE VILLA, GOLDENROD, INC., SONYA G. MATHAY, AND ELEUTERO M.
PASCUAL, Respondents.
RESOLUTION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Resolutions dated May 18, 20052 and
February 16, 20053 of the Court of Appeals (CA) in CA-G.R. SP No. 86465 which dismissed
petitioner Juanito Victor C. Remulla’s (Remulla) petition for annulment of judgment.
The Facts
On May 7, 1957, Marietta O’Hara de Villa (de Villa), in her personal capacity and as administratix
of the estate of her late husband Guillermo, ceded, through a deed of donation 4 (1957 deed of
donation), 134,957 square meters (sq. m.) (donated portion) of their 396,622 sq. m. property
(subject property) in favor of the Province of Cavite, on which now stands various government
offices and facilities.5
On December 28, 1981 and February 1, 1982,6 the Province of Cavite respectively filed a
Complaint and an Amended Complaint, before the then Court of First Instance of Cavite, Trece
Martires City, Branch 1 – now, Regional Trial Court of Trece Martires City, Branch 23 (RTC),
docketed as Civil Case No. TM-955 (expropriation case) – seeking to expropriate, for the amount
of ₱215,050.00, the remaining 261,665 sq. m. of the subject property which the former intends
to develop as the Provincial Capitol Site. Accordingly, the Province of Cavite made a preliminary
deposit of the amount of ₱21,505.00 and, on January 4, 1982, the RTC issued a Confirmatory
Writ of Immediate Possession7 in its favor, by virtue of which the Province of Cavite took
possession of the entire property.8
For her part, de Villa, through her Answer,9 opposed the expropriation proceedings, claiming
that there are still areas within the donated portion which the Province of Cavite failed to
develop.10 She also alleged that the fair market value of the subject property should be pegged
at the amount of ₱11,272,500.00, or at ₱45.00 per sq. m.11On June 9, 1989, while the
expropriation case was still pending, de Villa sold, for the amount of ₱2,000,000.00,12the
261,665 sq. m. portion of the subject property to Goldenrod, Inc. (Goldenrod), a joint venture
company owned by Sonya G. Mathay (Mathay) and Eleuterio M. Pascual, Jr.
(Pascual).13 Subsequently, Mathay and Pascual intervened in the expropriation case.14
On November 4, 2003, respondent then Cavite Governor Erineo S.Maliksi (Maliksi) issued
Executive Order No. 00415 authorizing the creation of a committee which recommended the
terms and conditions for the proper settlement of the expropriation case. The said committee
thereafter submitted its Committee Report16 dated November 24, 2003 recommending that: (a)
the just compensation be pegged at the amount of ₱495.00 per sq. m. plus 6% annual interest
for 22 years,17 for a total net consideration of ₱50,000,000.00, which amount shall be equally
shouldered by the Province of Cavite and Trece Martires City; (b) the total area to be
expropriated be limited to only 116,287 sq. m. and the donated portion be reduced to 48,429sq.
m.; and (c) 193,662 sq. m. of the subject property be reverted to Goldenrod which include a
fenced stadium, one-half of the Trece Martires Cemetery, the forest park; a residential area, and
some stalls; in turn, Goldenrod will construct a commercial/business center, an art/historical
museum, and an educational institution within five years from the signing of the compromise
agreement, among others.
The foregoing recommendations were then adopted/embodied in a Compromise
Agreement18 dated December 8, 2003 (subject compromise)entered into by and between
Maliksi and then Trece Martires City Mayor Melencio De Sagun, Jr., both assisted by respondent
Cavite Provincial Legal Officer Atty. Renato A. Ignacio (Ignacio), and, on the other hand, Mathay
and Pascual, in their capacity as owners of Goldenrod. On February 28,2004, Goldenrod sold its
landholdings to Mathay and Pascual for the amount of ₱400,000.00.19
Thereafter, the subject compromise was approved by the RTC in a Decision 20 dated March 18,
2004 and an Amended Decision21 dated March25, 2004 (compromise judgment), both of which
were ratified by the Sangguniang Panlalawigan of the Province of Cavite and the Sangguniang
Panlungsod of Trece Martires City per Resolution Nos. 195-S-2004 22 and 2004-
049,23 respectively.
The Proceedings Before The CA
On September 21, 2004, Remulla, in his personal capacity as taxpayer and as then Vice-
Governor and, hence, Presiding Officer of the Sangguniang Panlalawigan of the Province of
Cavite,24 filed a petition for annulment of judgment25 under Rule 47 of the Rules of Court before
the CA, arguing that the subject compromise is grossly disadvantageous to the government
because: (a) the agreed price for the subject property was excessive as compared to its value at
the time of taking in 1981;26 (b) the government stands to lose prime lots;27 and (c) it
nullifies/amends the 1957 deed of donation.28 Moreover, Maliksi entered into the subject
compromise without authority from the Sangguniang Panlalawigan of the Province of Cavite and
sans any certification on the availability of funds as required by law.29 Remulla claimed that
extrinsic fraud tainted the expropriation proceedings considering that there was collusion
between the parties and that respondent Ignacio deliberately withheld crucial information
regarding the property valuation and certain incidents prior to the expropriation case when he
presented the subject compromise for ratification before the Sangguniang Panlalawigan of the
Province of Cavite.30
On motion of respondents, however, the CA rendered a Resolution31 dated May 18, 2005,
dismissing Remulla’s petition for annulment of judgment based on the following grounds: ( a )
there was yet no disbursement of public funds at the time of its filing; thus, it cannot be
considered as a taxpayer's suit; and (b) Remulla was not a real party in interest to question the For these reasons, the CA should not have dismissed the petition for annulment of judgment on
propriety of the subject compromise as he was not a signatory thereto.32 account of Remulla’s lack of legal standing. Consequently, the case should be remanded to the
Aggrieved, Remulla filed a motion for reconsideration which was, however, denied by the CA in said court for further proceedings.
a Resolution33dated February 16, 2006.Hence, the instant petition. WHEREFORE, the petition is GRANTED. Accordingly, the Resolutions dated May 18, 2005 and
The Issue Before The Court February 16, 2006 of the Court of Appeals in CA-G.R. SP No. 86465 are hereby, REVERSED and
The essential issue in this case is whether or not the CA properly denied Remulla’s petition for SET ASIDE. The case is REINSTATED and REMANDED to the Court of Appeals for further
annulment of judgment due to his lack of legal standing. proceedings.
The Court’s Ruling SO ORDERED.
The petition is meritorious.
Records bear out that Remulla filed his petition for annulment of judgment in two capacities:
first, in his personal capacity as a taxpayer; and, second , in his official capacity as then presiding
officer of the Sangguniang Panlalawigan of the Province of Cavite.
With respect to the first, jurisprudence dictates that a taxpayer may be allowed to sue where
there is a claim that public funds are illegally disbursed or that public money is being deflected
to any improper purpose, or that public funds are wasted through the enforcement of an invalid
or unconstitutional law or ordinance.34 In this case, public funds of the Province of Cavite stand
to be expended to enforce the compromise judgment. As such, Remulla – being a resident-
taxpayer of the Province of Cavite – has the legal standing to file the petition for annulment of
judgment and, therefore, the same should not have been dismissed on said ground. Notably, the
fact that there lies no proof that public funds have already been disbursed should not preclude
Remulla from assailing the validity of the compromise judgment. Lest it be misunderstood, the
concept of legal standing is ultimately a procedural technicality which may be relaxed by the
Court if the circumstances so warrant. As observed in Mamba v. Lara, 35the Court did not hesitate
to give standing to taxpayers in cases36 where serious legal issues were raised or where public
expenditures of millions of pesos were involved. Likewise, it has also been ruled that a taxpayer
need not be a party to the contract in order to challenge its validity, 37 or to seek the annulment
of the same on the ground of extrinsic fraud.38 Indeed, for as long as taxes are involved, the
people have a right to question contracts entered into by the government,39 as in this
case.1âwphi1
Anent the second, Remulla equally lodged the petition for annulment of judgment in his official
capacity as then Vice-Governor and Presiding Officer of the Sangguniang Panlalawigan of the
Province of Cavite. As such, he represents the interests of the province itself which is,
undoubtedly, a real party in interest since it stands to be either benefited or injured 40 by the
execution of the compromise judgment.1âwphi1