subsequent law or declared invalid by the courts.
A statute does not ipso facto become inoperative simply
VOL. 175, JULY 14, 1989 343
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
G.R. No. 78742. July 14, 1989. *
ASSOCIATION OF SMALL LANDOWNERS IN THE PHILIP-PINES, INC., JUANITO D.
GOMEZ, GERARDO B. ALARCIO, FELIPE A. GUICO, JR., BERNARDO M. ALMONTE,
CANUTO RAMIR B. CABRITO, ISIDRO T. GUICO, FELISA I. LLAMIDO, FAUSTO J.
SALVA, REYNALDO G. ESTRADA, FELISA C. BAUTISTA, ESMENIA J. CABE, TEODORO
B. MADRIAGA, AUREA J. PRESTOSA, EMERENCIANA J. ISLA, FELICISIMA C.
APRESTO, CONSUELO M. MORALES, BENJAMIN R. SEGISMUNDO, CIRILA A. JOSE &
NAPOLEON S. FERRER, petitioners, vs. HONORABLE SECRETARY OF AGRARIAN
REFORM, respondent.
G.R. No. 79310. July 14, 1989. *
ARSENIO AL. ACUÑA, NEWTON JISON, VICTORINO FER-RARIS, DENNIS JEREZA,
HERMINIGILDO GUSTILO, PAULINO D. TOLENTINO and PLANTERS’ COMMITTEE,
INC., Victorias Mill District, Victorias, Negros Occidental, petitioners, vs. JOKER ARROYO,
PHILIP E. JUICO and PRESIDENTIAL AGRARIAN REFORM COUNCIL, respondents.
G.R. No. 79744. July 14, 1989. *
INOCENTES PABICO, petitioner, vs. HON. PHILIP E. JUICO, SECRETARY OF THE
DEPARTMENT OF AGRARIAN REFORM, HON. JOKER ARROYO, EXECUTIVE
SECRETARY OF THE OFFICE OF THE PRESIDENT, and Messrs. SALVADOR TALENTO,
JAIME ABOGADO, CONRADO AVANCEÑA, and ROBERTO TAAY, respondents.
G.R. No. 79777. July 14, 1989. *
NICOLAS S. MANAAY and AGUSTIN HERMANO, JR., petitioners, vs. HON. PHILIP ELLA
JUICO, as Secretary of Agra-
_______________
 EN BANC.
*
344
344 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
rian Reform, and LAND BANK OF THE PHILIPPINES, respondents.
Constitutional Law; Elements of judicial inquiry.—In addition, the Constitution itself lays down
stringent conditions for a declaration of unconstitutionality, requiring therefor the concurrence of a majority of
the members of the Supreme Court who took part in the deliberations and voted on the issue during their
session en banc. And as established by judge-made doctrine, the Court will assume jurisdiction over a
constitutional question only if it is shown that the essential requisites of a judicial inquiry into such a question
are first satisfied. Thus, there must be an actual case or controversy involving a conflict of legal rights
susceptible of judicial determination, the constitutional question must have been opportunely raised by the
proper party, and the resolution of the question is unavoidably necessary to the decision of the case itself.
Same; Agrarian Law; Powers of the President;  Power of President Aquino to promulgate
Proclamation No. 131 and E.O. Nos. 228 and 229, the same authorized under Section 6 of the Transitory
Provisions of the 1987 Constitution.—The promulgation of P.D. No. 27 by President Marcos in the exercise of
his powers under martial law has already been sustained in Gonzales v. Estrella and we find no reason to
modify or reverse it on that issue. As for the power of President Aquino to promulgate Proc. No. 131 and E.O
Nos. 228 and 229, the same was authorized under Section 6 of the Transitory Provisions of the 1987
Constitution, quoted above.
Same; Same; Pres. Aquino’s loss of legislative powers did not have the effect of invalidating all the
measures enacted by her when she possessed it; Reasons.—The said measures were issued by President
Aquino before July 27, 1987, when the Congress of the Philippines was formally convened and took over
legislative power from her. They are not “midnight” enactments intended to pre-empt the legislature because
E.O. No. 228 was issued on July 17, 1987, and the other measures, i.e., Proc. No. 131 and E.O. No. 229, were
both issued on July 22, 1987. Neither is it correct to say that these measures ceased to be valid when she lost
her legislative power for, like any statute, they continue to be in force unless modified or repealed by
because of the dissolution of the legislature
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VOL. 175, JULY 14, 1989 345
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
that enacted it. By the same token, President Aquino’s loss of legislative power did not have the effect
of invalidating all the measures enacted by her when and as long as she possessed it.
Same;  Same; Same;  Appropriation Law, defined; Proc. No. 131 is not an appropriation measure;
Reasons.—That fund, as earlier noted, is itself being questioned on the ground that it does not conform to the
requirements of a valid appropriation as specified in the Constitution. Clearly, however, Proc. No. 131 is not
an appropriation measure even if it does provide for the creation of said fund, for that is not its principal
purpose. An appropriation law is one the primary and specific purpose of which is to authorize the release of
public funds from the treasury. The creation of the fund is only incidental to the main objective of the
proclamation, which is agrarian reform.
Same;  Same; Same;  Section 6 of Comprehensive Agrarian Reform Program of 1988 (R.A. No. 6657)
provides for retention limits.—The argument of some of the petitioners that Proc. No. 131 and E.O. No. 229
should be invalidated because they do not provide for retention limits as required by Article XIII, Section 4, of
the Constitution is no longer tenable. R.A. No. 6657 does provide for such limits now in Section 6 of the law,
which in fact is one of its most controversial provisions. This section declares:  Retention Limits.—Except as
otherwise provided in this Act, no person may own or retain, directly or indirectly, any public or private
agricultural land, the size of which shall vary according to factors governing a viable family-sized farm, such
as commodity produced, terrain, infrastructure, and soil fertility as determined by the Presidential Agrarian
Reform Council (PARC) created hereunder, but in no case shall retention by the landowner exceed five (5)
hectares. Three (3) hectares may be awarded to each child of the landowner, subject to the following
qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he is actually tilling the land or
directly managing the farm; Provided, That landowners whose lands have been covered by Presidential Decree
No. 27 shall be allowed to keep the area originally retained by them thereunder, further, That original
homestead grantees or direct compulsory heirs who still own the original homestead at the time of the approval
of this Act shall retain the same areas as long as they continue to cultivate said homestead.
346
3 SUPREME COURT REPORTS ANNOTATED
46
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
Same;  Same; Same;  Rule that the title of the bill does not have to be a catalogue of its contents.—The
argument that E.O. No. 229 violates the constitutional requirement that a bill shall have only one subject, to be
expressed in its title, deserves only short attention. It is settled that the title of the bill does not have to be a
catalogue of its contents and will suffice if the matters embodied in the text are relevant to each other and may
be inferred from the title.
Same;  Same; Same;  Mandamus;  Rule that mandamus can issue to require action only but not specific
action.—Finally, there is the contention of the public respondent in G.R. No. 78742 that the writ
of mandamus cannot issue to compel the performance of a discretionary act, especially by a specific
department of the government. That is true as a general proposition but is subject to one important
qualification. Correctly and categorically stated, the rule is that mandamus will lie to compel the dischrage of
the discretionary duty itself but not to control the discretion to be exercised. In other words, mandamus can
issue to require action only but not specific action. Whenever a duty is imposed upon a public official and an
unnecessary and unreasonable delay in the exercise of such duty occurs, if it is a clear duty imposed by law,
the courts will intervene by the extraordinary legal remedy of mandamus to compel action. If the duty is purely
ministerial, the courts will require specific action. If the duty is purely discretionary, the courts
by mandamus will require action only.For example, if an inferior court, public official, or board should, for an
unreasonable length of time, fail to decide a particular question to the great detriment of all parties concerned,
or a court should refuse to take jurisdiction of a cause when the law clearly gave it jurisdiction, mandamus will
issue, in the first case to require a decision, and in the second to require that jurisdiction be taken of the cause.
Same;  Same; Same;  Eminent Domain; Police Power; Property condemned under Police Power is
noxious or intended for a noxious purpose is not compensable.—There are traditional distinctions between the
police power and the power of eminent domain that logically preclude the application of both powers at the
same time on the same subject. In the case of City of Baguio v. NAWASA, for example, where a law required
the transfer of all municipal waterworks systems to the NAWASA in exchange for its assets of equivalent
value, the Court held that the power being exercised was eminent domain because the property involved was
wholesome and intended for a public use.
 347
VOL. 175, JULY 14, 1989 347
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
Property condemned under the police power is noxious or intended for a noxious purpose, such as a
building on the verge of collapse, which should be demolished for the public safety, or obscene materials,
which should be destroyed in the interest of public morals. The confiscation of such property is not
compensable, unlike the taking of property under the power of expropriation, which requires the payment of
just compensation to the owner.
Same; Same; Same; Same; Cases at bar: The extent, retention limits, police power, deprivation,
excess of the maximum area under power of eminent domain.—The cases before us present no knotty
complication insofar as the question of compensable taking is concerned. To the extent that the measures under
challenge merely prescribe retention limits for landowners, there is an exercise of the police power for the
regulation of private property in accordance with the Constitution. But where, to carry out such regulation, it
becomes necessary to deprive such owners of whatever lands they may own in excess of the maximum area
allowed, there is definitely a taking under the power of eminent domain for which payment of just
compensation is imperative. The taking contemplated is not a mere limitation of the use of the land. What is
required is the surrender of the title to and the physical possession of the said excess and all beneficial rights
accruing to the owner in favor of the farmer-beneficiary. This is definitely an exercise not of the police power
but of the power of eminent domain.
Same; Same; Same; Equal Protection of the Law; Classification defined; Requisites of a valid
classification.—Classification has been defined as the grouping of persons or things similar to each other in
certain particulars and different from each other in these same particulars. To be valid, it must conform to the
following requirements: (1) it must be based on substantial distinctions; (2) it must be germane to the purposes
of the law; (3) it must not be limited to existing conditions only; and (4) it must apply equally to all the
members of the class. The Court finds that all these requisites have been met by the measures here challenged
as arbitrary and discriminatory.
Same; Same; Same; Same; Definition of Equal Protection.—Equal protection simply means that all
persons or things similarly situated must be treated alike both as to the rights conferred and the liabilities
imposed. The petitioners have not shown that they belong to a differ-
348
3 SUPREME COURT REPORTS ANNOTATED
48
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
ent class and entitled to a different treatment. The argument that not only landowners but also owners
of other properties must be made to share the burden of implementing land reform must be rejected. There is a
substantial distinction between these two classes of owners that is clearly visible except to those who will not
see. There is no need to elaborate on this matter. In any event, the Congress is allowed a wide leeway in
providing for a valid classification. Its decision is accorded recognition and respect by the courts of justice
except only where its discretion is abused to the detriment of the Bill of Rights.
Same; Same; Same; Same; Statutes;  A statute may be sustained under the police power only if there is
a concurrence of the lawful subject and method.—It is worth remarking at this juncture that a statute may be
sustained under the police power only if there is a concurrence of the lawful subject and the lawful method. Put
otherwise, the interests of the public generally as distinguished from those of a particular class require the
interference of the State and, no less important, the means employed are reasonably necessary for the
attainment of the purpose sought to be achieved and not unduly oppressive upon individuals. As the subject
and purpose of agrarian reform have been laid down by the Constitution itself, we may say that the first
requirement has been satisfied. What remains to be examined is the validity of the method employed to
achieve the Constitutional goal.
Same; Same; Same; Same; Eminent Domain, defined.—Eminent domain is an inherent power of the
State that enables it to forcibly acquire private lands intended for public use upon payment of just
compensation to the owner. Obviously, there is no need to expropriate where the owner is willing to sell under
terms also acceptable to the purchaser, in which case an ordinary deed of sale may be agreed upon by the
parties. It is only where the owner is unwilling to sell, or cannot accept the price or other conditions offered by
the vendee, that the power of eminent domain will come into play to assert the paramount authority of the State
over the interests of the property owner. Private rights must then yield to the irresistible demands of the public
interest on the time-honored justification, as in the case of the police power, that the welfare of the people is
the supreme law.
Same; Same; Same; Same; Requirements for a proper exercise of power of eminent domain.—But for
all its primacy and urgency, the
349
VOL. 175, JULY 14, 1989 349
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
power of expropriation is by no means absolute (as indeed no power is absolute). The limitation is
found in the constitutional injunction that “private property shall not be taken for public use without just
compensation” and in the abundant jurisprudence that has evolved from the interpretation of this principle.
Basically, the requirements for a proper exercise of the power are: (1) public use and (2) just compensation.
Same;  Same; Same;  Same; Concept of political question.—A becoming courtesy admonishes us to
respect the decisions of the political departments when they decide what is known as the political question. As
explained by Chief Justice Concepcion in the case of Tañada v. Cuenco: The term “political question”
connotes what it means in ordinary parlance, namely, a question of policy. It refers to “those questions which,
under the Constitution, are to be decided by the people in their sovereign capacity; or in regard to which full
discretionary authority has been delegated to the legislative or executive branch of the government.” It is
concerned with issues dependent upon the wisdom, not legality, of a particular measure.
Same;  Same; Same;  Same; Just Compensation, defined.—Just compensation is defined as the full and
fair equivalent of the property taken from its owner by the expropriator. It has been repeatedly stressed by this
Court that the measure is not the taker’s gain but the owner’s loss. The word “just” is used to intensify the
meaning of the word “compensation” to convey the idea that the equivalent to be rendered for the property to
be taken shall be real, substantial, full, ample.
Same;  Same; Same;  Same; Requirements of compensable taking.—As held in Republic of the
Philippines v. Castellvi, there is compensable taking when the following conditions concur: (1) the
expropriator must enter a private property; (2) the entry must be for more than a momentary period; (3) the
entry must be under warrant or color of legal authority; (4) the property must be devoted to public use or
otherwise informally appropriated or injuriously affected; and (5) the utilization of the property for public use
must be in such a way as to oust the owner and deprive him of beneficial enjoyment of the property. All these
requisites are envisioned in the measures before us.
350
3 SUPREME COURT REPORTS ANNOTATED
50
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
Same;  Same; Same;  Same; Determination of Just Compensation, addressed to the courts of justice
and may not be usurped by any other branch.—To be sure, the determination of just compensation is a
function addressed to the courts of justice and may not be usurped by any other branch or official of the
government. EPZA v. Dulay resolved a challenge to several decrees promulgated by President Marcos
providing that the just compensation for property under expropriation should be either the assessment of the
property by the government or the sworn valuation thereof by the owner, whichever was lower.
Same;  Same; Same;  Same; The Court declares that the content and manner of the just compensation
provided for in the CARP Law is not violative of the Constitution.—With these assumptions, the Court hereby
declares that the content and manner of the just compensation provided for in the afore-quoted Section 18 of
the CARP Law is not violative of the Constitution. We do not mind admitting that a certain degree of
pragmatism has influenced our decision on this issue, but after all this Court is not a cloistered institution
removed from the realities and demands of society or oblivious to the need for its enhancement. The Court is
as acutely anxious as the rest of our people to see the goal of agrarian reform achieved at last after the
frustrations and deprivations of our peasant masses during all these disappointing decades. We are aware that
invalidation of the said section will result in the nullification of the entire program, killing the farmer’s hopes
even as they approach realization and resurrecting the spectre of discontent and dissent in the restless
countryside. That is not in our view the intention of the Constitution, and that is not what we shall decree
today.
Same;  Same; Same;  Same; Theory that payment of the just compensation is not always required to be
made fully in money;  Other modes of payment.—Accepting the theory that payment of the just compensation is
not always required to be made fully in money, we find further that the proportion of cash payment to the other
things of value constituting the total payment, as determined on the basis of the areas of the lands expropriated,
is not unduly oppressive upon the landowner. It is noted that the smaller the land, the bigger the payment in
money, primarily because the small landwoner will be needing it more than the big landowners, who can
afford a bigger balance in bonds and other things of value. No less importantly, the
351
VOL. 175, JULY 14, 1989 351
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
 government financial instruments making up the balance of the payment are “negotiable at any time.”
The other modes, which are likewise available to the landowner at his option, are also not unreasonable
because payment is made in shares of stock, LBP bonds, other properties or assets, tax credits, and other things
of value equivalent to the amount of just compensation.
Same; Same; Same; Same; CARP Law repeats the requisites of registration but does not provide that
in case of failure or refusal to register the land, the valuation thereof shall be that given by the provincial or
city assessor for tax purposes.—The complaint against the effects of non-registration of the land under E.O.
No. 229 does not seem to be viable any more as it appears that Setion 4 of the Order has been superseded by
Section 14 of the CARP Law. This repeats the requisites of registration as embodied in the earlier measure but
does not provide, as the latter did, that in case of failure or refusal to register the land, the valuation thereof
shall be that given by the provincial or city assessor for tax purposes. On the contrary, the CARP Law says that
the just compensation shall be ascertained on the basis of the factors mentioned in its Section 17 and in the
manner provided for in Section 16.
Same; Same; Same; Same; Recognized rule that title to the property expropriated shall pass from the
owner to the expropriator only upon full payment of the just compensation.—The recognized rule, indeed, is
that title to the property expropriated shall pass from the owner to the expropriator only upon full payment of
the just compensation. Jurisprudence on this settled principle is consistent both here and in other democratic
jurisdictions.
Same; Same; Same; Same; CARP Law (R.A. 6657) is more liberal than those granted by P.D. No. 27
as to retention limits; Case at bar.—In connection with these retained rights, it does not appear in G.R. No.
78742 that the appeal filed by the petitioners with the Office of the President has already been resolved.
Although we have said that the doctrine of exhaustion of administrative remedies need not preclude immediate
resort to judicial action, there are factual issues that have yet to be examined on the administrative level,
especially the claim that the petitioners are not covered by LOI 474 because they do not own other agricultural
lands than the subjects of their petition. Obviously, the Court cannot resolve these issues. In any event, assum-
352
3 SUPREME COURT REPORTS ANNOTATED
52
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
ing that the petitioners have not yet exercised their retention rights, if any, under P.D. No. 27, the Court
holds that they are entitled to the new retention rights provided for by R.A. No. 6657, which in fact are on the
whole more liberal than those granted by the decree.
PETITIONS to review the decisions of the Secretary of Agrarian Reform.
The facts are stated in the opinion of the Court.
CRUZ, J.:
In ancient mythology, Antaeus was a terrible giant who blocked and challenged Hercules for his
life on his way to Mycenae after performing his eleventh labor. The two wrestled mightily and
Hercules flung his adversary to the ground thinking him dead, but Antaeus rose even stronger to
resume their struggle. This happened several times to Hercules’ increasing amazement. Finally, as
they continued grappling, it dawned on Hercules that Antaeus was the son of Gaea and could
never die as long as any part of his body was touching his Mother Earth. Thus forewarned,
Hercules then held Antaeus up in the air, beyond the reach of the sustaining soil, and crushed him
to death.
Mother Earth. The sustaining soil. The giver of life, without whose invigorating touch even
the powerful Antaeus weakened and died.
The cases before us are not as fanciful as the foregoing tale. But they also tell of the elemental
forces of life and death, of men and women who, like Antaeus, need the sustaining strength of the
precious earth to stay alive.
“Land for the Landless” is a slogan that underscores the acute imbalance in the distribution of
this precious resource among our people. But it is more than a slogan. Through the brooding
centuries, it has become a battlecry dramatizing the increasingly urgent demand of the
dispossessed among us for a plot of earth as their place in the sun.
Recognizing this need, the Constitution in 1935 mandated the policy of social justice to
“insure the well-being and eco-
353
VOL. 175, JULY 14, 1989 353
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
nomic security of all the people,”  especially the less privileged. In 1973, the new Constitution
1
affirmed this goal, adding specifically that “the State shall regulate the acquisition, ownership, use,
enjoyment and disposition of private property and equitably diffuse property ownership and
profits.”  Significantly, there was also the specific injunction to “formulate and implement an
2
agrarian reform program aimed at emancipating the tenant from the bondage of the soil.” 3
The Constitution of 1987 was not to be outdone. Besides echoing these sentiments, it also
adopted one whole and separate Article XIII on Social Justice and Human Rights, containing
grandiose but undoubtedly sincere provisions for the uplift of the common people. These include a
call in the following words for the adoption by the State of an agrarian reform program:
SEC. 4. The State shall, by law, undertake an agrarian reform program founded on the right of farmers and
regular farmworkers, who are landless, to own directly or collectively the lands they till or, in the case of other
farmworkers, to receive a just share of the fruits thereof. To this end, the State shall encourage and undertake
the just distribution of all agricultural lands, subject to such priorities and reasonable retention limits as the
Congress may prescribe, taking into account ecological, developmental, or equity considerations and subject to
the payment of just compensation. In determining retention limits, the State shall respect the right of small
landowners. The State shall further provide incentives for voluntary land-sharing.
Earlier, in fact, R.A. No. 3844, otherwise known as the Agricultural Land Reform Code, had
already been enacted by the Congress of the Philippines on August 8, 1963, in line with the above-
stated principles. This was substantially superseded almost a decade later by P.D. No. 27, which
was promulgated on October 21, 1972, along with martial law, to provide for the compulsory
acquisition of private lands for distribution among
_______________
 Art. II, Sec. 5.
1
 1973 Constitution, Art. II, Sec. 6.
2
 Ibid., Art. XIV, Sec. 12.
3
354
354 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
tenant-farmers and to specify maximum retention limits for landowners.
The people power revolution of 1986 did not change and indeed even energized the thrust for
agrarian reform. Thus, on July 17, 1987, President Corazon C. Aquino issued E.O. No. 228,
declaring full land ownership in favor of the beneficiaries of P.D. No. 27 and providing for the
valuation of still unvalued lands covered by the decree as well as the manner of their payment.
This was followed on July 22, 1987 by Presidential Proclamation No. 131, instituting a
comprehensive agrarian reform program (CARP), and E.O. No. 229, providing the mechanics for
its implementation.
Subsequently, with its formal organization, the revived Congress of the Philippines took over
legislative power from the President and started its own deliberations, including extensive public
hearings, on the improvement of the interests of farmers. The result, after almost a year of spirited
debate, was the enactment of R.A. No. 6657, otherwise known as the Comprehensive Agrarian
Reform Law of 1988, which President Aquino signed on June 10, 1988. This law, while
considerably changing the earlier mentioned enactments, nevertheless gives them suppletory effect
insofar as they are not inconsistent with its provisions. 4
The above-captioned cases have been consolidated because they involve common legal
questions, including serious challenges to the constitutionality of the several measures mentioned
above. They will be the subject of one common discussion and resolution. The different
antecedents of each case will require separate treatment, however, and will first be explained
hereunder.
G.R. No. 79777
Squarely raised in this petition is the constitutionality of P.D. No. 27, E.O. Nos. 228 and 229, and
R.A. No. 6657.
_______________
 R.A. No. 6657, Sec. 15.
4 Nevertheless, this statute should itself also be declared unconstitutional because it suffers from
355
VOL. 175, JULY 14, 1989 355
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
The subjects of this petition are a 9-hectare riceland worked by four tenants and owned by
petitioner Nicolas Manaay and his wife and a 5-hectare riceland worked by four tenants and
owned by petitioner Augustin Hermano, Jr. The tenants were declared full owners of these lands
by E.O. No. 228 as qualified farmers under P.D. No. 27.
The petitioners are questioning P.D. No. 27 and E.O. Nos. 228 and 229 on grounds inter
alia of separation of powers, due process, equal protection and the constitutional limitation that no
private property shall be taken for public use without just compensation.
They contend that President Aquino usurped legislative power when she promulgated E.O.
No. 228. The said measure is invalid also for violation of Article XIII, Section 4, of the
Constitution, for failure to provide for retention limits for small landowners. Moreover, it does not
conform to Article VI, Section 25(4) and the other requisites of a valid appropriation. In
connection with the determination of just compensation, the petitioners argue that the same may be
made only by a court of justice and not by the President of the Philippines. They invoke the recent
cases of EPZA v. Dulay  and Manotok v. National Food Authority.  Moreover, the just
5 6
compensation contemplated by the Bill of Rights is payable in money or in cash and not in the
form of bonds or other things of value.
In considering the rentals as advance payment on the land, the executive order also deprives
the petitioners of their property rights as protected by due process. The equal protection clause is
also violated because the order places the burden of solving the agrarian problems on the owners
only of agricultural lands. No similar obligation is imposed on the owners of other properties.
The petitioners also maintain that in declaring the beneficiaries under P.D. No. 27 to be the
owners of the lands occupied by them, E.O. No. 228 ignored judicial prerogatives and so violated
due process. Worse, the measure would not solve the
_______________
 149 SCRA 305.
5
 150 SCRA 89.
6 initial amount of FIFTY BILLION PESOS (P50,000,000,000.00) to cover the estimated cost of the
356
356 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
agrarian problem because even the small farmers are deprived of their lands and the retention
rights guaranteed by the Constitution.
In his Comment, the Solicitor General stresses that P.D. No. 27 has already been upheld in the
earlier cases of Chavez v. Zobel,  Gonzales v. Estrella,  and Association of Rice and Corn
7 8
Producers of the Philippines, Inc. v. the National Land Reform council.  The determination of just
9
compensation by the executive authorities conformably to the formula prescribed under the
questioned order is at best initial or preliminary only. It does not foreclose judicial intervention
whenever sought or warranted. At any rate, the challenge to the order is premature because no
valuation of their property has as yet been made by the Department of Agrarian Reform. The
petitioners are also not proper parties because the lands owned by them do not exceed the
maximum retention limit of 7 hectares.
Replying, the petitioners insist they are proper parties because P.D. No. 27 does not provide
for retention limits on tenanted lands and that in any event their petition is a class suit brought in
behalf of landowners with landholdings below 24 hectares. They maintain that the determination
of just compensation by the administrative authorities is a final ascertainment. As for the cases
invoked by the public respondent, the constitutionality of P.D. No. 27 was merely assumed in
Chavez, while what was decided in Gonzales was the validity of the imposition of martial law.
In the amended petition dated November 22, 1988, it is contended that P.D. No. 27, E.O. Nos.
228 and 229 (except Sections 20 and 21) have been impliedly repealed by R.A. No. 6657.
substantially the same infirmities as the earlier measures.
A petition for intervention was filed with leave of court on
_______________
 55 SCRA 26.
7
 91 SCRA 294.
8
 113 SCRA 798.
9
357
VOL. 175, JULY 14, 1989 357
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
June 1, 1988 by Vicente Cruz, owner of a 1.83-hectare land, who complained that the DAR was
insisting on the implementation of P.D. No. 27 and E.O. No. 228 despite a compromise agreement
he had reached with his tenant on the payment of rentals. In a subsequent motion dated April 10,
1989, he adopted the allegations in the basic amended petition that the above-men-tioned
enactments have been impliedly repealed by R.A. No. 6657.
G.R. No. 79310
The petitioners herein are landowners and sugar planters in the Victorias Mill District, Victorias,
Negros Occidental. Co-petitioner Planters’ Committee, Inc. is an organization composed of 1,400
planter-members. This petition seeks to prohibit the implementation of Proc. No. 131 and E.O. No.
229.
The petitioners claim that the power to provide for a Comprehensive Agrarian Reform
Program as decreed by the Constitution belongs to Congress and not the President. Although they
agree that the President could exercise legislative power until the Congress was convened, she
could do so only to enact emergency measures during the transition period. At that, even assuming
that the interim legislative power of the President was properly exercised, Proc. No. 131 and E.O.
No. 229 would still have to be annulled for violating the constitutional provisions on just
compensation, due process, and equal protection.
They also argue that under Section 2 of Proc. No. 131 which provides:
Agrarian Reform Fund.—There is hereby created a special fund, to be known as the Agrarian Reform Fund, an
Comprehensive Agrarian Reform Program from 1987 to 1992 which shall be sourced from the receipts of the
sale of the assets of the Asset Privatization Trust and Receipts of sale of ill-gotten wealth received through the
Presidential Commission on Good Government and such other sources as government may deem appropriate.
The amounts collected and accruing to this special fund shall be consid-
358
358 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
ered automatically appropriated for the purpose authorized in this Proclamation.
the amount appropriated is in futuro, not in esse. The money needed to cover the cost of the
contemplated expropriation has yet to be raised and cannot be appropriated at this time.
Furthermore, they contend that taking must be simultaneous with payment of just
compensation as it is traditionally understood, i.e., with money and in full, but no such payment is
contemplated in Section 5 of the E.O. No. 229. On the contrary, Section 6, thereof provides that
the Land Bank of the Philippines “shall compensate the landowner in an amount to be established
by the government, which shall be based on the owner’s declaration of current fair market value as
provided in Section 4 hereof, but subject to certain controls to be defined and promulgated by the
Presidential Agrarian Reform Council.” This compensation may not be paid fully in money but in
any of several modes that may consist of part cash and part bond, with interest, maturing
periodically, or direct payment in cash or bond as may be mutually agreed upon by the beneficiary
and the landowner or as may be prescribed or approved by the PARC.
The petitioners also argue that in the issuance of the two measures, no effort was made to
make a careful study of the sugar planters’ situation. There is no tenancy problem in the sugar
areas that can justify the application of the CARP to them. To the extent that the sugar planters
have been lumped in the same legislation with other farmers, although they are a separate group
with problems exclusively their own, their right to equal protection has been violated.
A motion for intervention was filed on August 27, 1987 by the National Federation of
Sugarcane Planters (NASP) which claims a membership of at least 20,000 individual sugar
planters all over the country. On September 10, 1987, another motion for intervention was filed,
this time by Manuel Barcelona, et al., representing coconut and riceland owners. Both motions
were granted by the Court.
NASP alleges that President Aquino had no authority to fund
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VOL. 175, JULY 14, 1989 359
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
the Agrarian Reform Program and that, in any event, the appropriation is invalid because of
uncertainty in the amount appropriated. Section 2 of Proc. No. 131 and Sections 20 and 21 of E.O
No. 229 provide for an initial appropriation of fifty billion pesos and thus specifies the minimum
rather than the maximum authorized amount. This is not allowed. Furthermore, the
stated initial amount has not been certified to by the National Treasurer as actually available.
Two additional arguments are made by Barcelona, to wit, the failure to establish by clear and
convincing evidence the necessity for the exercise of the powers of eminent domain, and the
violation of the fundamental right to own property.
The petitioners also decry the penalty for non-registration of the lands, which is the
expropriation of the said land for an amount equal to the government assessor’s valuation of the
land for tax purposes. On the other hand, if the landowner declares his own valuation, he is
unjustly required to immediately pay the corresponding taxes on the land, in violation of the
uniformity rule.
In his consolidated Comment, the Solicitor General first invokes the presumption of
constitutionality in favor of Proc. No. 131 and E.O. No. 229. He also justifies the necessity for the
expropriation as explained in the “whereas” clauses of the Proclamation and submits that, contrary
to the petitioner’s contention, a pilot project to determine the feasibility of CARP and a general
survey on the people’s opinion thereon are not indispensable prerequisites to its promulgation.
On the alleged violation of the equal protection clause, the sugar planters have failed to show
that they belong to a different class and should be differently treated. The Comment also suggests
the possibility of Congress first distributing public agricultural lands and scheduling the
expropriation of private agricultural lands later. From this viewpoint, the petition for prohibition
would be premature.
The public respondent also points out that the constitutional prohibition is against the payment
of public money without the corresponding appropriation. There is no rule that only money
already in existence can be the subject of an appropriation law.
360
360 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
Finally, the earmarking of fifty billion pesos as Agrarian Reform Fund, although denominated as
an initial amount, is actually the maximum sum appropriated. The word “initial” simply means that
additional amounts may be appropriated later when necessary.
On April 11, 1988, Prudencio Serrano, a coconut planter, filed a petition on his own behalf,
assailing the constitutionality of E.O. No. 229. In addition to the arguments already raised, Serrano
contends that the measure is unconstitutional because:
1. (1)Only public lands should be included in the CARP;
2. (2)E.O. No. 229 embraces more than one subject which is not expressed in the title;
3. (3)The power of the President to legislate was terminated on July 2, 1987; and
4. (4)The appropriation of a P50 billion special fund from the National Treasury did not
originate from the House of Representatives.
G.R. No. 79744
The petitioner alleges that the then Secretary of Department of Agrarian Reform, in violation of
due process and the requirement for just compensation, placed his landholding under the coverage
of Operation Land Transfer. Certificates of Land Transfer were subsequently issued to the private
respondents, who then refused payment of lease rentals to him.
On September 3, 1986, the petitioner protested the erroneous inclusion of his small
landholding under Operation Land Transfer and asked for the recall and cancellation of the
Certificates of Land Transfer in the name of the private respondents. He claims that on December
24, 1986, his petition was denied without hearing. On February 17, 1987, he filed a motion for
reconsideration, which had not been acted upon when E.O. Nos. 228 and 229 were issued. These
orders rendered his motion moot and academic because they directly effected the transfer of his
land to the private respondents.
The petitioner now argues that:
1. (1)E.O. Nos. 228 and 229 were invalidly issued by the Presi-
361
VOL. 175, JULY 14, 1989 361
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
1. dent of the Philippines.
2. (2)The said executive orders are violative of the constitutional provision that no private
property shall be taken without due process or just compensation.
3. (3)The petitioner is denied the right of maximum retention provided for under the 1987
Constitution.
The petitioner contends that the issuance of E.O Nos. 228 and 229 shortly before Congress
convened is anomalous and arbitrary, besides violating the doctrine of separation of powers. The
legislative power granted to the President under the Transitory Provisions refers only to
emergency measures that may be promulgated in the proper exercise of the police power.
The petitioner also invokes his rights not to be deprived of his property without due process of
law and to the retention of his small parcels of riceholding as guaranteed under Article XIII,
Section 4 of the Constitution. He likewise argues that, besides denying him just compensation for
his land, the provisions of E.O. No. 228 declaring that:
Lease rentals paid to the landowner by the farmer-beneficiary after October 21, 1972 shall be considered as
advance payment for the land.
is an unconstitutional taking of a vested property right. It is also his contention that the inclusion
of even small landowners in the program along with other landowners with lands consisting of
seven hectares or more is undemocratic.
In his Comment, the Solicitor General submits that the petition is premature because the
motion for reconsideration filed with the Minister of Agrarian Reform is still unresolved. As for
the validity of the issuance of E.O. Nos. 228 and 229, he argues that they were enacted pursuant to
Section 6, Article XVIII of the Transitory Provisions of the 1987 Constitution which reads:
The incumbent president shall continue to exercise legislative powers until the first Congress is convened.
On the issue of just compensation, his position is that when P.D. No. 27 was promulgated on
October 21, 1972, the tenant-
362

362 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
farmer of agricultural land was deemed the owner of the land he was tilling. The leasehold rentals
paid after that date should therefore be considered amortization payments.
In his Reply to the public respondents, the petitioner maintains that the motion he filed was
resolved on December 14, 1987. An appeal to the Office of the President would be useless with
the promulgation of E.O. Nos. 228 and 229, which in effect sanctioned the validity of the public
respondent’s acts.
G.R. No. 78742
The petitioners in this case invoke the right of retention granted by P.D. No. 27 to owners of rice
and corn lands not exceeding seven hectares as long as they are cultivating or intend to cultivate
the same. Their respective lands do not exceed the statutory limit but are occupied by tenants who
are actually cultivating such lands.
According to P.D. No. 316, which was promulgated in implementation of P.D. No. 27:
No tenant-farmer in agricultural lands primarily devoted to rice and corn shall be ejected or removed from his
farmholding until such time as the respective rights of the tenant-farmers and the landowner shall have been
determined in accordance with the rules and regulations implementing P.D. No. 27.
The petitioners claim they cannot eject their tenants and so are unable to enjoy their right of
retention because the Department of Agrarian Reform has so far not issued the implementing rules
required under the above-quoted decree. They therefore ask the Court for a writ of mandamus to
compel the respondent to issue the said rules.
In his Comment, the public respondent argues that P.D. No. 27 has been amended by LOI 474
removing any right of retention from persons who own other agricultural lands of more than 7
hectares in aggregate area or lands used for residential, commercial, industrial or other purposes
from which they derive adequate income for their family. And even assuming that
363
VOL. 175, JULY 14, 1989 363
Association of Small Landowners in the Philippines, Inc. vs.Secretary of Agrarian Reform
the petitioners do not fall under its terms, the regulations implementing P.D. No. 27 have already
been issued, to wit, the Memorandum dated July 10, 1975 (Interim Guidelines on Retention by
Small Landowners, with an accompanying Retention Guide Table), Memorandum Circular No. 11
dated April 21, 1978, (Implementation Guidelines of LOI No. 474), Memorandum Circular No.
18-81 dated December 29, 1981 (Clarificatory Guidelines on Coverage of P.D. No. 27 and
Retention by Small Landowners), and DAR Administrative Order No. 1, series of 1985 (Providing
for a Cut-off Date for Landowners to Apply for Retention and/or to Protest the Coverage of their
Landholdings under Operation Land Transfer pursuant to P.D. No. 27). For failure to file the
corresponding applications for retention under these measures, the petitioners are now barred from
invoking this right.
The public respondent also stresses that the petitioners have prematurely initiated this case
notwithstanding the pendency of their appeal to the President of the Philippines. Moreover, the
issuance of the implementing rules, assuming this has not yet been done, involves the exercise of
discretion which cannot be controlled through the writ of mandamus. This is especially true if this
function is entrusted, as in this case, to a separate department of the government.
In their Reply, the petitioners insist that the above-cited measures are not applicable to them
because they do not own more than seven hectares of agricultural land. Moreover,
assuming arguendo that the rules were intended to cover them also, the said measures are
nevertheless not in force because they have not been published as required by law and the ruling of
this Court in Tañada v. Tuvera. As for LOI 474, the same is ineffective for the additional reason
10
that a mere letter of instruction could not have repealed the presidential decree.
I decision. Blandishment is as ineffectual as intimidation.
Although holding neither purse nor sword and so regarded as
_______________
 136 SCRA 27; 146 SCRA 446.
10
364
364 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
the weakest of the three departments of the government, the judiciary is nonetheless vested with
the power to annul the acts of either the legislative or the executive or of both when not
conformable to the fundamental law. This is the reason for what some quarters call the doctrine of
judicial supremacy. Even so, this power is not lightly assumed or readily exercised. The doctrine
of separation of powers imposes upon the courts a proper restraint, born of the nature of their
functions and of their respect for the other departments, in striking down the acts of the legislative
and the executive as unconstitutional. The policy, indeed, is a blend of courtesy and caution. To
doubt is to sustain. The theory is that before the act was done or the law was enacted, earnest
studies were made by Congress or the President, or both, to insure that the Constitution would not
be breached.
In addition, the Constitution itself lays down stringent conditions for a declaration of
unconstitutionality, requiring therefor the concurrence of a majority of the members of the
Supreme Court who took part in the deliberations and voted on the issue during their session en
banc.  And as established by judge-made doctrine, the Court will assume jurisdiction over a
11
constitutional question only if it is shown that the essential requisities of a judicial inquiry into
such a question are first satisfied. Thus, there must be an actual case or controversy involving a
conflict of legal rights susceptible of judicial determination, the constitutional question must have
been opportunely raised by the proper party, and the resolution of the question is unavoidably
necessary to the decision of the case itself.
12
With particular regard to the requirement of proper party as applied in the cases before us, we
hold that the same is satisfied by the petitioners and intervenors because each of them has
sustained or is in danger of sustaining an immediate injury as a result of the acts or measures
complained of.  And even if,
13
_______________
 Art. VIII, Sec. 4(2).
11
 Dumlao v. COMELEC, 95 SCRA 392.
12
 Ex Parte Levitt, 303 US 633.
13
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VOL. 175, JULY 14, 1989 365
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
strictly speaking, they are not covered by the definition, it is still within the wide discretion of the
Court to waive the requirement and so remove the impediment to its addressing and resolving the
serious constitutional questions raised.
In the first Emergency Powers Cases,  ordinary citizens and taxpayers were allowed to
14
question the constitutionality of several executive orders issued by President Quirino although
they were invoking only an indirect and general interest shared in common with the public. The
Court dismissed the objection that they were not proper parties and ruled that “the transcendental
importance to the public of these cases demands that they be settled promptly and definitely,
brushing aside, if we must, technicalities of procedure.” We have since then applied this exception
in many other cases. 15
The other above-mentioned requisites have also been met in the present petitions.
In must be stressed that despite the inhibitions pressing upon the Court when confronted with
constitutional issues like the ones now before it, it will not hesitate to declare a law or act invalid
when it is convinced that this must be done. In arriving at this conclusion, its only criterion will be
the Constitution as God and its conscience give it the light to probe its meaning and discover its
purpose. Personal motives and political considerations are irrelevancies that cannot influence its
For all the awesome power of the Congress and the Executive, the Court will not hesitate to
“make the hammer fall, and heavily,” to use Justice Laurel’s pithy language, where the acts of
these departments, or of any public official, betray the people’s will as expressed in the
Constitution.
It need only be added, to borrow again the words of Justice Laurel, that—
_______________
 Araneta v. Dinglasan, 84 Phil. 368.
14
 Pascual v. Secretary of Public Works, 110 Phil. 331; PHILCONSA v. Gimenez, 15 SCRA 479; Sanidad v.
15
COMELEC, 73 SCRA 333.
366
366 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
x x x when the judiciary mediates to allocate constitutional boundaries, it does not assert any superiority over
the other departments; it does not in reality nullify or invalidate an act of the Legislature, but only asserts the
solemn and sacred obligation assigned to it by the Constitution to determine conflicting claims of authority
under the Constitution and to establish for the parties in an actual controversy the rights which that instrument
secures and guarantees to them. This is in truth all that is involved in what is termed “judicial supremacy”
which properly is the power of judicial review under the Constitution. 16
The cases before us categorically raise constitutional questions that this Court must categorically
resolve. And so we shall.
II
We proceed first to the examination of the preliminary issues before resolving the more serious
challenges to the constitutionality of the several measures involved in these petitions.
The promulgation of P.D. No. 27 by President Marcos in the exercise of his powers under
martial law has already been sustained in Gonzales v. Estrella and we find no reason to modify or
reverse it on that issue. As for the power of President Aquino to promulgate Proc. No. 131 and
E.O. Nos. 228 and 229, the same was authorized under Section 6 of the Transitory Provisions of
the 1987 Constitution, quoted above.
The said measures were issued by President Aquino before July 27, 1987, when the Congress
of the Philippines was formally convened and took over legislative power from her. They are not
“midnight” enactments intended to pre-empt the legislature because E.O. No. 228 was issued on
July 17, 1987, and the other measures, i.e., Proc. No. 131 and E.O. No. 229, were both issued on
July 22, 1987. Neither is it correct to say that these measures ceased to be valid when she lost her
legislative power for, like any statute, they continue to be in force unless
_______________
 Angara v. Electoral Commission, 63 Phil. 139.
16
367
VOL. 175, JULY 14, 1989 367
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
modified or repealed by subsequent law or declared invalid by the courts. A statute does not  ipso
facto become inoperative simply because of the dissolution of the legislature that enacted it. By
the same token, President Aquino’s loss of legislative power did not have the effect of invalidating
all the measures enacted by her when and as long as she possessed it.
Significantly, the Congress she is alleged to have undercut has not rejected but in fact
substantially affirmed the challenged measures and has specifically provided that they shall be
suppletory to R.A. No. 6657 whenever not inconsistent with its provisions.  Indeed, some portions
17
of the said measures, like the creation of the P50 billion fund in Section 2 of Proc. No. 131, and
Sections 20 and 21 of E.O. No. 229, have been incorporated by reference in the CARP Law. 18
That fund, as earlier noted, is itself being questioned on the ground that it does not conform to
the requirements of a valid appropriation as specified in the Constitution. Clearly, however, Proc.
No. 131 is not an appropriation measure even if it does provide for the creation of said fund, for
that is not its principal purpose. An appropriation law is one the primary and specific purpose of
which is to authorize the release of public funds from the treasury. The creation of the fund is only
19
incidental to the main objective of the proclamation, which is agrarian reform.
It should follow that the specific constitutional provisions invoked, to wit, Section 24 and
Section 25(4) of Article VI, are not applicable. With particular reference to Section 24, this
obviously could not have been complied with for the simple reason that the House of
Representatives, which now has the exclusive power to initiate appropriation measures, had not
yet been convened when the proclamation was issued. The legislative power was then solely
vested in the President of the Philippines, who embodied, as it were, both houses of Congress.
_______________
 R.A. No. 6657, Sec. 75.
17
 Ibid., Sec. 63.
18
 Bengzon v. Secretary of Justice, 299 US 410.
19
368
368 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
The argument of some of the petitioners that Proc. No. 131 and E.O. No. 229 should be
invalidated because they do not provide for retention limits as required by Article XIII, Section 4
of the Constitution is no longer tenable. R.A. No. 6657 does provide for such limits now in Section
6 of the law, which in fact is one of its most controversial provisions. This section declares:
Retention Limits.—Except as otherwise provided in this Act, no person may own or retain, directly or
indirectly, any public or private agricultural land, the size of which shall vary according to factors governing a
viable family-sized farm, such as commodity produced, terrain, infrastructure, and soil fertility as determined
by the Presidential Agrarian Reform Council (PARC) created hereunder, but in no case shall retention by the
landowner exceed five (5) hectares. Three (3) hectares may be awarded to each child of the landowner, subject
to the following qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he is actually tilling
the land or directly managing the farm; Provided, That landowners whose lands have been covered by
Presidential Decree No. 27 shall be allowed to keep the area originally retained by them thereunder, further,
That original homestead grantees or direct compulsory heirs who still own the original homestead at the time
of the approval of this Act shall retain the same areas as long as they continue to cultivate said homestead.
The argument that E.O. No. 229 violates the constitutional requirement that a bill shall have only
one subject, to be expressed in its title, deserves only short attention. It is settled that the title of
the bill does not have to be a catalogue of its contents and will suffice if the matters embodied in
the text are relevant to each other and may be inferred from the title. 20
The Court wryly observes that during the past dictatorship, every presidential issuance, by
whatever name it was called, had the force and effect of law because it came from President
Marcos. Such are the ways of despots. Hence, it is futile to argue, as the petitioners do in G.R. No.
79744, that LOI 474
_______________
 Alalayan v. NPC, 24 SCRA 172; Sumulong v. COMELEC, 73 Phil. 288; Tio v. Videogram Regulatory Board, 151
20
SCRA 208.
369
VOL. 175, JULY 14, 1989 369
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
could not have repealed P.D. No. 27 because the former was only a letter of instruction. The
important thing is that it was issued by President Marcos, whose word was law during that time.
But for all their peremptoriness, these issuances from the President Marcos still had to comply
with the requirement for publication as this Court held in Tañada v. Tuvera.  Hence, unless 21
published in the Official Gazette in accordance with Article 2 of the Civil Code, they could not
have any force and effect if they were among those enactments successfully challenged in that
case. (LOI 474 was published, though, in the Official Gazette dated November 29, 1976.)
Finally, there is the contention of the public respondent in G.R. No. 78742 that the writ
of mandamus cannot issue to compel the performance of a discretionary act, especially by a
specific department of the government. That is true as a general proposition but is subject to one
important qualification. Correctly and categorically stated, the rule is that mandamus will lie to
compel the discharge of the discretionary duty itself but not to control the discretion to be
exercised. In other words, mandamus can issue to require action only but not specific action.
Whenever a duty is imposed upon a public official and an unnecessary and unreasonable delay in the exercise
of such duty occurs, if it is a clear duty imposed by law, the courts will intervene by the extraordinary legal
remedy of mandamus to compel action. If the duty is purely ministerial, the courts will require specific
action. If the duty is purely discretionary, the courts by mandamus will require action only. For example, if an
inferior court, public official, or board should, for an unreasonable length of time, fail to decide a particular
question to the great detriment of all parties concerned, or a court should refuse to take jurisdiction of a cause
when the law clearly gave it jurisdiction, mandamus will issue, in the first case to require a decision, and in the
second to require that jurisdiction be taken of the cause.
22
_______________
 Supra.
21
 Lamb v. Phipps, 22 Phil. 456.
22
370
370 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
And while it is true that as a rule the writ will not be proper as long as there is still a plain, speedy
and adequate remedy available from the administrative authorities, resort to the courts may still be
permitted if the issue raised is a question of law. 23
III
There are traditional distinctions between the police power and the power of eminent domain that
logically preclude the application of both powers at the same time on the same subject. In the case
of City of Baguio v. NAWASA, for example, where a law required the transfer of all municipal
24
waterworks systems to the NAWASA in exchange for its assets of equivalent value, the Court held
that the power being exercised was eminent domain because the property involved was wholesome
and intended for a public use. Property condemned under the police power is noxious or intended
for a noxious purpose, such as a building on the verge of collapse, which should be demolished for
the public safety, or obscene materials, which should be destroyed in the interest of public morals.
The confiscation of such property is not compensable, unlike the taking of property under the
power of expropriation, which requires the payment of just compensation to the owner.
In the case of Pennsylvania Coal Co. v. Mahon,  Justice Holmes laid down the limits of the
25
police power in a famous aphorism: “The general rule at least is that while property may be
regulated to a certain extent, if regulation goes too far it will be recognized as a taking.” The
regulation that went “too far” was a law prohibiting mining which might cause the subsidence of
structures for human habitation constructed on the land surface. This was resisted by a coal
company which had earlier granted a deed to the land over its mine but reserved all mining
_______________
 Malabanan v. Ramento, 129 SCRA 359; Español v. Chairman, Philippine Veterans Administration, 137 SCRA 314.
23
 106 Phil. 144.
24
 260 US 393.
25
371
VOL. 175, JULY 14, 1989 371
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
rights thereunder, with the grantee assuming all risks and waiving any damage claim. The Court
held the law could not be sustained without compensating the grantor. Justice Brandeis filed a lone
dissent in which he argued that there was a valid exercise of the police power. He said:
Every restriction upon the use of property imposed in the exercise of the police power deprives the owner of
some right theretofore enjoyed, and is, in that sense, an abridgment by the State of rights in property without
making compensation. But restriction imposed to protect the public health, safety or morals from dangers
threatened is not a taking. The restriction here in question is merely the prohibition of a noxious use. The
property so restricted remains in the possession of its owner. The state does not appropriate it or make any use
of it. The state merely prevents the owner from making a use which interferes with paramount rights of the
public. Whenever the use prohibited ceases to be noxious—as it may because of further changes in local or
social conditions—the restriction will have to be removed and the owner will again be free to enjoy his
property as heretofore.
Recent trends, however, would indicate not a polarization but a mingling of the police power and
the power of eminent domain, with the latter being used as an implement of the former like the
power of taxation. The employment of the taxing power to achieve a police purpose has long been
accepted.  As for the power of expropriation, Prof. John J. Costonis of the University of Illinois
26
College of Law (referring to the earlier case of Euclid v. Ambler Realty Co., 272 US 365, which
sustained a zoning law under the police power) makes the following significant remarks:
Euclid, moreover, was decided in an era when judges located the police and eminent domain powers on
different planets. Generally speaking, they viewed eminent domain as encompassing public acquisition of
private property for improvements that would be available for “public use,” literally construed. To the police
power, on the other
_______________
26
 Powell v. Pennsylvania, 127 US 678; Lutz v. Araneta, 98 Phil. 148; Tio v. Videogram Regulatory Board, supra.
372
372 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
hand, they assigned the less intrusive task of preventing harmful externalities, a point reflected in
the Euclid opinion’s reliance on an analogy to nuisance law to bolster its support of zoning. So long as
suppression of a privately authored harm bore a plausible relation to some legitimate “public purpose,” the
pertinent measure need have afforded no compensation whatever. With the progressive growth of
government’s involvement in land use, the distance between the two powers has contracted considerably.
Today government often employs eminent domain interchangeably with or as a useful complement to the
police power—a trend expressly approved in the Supreme Court’s 1954 decision in Berman v. Parker, which
broadened the reach of eminent domain’s “public use” test to match that of the police power’s standard of
“public purpose.” 27
The Berman case sustained a redevelopment project and the improvement of blighted areas in the
District of Columbia as a proper exercise of the police power. On the role of eminent domain in
the attainment of this purpose, Justice Douglas declared:
If those who govern the District of Columbia decide that the Nation’s Capital should be beautiful as well as
sanitary, there is nothing in the Fifth Amendment that stands in the way.
Once the object is within the authority of Congress, the right to realize it through the exercise of eminent
domain is clear.
For the power of eminent domain is merely the means to the end. 28
In Penn Central Transportation Co. v. New York City, decided by a 6-3 vote in 1978, the U.S
29
Supreme Court sustained the respondent’s Landmarks Preservation Law under which the owners
of the Grand Central Terminal had not been allowed to construct a multi-story office building over
the Terminal,
_______________
 John J. Costonis, “The Disparity Issue: A Context for the Grand Central Terminal Decision,” Harvard Law Review,
27
Vol. 91:40, 1977, p. 404.
 348 US 1954.
28
 438 US 104.
29
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Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
which had been designated a historic landmark. Preservation of the landmark was held to be a
valid objective of the police power. The problem, however, was that the owners of the Terminal
would be deprived of the right to use the airspace above it although other landowners in the area
could do so over their respective properties. While insisting that there was here no taking, the
Court nonetheless recognized certain compensatory rights accruing to Grand Central Terminal
which it said would “undoubtedly mitigate” the loss caused by the regulation. This “fair
compensation,” as he called it, was explained by Prof. Costonis in this wise:
In return for retaining the Terminal site in its pristine landmark status, Penn Central was authorized to transfer
to neighboring properties the authorized but unused rights accruing to the site prior to the Terminal’s
designation as a landmark—the rights which would have been exhausted by the 59-story building that the city
refused to countenance atop the Terminal. Prevailing bulk restrictions on neighboring sites were
proportionately relaxed, theoretically enabling Penn Central to recoup its losses at the Terminal site by
constructing or selling to others the right to construct larger, hence more profitable buildings on the transferee
sites.
30
The cases before us present no knotty complication insofar as the question of compensable taking
is concerned. To the extent that the measures under challenge merely prescribe retention limits for
landowners, there is an exercise of the police power for the regulation of private property in
accordance with the Constitution. But where, to carry out such regulation, it becomes necessary to
deprive such owners of whatever lands they may own in excess of the maximum area allowed,
there is definitely a taking under the power of eminent domain for which payment of just
compensation is imperative. The taking contemplated is not a mere limitation of the use of the
land. What is required is the surrender of the title to and the physical possession of the said excess
and all beneficial rights accruing
_______________
 See note 27.
30
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374 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
to the owner in favor of the farmer-beneficiary. This is definitely an exercise not of the police
power but of the power of eminent domain.
Whether as an exercise of the police power or of the power of eminent domain, the several
measures before us are challenged as violative of the due process and equal protection clauses.
The challenge to Proc. No. 131 and E.O. Nos. 228 and 299 on the ground that no retention
limits are prescribed has already been discussed and dismissed. It is noted that although they
excited many bitter exchanges during the deliberation of the CARP Law in Congress, the retention
limits finally agreed upon are, curiously enough, not being questioned in these petitions. We
therefore do not discuss them here. The Court will come to the other claimed violations of due
process in connection with our examination of the adequacy of just compensation as required
under the power of expropriation.
The argument of the small farmers that they have been denied equal protection because of the
absence of retention limits has also become academic under Section 6 of R.A. No. 6657.
Significantly, they too have not questioned the area of such limits. There is also the complaint that
they should not be made to share the burden of agrarian reform, an objection also made by the
sugar planters on the ground that they belong to a particular class with particular interests of their
own. However, no evidence has been submitted to the Court that the requisites of a valid
classification have been violated.
Classification has been defined as the grouping of persons or things similar to each other in
certain particulars and different from each other in these same particulars.  To be valid, it must
31
conform to the following requirements: (1) it must be based on substantial distinctions; (2) it must
be germane to the purposes of the law; (3) it must not be limited to existing conditions only; and
(4) it must apply equally to all the members of the class.  The Court finds that all these requisites
32
have been met by the measures here challenged as arbitrary and discriminatory.
________________
 International Harvester Co. v. Missouri, 234 US 199.
31
 People v. Cayat, 68 Phil. 12.
32
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Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
Equal protection simply means that all persons or things similarly situated must be treated alike
both as to the rights conferred and the liabilities imposed.  The petitioners have not shown that
33
they belong to a different class and entitled to a different treatment. The argument that not only
landowners but also owners of other properties must be made to share the burden of implementing
land reform must be rejected. There is a substantial distinction between these two classes of
owners that is clearly visible except to those who will not see. There is no need to elaborate on this
matter. In any event, the Congress is allowed a wide leeway in providing for a valid classification.
Its decision is accorded recognition and respect by the courts of justice except only where its
discretion is abused to the detriment of the Bill of Rights.
It is worth remarking at this juncture that a statute may be sustained under the police power
only if there is a concurrence of the lawful subject and the lawful method. Put otherwise, the
interests of the public generally as distinguished from those of a particular class require the
interference of the State and, no less important, the means employed are reasonbly necessary for
the attainment of the purpose sought to be achieved and not unduly oppressive upon
individuals.  As the subject and purpose of agrarian reform have been laid down by the
34
Constitution itself, we may say that the first requirement has been satisfied. What remains to be
examined is the validity of the method employed to achieve the constitutional goal.
One of the basic principles of the democratic system is that where the rights of the individual
are concerned, the end does not justify the means. It is not enough that there be a valid objective; it
is also necessary that the means employed to pursue it be in keeping with the Constitution. Mere
expediency will not excuse constitutional shortcuts. There is no question that not even the
strongest moral conviction or the most urgent public need, subject only to a few notable
exceptions, will excuse
________________
 Ichong v. Hernandez, 101 Phil. 1155.
33
 US v. Toribio, 15 Phil. 85; Fabie v. City of Manila, 21 Phil. 486; Case v. Board of Health, 24 Phil. 256.
34
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376 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
the bypassing of an individual’s rights. It is no exaggeration to say that a, person invoking a right
guaranteed under Article III of the Constitution is a majority of one even as against the rest of the
nation who would deny him that right.
That right covers the person’s life, his liberty and his property under Section 1 of Article III of
the Constitution. With regard to his property, the owner enjoys the added protection of Section 9,
which reaffirms the familiar rule that private property shall not be taken for public use without just
compensation.
This brings us now to the power of eminent domain.
IV
Eminent domain is an inherent power of the State that enables it to forcibly acquire private lands
intended for public use upon payment of just compensation to the owner. Obviously, there is no
need to expropriate where the owner is willing to sell under terms also acceptable to the purchaser,
in which case an ordinary deed of sale may be agreed upon by the parties.  It is only where the 35
owner is unwilling to sell, or cannot accept the price or other conditions offered by the vendee,
that the power of eminent domain will come into play to assert the paramount authority of the
State over the interests of the property owner. Private rights must then yield to the irresistible
demands of the public interest on the time-honored justification, as in the case of the police power,
that the welfare of the people is the supreme law.
But for all its primacy and urgency, the power of expropriation is by no means absolute (as
indeed no power is absolute). The limitation is found in the constitutional injunction that “private
property shall not be taken for public use without just compensation” and in the abundant
jurisprudence that has evolved from the interpretation of this principle. Basically, the requirements
for a proper exercise of the power are: (1) public use and (2) just compensation.
________________
 Noble v. City of Manila, 67 Phil. 1.
35
377

VOL. 175, JULY 14, 1989 377
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
Let us dispose first of the argument raised by the petitioners in G.R. No. 79310 that the State
should first distribute public agricultural lands in the pursuit of agrarian reform instead of
immediately disturbing property rights by forcibly acquiring private agricultural lands.
Parenthetically, it is not correct to say that only public agricultural lands may be covered by the
CARP as the Constitution calls for “the just distribution of all agricultural lands.” In any event, the
decision to redistribute private agricultural lands in the manner prescribed by the CARP was made
by the legislative and executive departments in the exercise of their discretion. We are not justified
in reviewing that discretion in the absence of a clear showing that it has been abused.
A becoming courtesy admonishes us to respect the decisions of the political departments when
they decide what is known as the political question. As explained by Chief Justice Concepcion in
the case of Tañada v. Cuenco: 36
The term “political question” connotes what it means in ordinary parlance, namely, a question of policy. It
refers to “those questions which, under the Constitution, are to be decided by the people in their sovereign
capacity; or in regard to which full discretionary authority has been delegated to the legislative or executive
branch of the government.” It is concerned with issues dependent upon the wisdom, not legality, of a particular
measure.
It is true that the concept of the political question has been constricted with the enlargement of
judicial power, which now includes the authority of the courts “to determine whether or not there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.”  Even so, this should not be construed as a license
37
for us to reverse the other departments simply because their views may not coincide with ours.
The legislature and the executive have been seen fit, in their
_______________
 100 Phil. 1101.
36
 1987 Constitution, Art. VIII, Sec. 1.
37
378
378 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
wisdom, to include in the CARP the redistribution of private landholdings (even as the distribution
of public agricultural lands is first provided for, while also continuing apace under the Public Land
Act and other cognate laws). The Court sees no justification to interpose its authority, which we
may assert only if we believe that the political decision is not unwise, but illegal. We do not find it
to be so.
In U.S. v. Chandler-Dunbar Water Power Company,  it was held:
38
Congress having determined, as it did by the Act of March 3, 1909 that the entire St. Mary’s river between the
American bank and the international line, as well as all of the upland north of the present ship canal,
throughout its entire length, was “necessary for the purpose of navigation of said waters, and the waters
connected therewith,” that determination is conclusive in condemnation proceedings instituted by the United
States under that Act, and there is no room for judicial review of the judgment of Congress x x x.
As earlier observed, the requirement for public use has already been settled for us by the
Constitution itself. No less than the 1987 Charter calls for agrarian reform, which is the reason
why private agricultural lands are to be taken from their owners, subject to the prescribed
maximum retention limits. The purposes specified in P.D. No. 27, Proc. No. 131 and R.A. No.
6657 are only an elaboration of the constitutional injuction that the State adopt the necessary
measures “to encourage and undertake the just distribution of all agricultural lands to enable
farmers who are landless to own directly or collectively the lands they till.” That public use, as
pronounced by the fundamental law itself, must be binding on us.
The second requirement, i.e., the payment of just compensation, needs a longer and more
thoughtful examination.
Just compensation is defined as the full and fair equivalent of the property taken from its
owner by the expropriator.  It has 39
_______________
 57 L ed. 1063.
38
 Manila Railroad Co. v. Velasquez, 32 Phil. 286.
39
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VOL. 175, JULY 14, 1989 379
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
been repeatedly stressed by this Court that the measure is not the taker’s gain but the owner’s
loss.  The word “just” is used to intensify the meaning of the word “compensation” to convey the
40
idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full,
ample. 41
It bears repeating that the measures challenged in these petitions contemplate more than a
mere regulation of the use of private lands under the police power. We deal here with an actual
taking of private agricultural lands that has dispossessed the owners of their property and deprived
them of all its beneficial use and enjoyment, to entitle them to the just compensation mandated by
the Constitution.
As held in Republic of the Philippines v. Castellvi, there is compensable taking when the
42
following conditions concur: (1) the expropriator must enter a private property; (2) the entry must
be for more than a momentary period; (3) the entry must be under warrant or color of legal
authority; (4) the property must be devoted to public use or otherwise informally appropriated or
injuriously affected; and (5) the utilization of the property for public use must be in such a way as
to oust the owner and deprive him of beneficial enjoyment of the property. All these requisites are
envisioned in the measures before us.
Where the State itself is the expropriator, it is not necessary for it to make a deposit upon its
taking possession of the condemned property, as “the compensation is a public charge, the good
faith of the public is pledged for its payment, and all the resources of taxation may be employed in
raising the amount.”  Nevertheless, Section 16(e) of the CARP Law provides that:
43
Upon receipt by the landowner of the corresponding payment or, in case of rejection or no response from the
landowner, upon the
_______________
 Province of Tayabas v. Perez, 66 Phil. 467; J.M. Tuazon & Co., Inc. v. Land Tenure Administration, 31 SCRA 413; Municipality of Daet v.
40
Court of Appeals, 93 SCRA 503; Manotok v. National Housing Authority, 150 SCRA 89.
 City of Manila v. Estrada, 25 Phil. 208.
41
 58 SCRA 336.
42
 Lewis, Law of Eminent Domain, 3rd Edition, pp. 1166-1167.
43
380
380 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
deposit with an accessible bank designated by the DAR of the compensation in cash or in LBP bonds in
accordance with this Act, the DAR shall take immediate possession of the land and shall request the proper
Register of Deeds to issue a Transfer Certificate of Title (TCT) in the name of the Republic of the Philippines.
The DAR shall thereafter proceed with the redistribution of the land to the qualified beneficiaries.
Objection is raised, however, to the manner of fixing the just compensation, which it is claimed is
entrusted to the administrative authorities in violation of judicial prerogatives. Specific reference is
made to Section 16(d), which provides that in case of the rejection or disregard by the owner of the
offer of the government to buy his land—
x x x the DAR shall conduct summary administrative proceedings to determine the compensation for the land
by requiring the landowner, the LBP and other interested parties to submit evidence as to the just
compensation for the land, within fifteen (15) days from the receipt of the notice. After the expiration of the
above period, the matter is deemed submitted for decision. The DAR shall decide the case within thirty (30)
days after it is submitted for decision.
To be sure, the determination of just compensation is a function addressed to the courts of justice
and may not be usurped by any other branch or official of the government. EPZA v.
Dulay  resolved a challenge to several decrees promulgated by President Marcos providing that the
44
just compensation for property under expropriation should be either the assessment of the property
by the government or the sworn valuation thereof by the owner, whichever was lower. In declaring
these decrees unconstitutional, the Court held through Mr. Justice Hugo E. Gutierrez, Jr.:
The method of ascertaining just compensation under the aforecited decrees constitutes impermissible
encroachment on judicial prerogatives. It tends to render this Court inutile in a matter which under
_______________
44
 149 SCRA 305.
381
VOL. 175, JULY 14, 1989 381
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
this Constitution is reserved to it for final determination.
Thus, although in an expropriation proceeding the court technically would still have the power to
determine the just compensation for the property, following the applicable decrees, its task would be relegated
to simply stating the lower value of the property as declared either by the owner or the assessor. As a necessary
consequence, it would be useless for the court to appoint commissioners under Rule 67 of the Rules of Court.
Moreover, the need to satisfy the due process clause in the taking of private property is seemingly fulfilled
since it cannot be said that a judicial proceeding was not had before the actual taking. However, the strict
application of the decrees during the proceedings would be nothing short of a mere formality or charade as the
court has only to choose between the valuation of the owner and that of the assessor, and its choice is always
limited to the lower of the two. The court cannot exercise its discretion or independence in determining what is
just or fair. Even a grade school pupil could substitute for the judge insofar as the determination of
constitutional just compensation is concerned.
xxx
In the present petition, we are once again confronted with the same question of whether the courts under
P.D. No. 1533, which contains the same provision on just compensation as its predecessor decrees, still have
the power and authority to determine just compensation, independent of what is stated by the decree and to this
effect, to appoint commissioners for such purpose.
This time, we answer in the affirmative.
xxx
It is violative of due process to deny the owner the opportunity to prove that the valuation in the tax
documents is unfair or wrong. And it is repulsive to the basic concepts of justice and fairness to allow the
haphazard work of a minor bureaucrat or clerk to absolutely prevail over the judgment of a court promulgated
only after expert commissioners have actually viewed the property, after evidence and arguments pro and con
have been presented, and after all factors and considerations essential to a fair and just determination have
been judiciously evaluated.
A reading of the aforecited Section 16(d) will readily show that it does not suffer from the
arbitrariness that rendered the challenged decrees constitutionally objectionable. Although the
proceedings are described as summary, the landowner and
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382 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
other interested parties are nevertheless allowed an opportunity to submit evidence on the real
value of the property. But more importantly, the determination of the just compensation by the
DAR is not by any means final and conclusive upon the landowner or any other interested party,
for Section 16(f) clearly provides:
Any party who disagrees with the decision may bring the matter to the court of proper jurisdiction for final
determination of just compensation.
The determination made by the DAR is only preliminaryunless accepted by all parties concerned.
Otherwise, the courts of justice will still have the right to review with finality the said
determination in the exercise of what is admittedly a judicial function.
The second and more serious objection to the provisions on just compensation is not as easily
resolved.
This refers to Section 18 of the CARP Law providing in full as follows:
SEC. 18. Valuation and Mode of Compensation.—The LBP shall compensate the landowner in such amount as
may be agreed upon by the landowner and the DAR and the LBP, in accordance with the criteria provided for
in Sections 16 and 17, and other pertinent provisions hereof, or as may be finally determined by the court, as
the just compensation for the land.
The compensation shall be paid in one of the following modes, at the option of the landowner:
1. (1)Cash payment, under the following terms and conditions:
1. (a)For lands above fifty (50) hectares, insofar as the excess hectarage is concerned—Twenty-five
percent (25%) cash, the balance to be paid in government financial instruments negotiable at any
time.
2. (b)For lands above twenty-four (24) hectares and up to fifty (50) hectares—Thirty percent (30%)
cash, the balance to be paid in government financial instruments negotiable at any time.
3. (c)For lands twenty-four (24) hectares and below—Thirty-five percent (35%) cash, the balance to
be paid in government
383
VOL. 175, JULY 14, 1989 383
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
1. financial instruments negotiable at any time.
1. (2)Shares of stock in government-owned or controlled corporations, LBP preferred shares, physical
assets or other qualified investments in accordance with guidelines set by the PARC;
2. (3)Tax credits which can be used against any tax liability;
3. (4)LBP bonds, which shall have the following features:
1. (a)Market interest rates aligned with 91-day treasury bill rates. Ten percent (10%) of the face value
of the bonds shall mature every year from the date of issuance until the tenth (10th)
year: Provided, That should the landowner choose to forego the cash portion, whether in full or in
part, he shall be paid correspondingly in LBP bonds;
2. (b)Transferability and negotiability. Such LBP bonds may be used by the landowner, his
successors-in-interest or his assigns, up to the amount of their face value, for any of the following:
1. (i)Acquisition of land or other real properties of the government, including assets under the Asset
Privatization Program and other assets foreclosed by government financial institutions in the same
province or region where the lands for which the bonds were paid are situated;
2. (ii)Acquisition of shares of stock of government-owned or controlled corporations or shares of
stock owned by the government in private corporations;
3. (iii)Substitution for surety or bail bonds for the provisional release of accused persons, or for
performance bonds;
4. (iv)Security for loans with any government financial institution, provided the proceeds of the loans
shall be invested in an economic enterprise, preferably in a small and medium-scale industry, in
the same province or region as the land for which the bonds are paid;
5. (v)Payment for various taxes and fees to government: Provided, That the use of these bonds for
these purposes will be limited to a certain percentage of the outstanding balance of the financial
instruments; Provided, further,That the PARC shall determine the percentages mentioned above;
6. (vi)Payment for tuition fees of the immediate family of the original bondholder in government
universities, colleges, trade schools, and other institutions;
384
384 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
1. (vii)Payment for fees of the immediate family of the original bondholder in goverment hospitals;
and
2. (viii)Such other uses as the PARC may from time to time allow.
The contention of the petitioners in G.R. No. 79777 is that the above provision is unconstitutional
insofar as it requires the owners of the expropriated properties to accept just compensation therefor
in less than money, which is the only medium of payment allowed. In support of this contention,
they cite jurisprudence holding that:
The fundamental rule in expropriation matters is that the owner of the property expropriated is entitled to a just
compensation, which should be neither more nor less, whenever it is possible to make the assessment, than
the money equivalent of said property. Just compensation has always been understood to be the just and
complete equivalent of the loss which the owner of the thing expropriated has to suffer by reason of the
expropriation. (Emphasis supplied.)
45
In J.M. Tuazon Co. v. Land Tenure Administration,  this Court held:
46
It is well-settled that just compensation means the equivalent for the value of the property at the time of its
taking. Anything beyond that is more, and anything short of that is less, than just compensation. It means a fair
and full equivalent for the loss sustained, which is the measure of the indemnity, not whatever gain would
accrue to the expropriating entity. The market value of the land taken is the just compensation to which the
owner of condemned property is entitled, the market value being that sum of money which a person desirous,
but not compelled to buy, and an owner, willing, but not compelled to sell, would agree on as a price to be
given and received for such property. (Emphasis supplied.)
_______________
 Manila Railroad Co. v. Velasquez, 32 Phil. 286; Province of Tayabas v. Perez, supra, at note 40.
45
 31 SCRA 413.
46
385
VOL. 175, JULY 14, 1989 385
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
In the United States, where much of our jurisprudence on the subject has been derived, the weight
of authority is also to the effect that just compensation for property expropriated is payable only in
money and not otherwise. Thus—
The medium of payment of compensation is ready money or cash.The condemnor cannot compel the owner to
accept anything but money, nor can the owner compel or require the condemnor to pay him on any other basis
than the value of the property in money at the time and in the manner prescribed by the Constitution and the
statutes. When the power of eminent domain is resorted to, there must be a standard medium of payment,
binding upon both parties, and the law has fixed that standard as money in cash. (Emphasis supplied.)
47
Part cash and deferred payments are not and cannot, in the nature of things, be regarded as a reliable and
constant standard of compensation. 48
“Just compensation” for property taken by condemnation means a fair equivalent in money, which must
be paid at least within a reasonable time after the taking, and it is not within the power of the Legislature
tosubstitute for such payment future obligations, bonds, or other valuable advantage.  (Emphasis supplied.)
49
It cannot be denied from these cases that the traditional medium for the payment of just
compensation is money and no other. And so, conformably, has just compensation been paid in the
past solely in that medium. However, we do not deal here with the traditional excercise of the
power of eminent domain. This is not an ordinary expropriation where only a specific property of
relatively limited area is sought to be taken by the State from its owner for a specific and perhaps
local purpose.
_______________
 Mandl v. City of Phoenix, 18 p 2d 273.
47
 Sacremento Southern R. Co. v. Heilbron, 156 Cal. 408, 104 pp. 979, 980.
48
 City of Waterbury v. Platt Bros. & Co., 56 A 856, 76 Conn, 435 citing Butler v. Ravine Road Sewer Com’rs, 39 N.J.L.
49
665; Bloodgood v. Mohawk v. H.R.R. Co., N.Y. 18 Wend. 9 35, 31 Am. Dec. 313; Sanborn v. Helden, 51 Cal 266; Burlington
& C.R. Co. v. Schweikart, 14 p. 329, 10 Colo, 178; 23 Words and Phrases, pl. 460.
386
386 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
What we deal with here is a revolutionary kind of expropriation.
The expropriation before us affects all private agricultural lands whenever found and of
whatever kind as long as they are in excess of the maximum retention limits allowed their owners.
This kind of expropriation is intended for the benefit not only of a particular community or of a
small segment of the population but of the entire Filipino nation, from all levels of our society,
from the impoverished farmer to the land-glutted owner. Its purpose does not cover only the whole
territory of this country but goes beyond in time to the foreseeable future, which it hopes to secure
and edify with the vision and the sacrifice of the present generation of Filipinos. Generations yet to
come are as involved in this program as we are today, although hopefully only as beneficiaries of a
richer and more fulfilling life we will guarantee to them tomorrow through our thoughtfulness
today. And, finally, let it not be forgotten that it is no less than the Constitution itself that has
ordained this revolution in the farms, calling for “a just distribution” among the farmers of lands
that have heretofore been the prison of their dreams but can now become the key at least to their
deliverance.
Such a program will involve not mere millions of pesos. The cost will be tremendous.
Considering the vast areas of land subject to expropriation under the laws before us, we estimate
that hundreds of billions of pesos will be needed, far more indeed than the amount of P50 billion
initially appropriated, which is already staggering as it is by our present standards. Such amount is
in fact not even fully available at this time.
We assume that the framers of the Constitution were aware of this difficulty when they called
for agrarian reform as a top priority project of the government. It is a part of this assumption that
when they envisioned the expropriation that would be needed, they also intended that the just
compensation would have to be paid not in the orthodox way but a less conventional if more
practical method. There can be no doubt that they were aware of the financial limitations of the
government and had no illusions that there would be enough money to pay in cash and in full for
the lands they wanted to be distributed among the
387
VOL. 175, JULY 14, 1989 387
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
farmers. We may therefore assume that their intention was to allow such manner of payment as is
now provided for by the CARP Law, particularly the payment of the balance (if the owner cannot
be paid fully with money), or indeed of the entire amount of the just compensation, with other
things of value. We may also suppose that what they had in mind was a similar scheme of payment
as that prescribed in P.D. No. 27, which was the law in force at the time they deliberated on the
new Charter and with which they presumably agreed in principle.
The Court has not found in the records of the Constitutional Commission any categorial
agreement among the members regarding the meaning to be given the concept of just
compensation as applied to the comprehensive agrarian reform program being contemplated.
There was the suggestion to “fine tune” the requirement to suit the demands of the project even as
it was also felt that they should “leave it to Congress” to determine how payment should be made
to the landowner and reimbursement required from the farmer-beneficiaries. Such innovations as
“progressive compensation” and “State-subsidized compensation” were also proposed. In the end,
however, no special definition of the just compensation for the lands to be expropriated was
reached by the Commission. 50
On the other hand, there is nohing in the records either that militates against the assumptions
we are making of the general sentiments and intention of the members on the content and manner
of the payment to be made to the landowner in the light of the magnitude of the expenditure and
the limitations of the expropriator.
With these assumptions, the Court hereby declares that the content and manner of the just
compensation provided for in the afore-quoted Section 18 of the CARP Law is not violative of the
constitution. We do not mind admitting that a certain degree of pragmatism has influenced our
decision on this issue, but after all this Court is not a cloistered institution removed
_______________
 Record of the Cosntitutional Commission, Vol. 2, pp. 647, 704; Vol. 3, pp. 16-20, 243-247.
50
388
388 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
from the realities and demands of society or oblivious to the need for its enhancement. The Court
is as acutely anxious as the rest of our people to see the goal of agrarian reform achieved at last
after the frustrations and deprivations of our peasant masses during all these disappointing
decades. We are aware that invalidation of the said section will result in the nullification of the
entire program, killing the farmer’s hopes even as they approach realization and resurrecting the
spectre of discontent and dissent in the restless countryside. That is not in our view the intention of
the Constitution, and that is not what we shall decree today.
Accepting the theory that payment of the just compensation is not always required to be made
fully in money, we find further that the proportion of cash payment to the other things of value
constituting the total payment, as determined on the basis of the areas of the lands expropriated, is
not unduly oppressive upon the landowner. It is noted that the smaller the land, the bigger the
payment in money, primarily because the small landowner will be needing it more than the big
landowners, who can afford a bigger balance in bonds and other things of value. No less
importantly, the government financial instruments making up the balance of the payment are
“negotiable at any time.” The other modes, which are likewise available to the landowner at his
option, are also not unreasonable because payment is made in shares of stock, LBP bonds, other
properties or assets, tax credits, and other things of value equivalent to the amount of just
compensation.
Admittedly, the compensation contemplated in the law will cause the landowners, big and
small, not a little inconvenience. As already remarked, this cannot be avoided. Nevertheless, it is
devoutly hoped that these countrymen of ours, conscious as we know they are of the need for their
forebearance and even sacrifice, will not begrudge us their indispensable share in the attainment of
the ideal of agrarian reform. Otherwise, our pursuit of this elusive goal will be like the quest for
the Holy Grail.
The complaint against the effects of non-registration of the land under E.O. No. 229 does not
seem to be viable any more as
389
VOL. 175, JULY 14, 1989 389
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
it appears that Section 4 of the said Order has been superseded by Section 14 of the CARP Law.
This repeats the requisites of registration as embodied in the earlier measure but does not provide,
as the latter did, that in case of failure or refusal to register the land, the valuation thereof shall be
that given by the provincial or city assessor for tax purposes. On the contrary, the CARP Law says
that the just compensation shall be ascertained on the basis of the factors mentioned in its Section
17 and in the manner provided for in Section 16.
The last major challenge to CARP is that the landowner is divested of his property even
before actual payment to him in full of just compensation, in contravention of a well-accepted
principle of eminent domain.
The recognized rule, indeed, is that title to the property expropriated shall pass from the owner
to the expropriator only upon full payment of the just compensation. Jurisprudence on this settled
principle is consistent both here and in other democratic jurisdictions. Thus:
Title to property which is the subject of condemnation proceedings does not vest the condemnor until the
judgment fixing just compensation is entered and paid, but the condemnor’s title relates back to the date on
which the petition under the Eminent Domain Act, or the commissioner’s report under the Local Improvement
Act, is filed.51
x x x although the right to appropriate and use land taken for a canal is complete at the time of entry, title
to the property taken remains in the owner until payment is actually made.  (Emphasis supplied.)
52
In Kennedy v. Indianapolis,  the US Supreme Court cited several cases holding that title to
53
property does not pass to the condemnor until just compensation had actually been made. In fact,
the decisions appear to be uniformly to this effect. As early
_______________
51
 Chicago Park Dist. v. Downey Coal Co., 1 Ill. 2d 54.
52
 Kennedy v. Indianapolis, 103 US 599, 26 L ed 550.
53
 Ibid.
390
390 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
as 1838, in Rubottom v. McLure,  it was held that “actual payment to the owner of the condemned
54
property was a condition precedent to the investment of the title to the property in the State” albeit
“not to the appropriation of it to public use.” In Rexford v. Knight,  the Court of Appeals of New
55
York said that the construction upon the statutes was that the fee did not vest in the State until the
payment of the compensation although the authority to enter upon and appropriate the land was
complete prior to the payment. Kennedy further said that “both on principle and authority the rule
is x x x that the right to enter on and use the property is complete, as soon as the property is
actually appropriated under the authority of law for a public use, but that the title does not pass
from the owner without his consent, until just compensation has been made to him.”
Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes,  that: 56
If the laws which we have exhibited or cited in the preceding discussion are attentively examined it will be
apparent that the method of expropriation adopted in this jurisdiction is such as to afford absolute reassurance
that no piece of land can be finally and irrevocably taken from an unwilling owner until compensation is
paid x x x. (Emphasis supplied.)
It is true that P.D. No. 27 expressly ordered the emancipation of tenant-farmer as October 21, 1972
and declared that he shall “be deemed the owner” of a portion of land consisting of a family-sized
farm except that “no title to the land owned by him was to be actually issued to him unless and
until he had become a full-fledged member of a duly recognized farmers’ cooperative.” It was
understood, however, that full payment of the just compensation also had to be made first,
conformably to the constitutional requirement.
When E.O. No. 228, categorically stated in its Section 1 that:
_______________
 4 Blkf., 508.
54
 11 NY 314.
55
 40 Phil. 550.
56
391
VOL. 175, JULY 14, 1989 391
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
All qualified farmer-beneficiaries are now deemed full owners as of October 21, 1972 of the land
they acquired by virtue of Presidential Decree No. 27. (Emphasis supplied.)
it was obviously referring to lands already validly acquired under the said decree, after proof of
full-fledged membership in the farmers’ cooperatives and full payment of just compensation.
Hence, it was also perfectly proper for the Order to also provide in its Section 2 that the “lease
rentals paid to the landowner by the farmer-beneficiary after October 21, 1972 (pending transfer of
ownership after full payment of just compensation), shall be considered as advance payment for
the land.”
The CARP Law, for its part, conditions the transfer of possession and ownership of the land to
the government on receipt by the landowner of the corresponding payment or the deposit by the
DAR of the compensation in cash or LBP bonds with an accessible bank. Until then, title also
remains with the land-owner.  No outright change of ownership is contemplated either.
57
Hence, the argument that the assailed measures violate due process by arbitrarily transferring
title before the land is fully paid for must also be rejected.
It is worth stressing at this point that all rights acquired by the tenant-farmer under P.D. No.
27, as recognized under E.O. No. 228, are retained by him even now under R.A. No. 6657. This
should counterbalance the express provision in Section 6 of the said law that “the landowners
whose lands have been covered by Presidential Decree No. 27 shall be allowed to keep the area
originally retained by them thereunder, further, That original homestead grantees or direct
compulsory heirs who still own the original homestead at the time of the approval of this Act shall
retain the same areas as long as they continue to cultivate said homestead.”
 In connection with these retained rights, it does not appear in G.R. No. 78742 that the appeal
filed by the petitioners with the
________________
 Sec. 16(d).
57
392
392 SUPREME COURT REPORTS ANNOTATED
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
Office of the President has already been resolved. Although we have said that the doctrine of
exhaustion of administrative remedies need not preclude immediate resort to judicial action, there
are factual issues that have yet to be examined on the administrative level, especially the claim that
the petitioners are not covered by LOI 474 because they do not own other agricultural lands than
the subjects of their petition.
Obviously, the Court cannot resolve these issues. In any event, assuming that the petitioners
have not yet exercised their retention rights, if any, under P.D. No. 27, the Court holds that they
are entitled to the new retention rights provided for by R.A. No. 6657, which in fact are on the
whole more liberal than those granted by the decree.
V
The CARP Law and the other enactments also involved in these cases have been the subject of
bitter attack from those who point to the shortcomings of these measures and ask that they be
scrapped entirely. To be sure, these enactments are less than perfect; indeed, they should be
continuously re-examined and rehoned, that they may be sharper instruments for the better
protection of the farmer’s rights. But we have to start somewhere. In the pursuit of agrarian
reform, we do not tread on familiar ground but grope on terrain fraught with pitfalls and expected
difficulties. This is inevitable. The CARP Law is not a tried and tested project. On the contrary, to
use Justice Holmes’s words, “it is an experiment, as all life is an experiment,” and so we learn as
we venture forward, and, if necessary, by our own mistakes. We cannot expect perfection although
we should strive for it by all means. Meantime, we struggle as best we can in freeing the farmer
from the iron shackles that have unconscionably, and for so long, fettered his soul to the soil.
By the decision we reach today, all major legal obstacles to the comprehensive agrarian
reform program are removed, to clear the way for the true freedom of the farmer. We may now
glimpse the day he will be released not only from want but also from the exploitation and disdain
of the past and from his own
393
VOL. 175, JULY 14, 1989 393
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform
494 SUPREME COURT REPORTS ANNOTATED
Reyes vs. National Housing Authority
G.R. No. 147511. January 20, 2003. *
MARINA Z. REYES; ALFREDO A. FRANCISCO; ANGELITA Z. GARCIA; ALFREDO Z.
FRANCISCO, JR; ARMANDO Z. FRANCISCO; ALMA C. FRANCISCO; EUGENIA Z. LUNA;
CLARITA Z. ZABALLERO, LEONARDO Z. ZABALLERO, JR. and TEODORO Z.
ZABALLERO, in substitution of LEONARDO M. ZABALLERO; AUGUSTO M.
ZABALLERO; FRINE A. ZABALLERO; ELENA FRONDA ZABALLERO; VICTOR
GREGORIO F. ZABALLERO; MARIA ELENA F. ZABALLERO; LOURDES ZABALLERO-
LAVA; SOCORRO EMILIA ZABALLERO-YAP and TERESITA F. ZABALLERO,
petitioners, vs. NATIONAL HOUSING AUTHORITY, respondent.
Expropriation; Eminent Domain;  Words and Phrases;  It is now settled doctrine that the concept of
public use is no longer limited to traditional purposes—the idea that “public use” is strictly limited to clear
cases of “use by the public” has been abandoned and the term has not been held to be synonymous with
“public interest,” “public benefit,” “public welfare,” and “public convenience.”—Petitioners cannot insist on
a restrictive view of the eminent domain provision of the Constitution by contending that the contract for low
feelings of inadequacy and helplessness. At last his servitude will be ended forever. At last the
farm on which he toils will be his farm. It will be his portion of the Mother Earth that will give
him not only the staff of life but also the joy of living. And where once it bred for him only deep
despair, now can he see in it the fruition of his hopes for a more fulfilling future. Now at last can
he banish from his small plot of earth his insecurities and dark resentments and “rebuild in it the
music and the dream.”
WHEREFORE, the Court holds as follows:
1. 1.R.A. No. 6657, P.D. No. 27, Proc. No. 131, and E.O. Nos. 228 and 229 are
SUSTAINED against all the constitutional objections raised in the herein petitions.
2. 2.Title to all expropriated properties shall be transferred to the State only upon full
payment of compensation to their respective owners.
3. 3.All rights previously acquired by the tenant-farmers under P.D. No. 27 are retained
and recognized.
4. 4.Landowners who were unable to exercise their rights of retention under P.D. No. 27
shall enjoy the retention rights granted by R.A. No. 6657 under the conditions therein
prescribed.
5. 5.Subject to the above-mentioned rulings, all the petitions are DISMISSED, without
pronouncement as to costs.
SO ORDERED.
      Fernan, (C.J.), Narvasa, Melencio-Herrera, Gutierrez,
Jr., Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Cortés, Griño-Aquino, Medialdea an
d Regalado, JJ., concur.
Petitions dismissed.
Notes.—Action for recognition as a lessee and to fix rentals not similar to action to determine
if lessee had not been given his full share of harvest (Calderon vs. de la Cruz, 138 SCRA 173).
Denial of referral of case to the Ministry of Agrarian Reform is in violation of the express
mandate of P.D. No. 316. (Erfe vs. Fortun, 136 SCRA 552).
——o0o——
394
© Copyright 2018 Central Book Supply, Inc. All rights reserved.
cost housing is a deviation from the stated public use. It is now settled doctrine that the concept of public use is
no longer limited to traditional purposes. Here, as elsewhere, the idea that “public use” is strictly limited to
clear cases of “use by the public” has been abandoned. The term “public use” has now been held to be
synonymous with “public interest,” “public benefit,” “public welfare,” and “public convenience.” The
rationale for this new approach is well explained in the case of Heirs of Juancho Ardona, et al. vs. Reyes, et al.
Same;  Same; Expropriation of private lands for slum clearance and urban development is for a public
purpose even if the developed area is later sold to private homeowners, commercial firms, entertainment and
service companies, and other private concerns.—The act of respondent NHA in entering into a contract with a
real estate developer for the construction of low cost housing on the expropriated lots to be sold to qualified
low income beneficiaries cannot be taken to mean as a deviation from the stated public purpose of their taking.
Jurisprudence has it that the expropriation of private land for slum clearance and urban development is for a
public purpose even if the developed area is later sold to private homeowners, commercials firms,
entertainment and service companies, and other private concerns.
_______________
 THIRD DIVISION.
*
495
VOL. 395, JANUARY 20, 2003 495
 interest thereon at 12% per annum computed from the taking of the property in 1977 until the due amount shall
Reyes vs. National Housing Authority have been fully paid.
Same; Same; Urban Land Reform; Socialized Housing; The expropriation of private property for the
purpose of socialized housing for the marginalized sector is in furtherance of the social justice provision
under Section 1, Article XIII of the Constitution.—Moreover, the Constitution itself allows the State to PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
undertake, for the common good and in cooperation with the private sector, a continuing program of urban
land reform and housing which will make at affordable cost decent housing and basic services to The facts are stated in the opinion of the Court.
underprivileged and homeless citizens in urban centers and resettlement areas. The expropriation of private      Renato G. Dela Cruz & Associates for petitioners.
property for the purpose of socialized housing for the marginalized sector is in furtherance of the social justice 497
provision under Section 1, Article XIII of the Constitution which provides that: “SECTION 1. The Congress
shall give highest priority to the enactment of measures that protect and enhance the right of all the people to VOL. 395, JANUARY 20, 2003 497
human dignity, reduce social, economic, and political inequalities, and remove cultural inequities by equitably Reyes vs. National Housing Authority
diffusing wealth and political power for the common good. To this end, the State shall require the acquisition,
ownership, use and disposition of property and its increments.” It follows that the low cost housing project of
respondent NHA on the expropriated lots is compliant with the “public use” requirement. PUNO, J.:
Same; Same; Same; When land has been acquired for public use in fee simple unconditionally, either
by the exercise of eminent domain or by purchase, the former owner retains no rights in the land, and the This is an appeal by certiorari from the decision of the Court of Appeals in CA-GR CV No.
public use may be abandoned, or the land may be devoted to a different use, without any impairment of the 51641 dated September 29, 2000  affirming the judgment of the Regional Trial Court of Quezon
1

estate or title acquired, or any reversion to the former owner.—We likewise do not subscribe to petitioners’
contention that the stated public purpose was abandoned when respondent NHA failed to occupy the
expropriated lots by relocating squatters from the Metro Manila area. The expropriation judgment declared that
respondent NHA has a lawful right to take petitioners properties “for the public use or purpose of expanding
the Dasmariñas Resettlement Project.” The taking here is absolute, without any condition, restriction or
qualification. Contrary to petitioners’ submission, the ruling enunciated in the early case of Fery vs.
Municipality of Cabanatuan, is still good and sound doctrine, viz.: “x x x If, for example, land is expropriated
for a particular purpose, with the condition that when that purpose is ended or abandoned the property shall
return to its former owner, then, of course, when the purpose is terminated or abandoned the former owner
reacquires the property so expropriated. x x x If, upon the contrary, however, the decree of expropriation gives
to the entity a fee simple title, then, of course, the land becomes the absolute property of the expropriator x x
x. When land has been acquired for public use in fee simple unconditionally, either by the exercise of eminent
domain or by purchase, the former owner retains no rights in the land, and the public use may be abandoned,
City, Branch 79 which dismissed the complaint for forfeiture of rights filed by herein petitioners,
as well as the Resolution dated March 13, 2001 denying petitioners’ motion for reconsideration.
Records show that in 1977, respondent National Housing Authority (NHA) filed separate
complaints for the expropriation of sugarcane lands, particularly Lot Nos. 6450, 6448-E, 6198-A
and 6199 of the cadastral survey of Dasmariñas, Cavite belonging to the petitioners, before the
then Court of First Instance of Cavite, and docketed as Civil Case Nos. T.G.-392, T.G.-396 and
T.G.-417. The stated public purpose of the expropriation was the expansion of the Dasmariñas
Resettlement Project to accommodate the squatters who were relocated from the Metropolitan
Manila area. The trial court rendered judgment ordering the expropriation of these lots and the
payment of just compensation. This was affirmed by the Supreme Court in a decision rendered on
October 29, 1987 in the case of NHA vs. Zaballero  and which became final on November 26,
2

or the land may be devoted to a different use, without any impairment of the estate or title acquired, or any 1987. 3

reversion to the former owner.” On February 24, 1989, the expropriation court (now Branch 18, Regional Trial Court of
496
Tagaytay City) issued an Order  the dispositive portion of which reads:
4

4 SUPREME COURT REPORTS ANNOTATED
96
Reyes vs. National Housing Authority
Same; Same; Non-payment of just compensation does not entitle the private landowners to recover
possession of their expropriated lots.—In the recent case of Republic of the Philippines vs. Court of Appeals,
et al., the Court ruled that non-payment of just compensation does not entitle the private landowners to recover
possession of their expropriated lots.
Same; Same; It is a recognized rule that although the right to enter upon and appropriate the land to
public use is compelled prior to payment, title to the property expropriated shall pass from the owner to the
expropriator only upon full payment of the just compensation.—We, however, likewise find the refusal of
respondent NHA to pay just compensation, allegedly for failure of petitioners to pay capital gains tax and
“WHEREFORE, and resolving thus, let an Alias Writ of Execution be immediately issued and that:
1. (1)The Register of Deeds of the Province of Cavite is hereby ordered to transfer, in the name of the
plaintiff National Housing Authority, the following:
1. (a)Transfer Certificate No. RT-638 containing an area of 79,167 square meters situated in Barrio
Bangkal, Dasmariñas, Cavite;
_______________
 Penned by Associate Justice Remedios A. Salazar-Fernando, with Quirino D. Abad Santos, Jr. and Salvador J. Valdez, Jr.,  JJ., concurring;
1

surrender the owners’ duplicate certificates of title, to be unfounded and unjustified. First, under the Annex “A”, Petition; Rollo, pp. 49-66.
 155 SCRA 224 (1987).
2

expropriation judgment the payment of just compensation is not subject to any condition. Second, it is a  Exhibit “B”; Original Records, Volume 2, p. 305.
3

recognized rule that although the right to enter upon and appropriate the land to public use is completed prior  Exhibit “I”; ibid., pp. 318-322.
4

to payment, title to the property expropriated shall pass from the owner to the expropriator only upon full 498
payment of the just compensation. 498 SUPREME COURT REPORTS ANNOTATED
Same; Same; Interest at the rate of 12% per annum is imposed on the amount of just compensation
that is still due in order to help eliminate the issue of the constant fluctuation and inflation of the value of the Reyes vs. National Housing Authority
currency over time.—With respect to the amount of the just compensation still due and demandable from
respondent NHA, the lower courts erred in not awarding interest computed from the time the property is
actually taken to the time when compensation is actually paid or deposited in court. In Republic, et al. vs. 1. (b)Transfer Certificate of Title No. T-55702 containing an area of 20,872 square meters situated in
Court of Appeals, et al., the Court imposed interest at 12% per annum in order to help eliminate the issue of Barrio Bangkal, Dasmariñas, Cavite;
the constant fluctuation and inflation of the value of the currency over time, x x x Records show that there is an 2. (c)Transfer Certificate of Title No. RT-639 and RT-4641 covering Lot Nos. 6198-A and 6199 with
outstanding balance of P1,218,574.35 that ought to be paid to petitioners. It is not disputed that respondent an aggregate area of 159,985 square meters also situated in Barrio Bangkal, Dasmariñas, Cavite.
NHA took actual possession of the expropriated properties in 1977. Perforce, while petitioners are not entitled
to the return of the expropriated property, they are entitled to be paid the balance of P1,218,574.35 with legal
 1. (2)Plaintiff National Housing Authority is likewise hereby ordered, under pain of contempt, to
immediately pay the defendants, the amounts stated in the Writ of Execution as the adjudicated
compensation of their expropriated properties, which process was received by it according to the
records, on September 26, 1988, segregating therefrom, and in separate check, the lawyer’s fees
in favor of Atty. Bobby P. Yuseco, in the amount of P322,123.05, as sustained by their contract as
gleaned from the records, with no other deduction, paying on its own (NHA) account, the
necessary legal expenses incident to the registration or issuance of new certificates of title,
pursuant to the provisions of the Property Registration Law (PD 1529);
2. (3)Defendants, however, are directed to pay the corresponding capital gains tax on the subject
properties, directing them additionally, to coordinate with the plaintiff NHA in this regard, in
order to facilitate the termination of this case, put an end to this controversy and consign the same
to its final rest.”
For the alleged failure of respondent NHA to comply with the above order, petitioners filed on
April 28, 1992 a complaint  for forfeiture of rights before the Regional Trial Court of Quezon City,
5
Branch 79, in Civil Case No. Q-92-12093. They alleged that respondent NHA had not relocated
squatters from the Metropolitan Manila area on the expropriated lands in violation of the stated
public purpose for expropriation and had not paid the just compensation fixed by the court. They
prayed that respondent NHA be enjoined from disposing and alienating the expropriated properties
and that judgment be rendered forfeiting all its rights and interests under the expropriation
judgment. In its Answer,  respondent NHA averred that it had already paid a substantial amount to
6
herein petitioners and that the expropriation judgment could not be executed in view of several
issues raised by respondent NHA before the expropriation court (now Branch 18, RTC, Tagaytay
_______________
 Original Records, Volume 1, pp. 1-5.
5 1. “1.The Honorable Court of Appeals had decided a question of substance not in accord
 Ibid., pp. 10-14.
6
499
VOL. 395, JANUARY 20, 2003 499
Reyes vs. National Housing Authority
City) concerning capital gains tax, registration fees and other expenses for the transfer of title to
respondent NHA, as well as the claims for attorney’s fees of Atty. Joaquin Yuseco, Jr.,
collaborating counsel for petitioners.
Ocular inspections  conducted by the trial court on the subject properties show that:
7
1. “1.80% of Lot No. 6198-A with an area of 120,146 square meters is already occupied by
relocatees whose houses are made of light materials with very few houses partly made
of hollow blocks. The relocatees were relocated only on (sic) March of 1994;
2. 2.Most of the area covered by Lot No. 2075 is almost occupied by houses and structures,
most of which are made of concrete materials. These houses are not being occupied by
squatters relocated to the said lot by the defendant NHA;
3. 3.Lot No. 6199 is also occupied by concrete houses and structures but likewise there are
no relocatees in said lot. A large area of the same is still unoccupied.”
On September 29, 1995, the trial court rendered judgment dismissing the complaint. Finding that
the failure of respondent NHA to pay just compensation and of petitioners to pay capital gains tax
are both unjustified and unreasonable, the trial court held that: (1) respondent NHA is not deemed
to have abandoned the public purpose for which the subject properties were expropriated because
the relocation of squatters involves a long and tedious process. It ruled that respondent NHA
actually pursued the public purpose of the expropriation when it entered into a contract with Arceo
C. Cruz involving the construction of low cost housing on the expropriated lots to be sold to
qualified low income beneficiaries; (2) there is no condition imposed in the expropriation
judgment that the subject properties shall revert back to its original owners in case the purpose of
expropriation is terminated or abandoned; (3) the payment of just compensation is independent of
the obligation of herein petitioners to pay capital gains tax; and (4) in the payment of just
compensation, the basis should be the value at the
_______________
 Commissioner’s Report issued in compliance with the Order dated July 13, 1994; Original Records, Volume 2, p. 407;
7
Commissioner’s Report issued in compliance with the Order dated November 11, 1994; ibid., p. 653.
500
500 SUPREME COURT REPORTS ANNOTATED
Reyes vs. National Housing Authority
time the property was taken. On appeal, the Court of Appeals affirmed the decision of the trial
court.
Petitioners are now before us raising the following assignment of errors:
with justice and equity when it ruled that, as the judgment of the expropriation court
did not contain a condition that should the expropriated property be not used for the
intended purpose it would revert to the condemnee, the action to declare the forfeiture
of rights under the expropriation judgment can not prosper;
2. 2.The Honorable Court of Appeals decided a question of substance not in accord with
jurisprudence, justice and equity when it ruled that the non-payment is not a ground for
forfeiture;
3. 3.The Honorable Court of Appeals erred in not declaring the judgment of expropriation
forfeited in light of the failure of respondent to use the expropriated property for the
intended purpose but for a totally different purpose.”
The petition is not impressed with merit.
Petitioners contend that respondent NHA violated the stated public purpose for the expansion
of the Dasmariñas Resettlement Project when it failed to relocate the squatters from the Metro
Manila area, as borne out by the ocular inspection conducted by the trial court which showed that
most of the expropriated properties remain unoccupied. Petitioners likewise question the public
nature of the use by respondent NHA when it entered into a contract for the construction of low
cost housing units, which is allegedly different from the stated public purpose in the expropriation
proceedings. Hence, it is claimed that respondent NHA has forfeited its rights and interests by
virtue of the expropriation judgment and the expropriated properties should now be returned to
herein petitioners. We are not persuaded.
The 1987 Constitution explicitly provides for the exercise of the power of eminent domain
over private properties upon payment of just compensation. More specifically, section 9, Article
III states that private property shall not be taken for public use without just compensation. The
constitutional restraints are public use and just compensation.
Petitioners cannot insist on a restrictive view of the eminent domain provision of the
Constitution by contending that the con-
501
VOL. 395, JANUARY 20, 2003 501

Reyes vs. National Housing Authority
tract for low cost housing is a deviation from the stated public use. It is now settled doctrine that
the concept of public use is no longer limited to traditional purposes. Here, as elsewhere, the idea
that “public use” is strictly limited to clear cases of “use by the public” has been abandoned. The
term “public use” has now been held to be synonymous with “public interest,” “public benefit,”
“public welfare,” and “public convenience.”  The rationale for this new approach is well explained
8 503
in the case of Heirs of Juancho Ardona, et al. vs. Reyes, et al.,  to wit: 9
“The restrictive view of public use may be appropriate for a nation which circumscribes the scope of
government activities and public concerns and which possesses big and correctly located public lands that
obviate the need to take private property for public purposes. Neither circumstance applies to the Philippines.
We have never been a laissez faire State. And the necessities which impel the exertion of sovereign power are
all too often found in areas of scarce public land or limited government resources.
xxxxxxxxx
The taking to be valid must be for public use. There was a time when it was felt that a literal meaning
should be attached to such a requirement. Whatever project is undertaken must be for the public to enjoy, as in
the case of streets or parks. Otherwise, expropriation is not allowable. It is not anymore. As long as the purpose
of the taking is public, then the power of eminent domain comes into play. As just noted, the constitution in at
least two cases, to remove any doubt, determines what is public use. One is the expropriation of lands to be
subdivided into small lots for resale at cost to individuals. The other is in the transfer, through the exercise of
this power, of utilities and other private enterprise to the government. It is accurate to state then that at
present whatever may be beneficially employed for the general welfare satisfies the requirement of public use.”
(emphasis supplied)
The act of respondent NHA in entering into a contract with a real estate developer for the
construction of low cost housing on the expropriated lots to be sold to qualified low income
beneficiaries cannot be taken to mean as a deviation from the stated public purpose of their taking.
Jurisprudence has it that the expropriation of private land for slum clearance and urban
development is
_______________
 Heirs of Juancho Ardona, et al. vs. Reyes, et al., 125 SCRA 220 (1983).
8
 Supra.
9
502
502 SUPREME COURT REPORTS ANNOTATED
Reyes vs. National Housing Authority
for a public purpose even if the developed area is later sold to private homeowners, commercials
firms, entertainment and service companies, and other private concerns. 10
Moreover, the Constitution itself allows the State to undertake, for the common good and in
cooperation with the private sector, a continuing program of urban land reform and
housing which will make at affordable cost decent housing and basic services to underprivileged
and homeless citizens in urban centers and resettlement areas. The expropriation of private
11
property for the purpose of socialized housing for the marginalized sector is in furtherance of the
social justice provision under Section 1, Article XIII of the Constitution which provides that:
“SECTION 1. The Congress shall give highest priority to the enactment of measures that protect and enhance
the right of all the people to human dignity, reduce social, economic, and political inequalities, and remove
cultural inequities by equitably diffusing wealth and political power for the common good.
To this end, the State shall require the acquisition, ownership, use and disposition of property and its
increments.”
It follows that the low cost housing project of respondent NHA on the expropriated lots is
compliant with the “public use” requirement.
We likewise do not subscribe to petitioners’ contention that the stated public purpose was
abandoned when respondent NHA failed to occupy the expropriated lots by relocating squatters
from the Metro Manila area. The expropriation judgment declared that respondent NHA has a
lawful right to take petitioners properties “for the public use or purpose of expanding the
Dasmariñas Resettlement Project.” The taking here is absolute, without any condition, restriction
or qualification. Contrary to petitioners’ submission, the ruling enunciated in the early case
of Fery vs. Municipality of Cabanatuan,  is still good and sound doctrine, viz.:
12
“x x x If, for example, land is expropriated for a particular purpose, with the condition that when that purpose
is ended or abandoned the property shall return to its former owner, then, of course, when the pur-
_______________
10
 Supra.
11
 Section 9, Article XIII, 1987 Constitution.
12
 42 Phil. 28 (1921).
VOL. 395, JANUARY 20, 2003 503
Reyes vs. National Housing Authority
pose is terminated or abandoned the former owner reacquires the property so expropriated. x x x If, upon the
contrary, however, the decree of expropriation gives to the entity a fee simple title, then, of course, the land
becomes the absolute property of the expropriator x x x.
When land has been acquired for public use in fee simple unconditionally, either by the exercise of
eminent domain or by purchase, the former owner retains no rights in the land, and the public use may be
abandoned, or the land may be devoted to a different use, without any impairment of the estate or title
acquired, or any reversion to the former owner.”
Petitioners further aver that the continued failure of respondent NHA to pay just compensation for
a long period of time justifies the forfeiture of its rights and interests over the expropriated lots.
They demand the return of the expropriated lots. Respondent NHA justifies the delay to pay just
compensation by reason of the failure of petitioners to pay the capital gains tax and to surrender
the owners’ duplicate certificates of title.
In the recent case of Republic of the Philippines vs. Court of Appeals, et al.,  the Court ruled
13
that non-payment of just compensation does not entitle the private landowners to recover
possession of their expropriated lots. Thus:
“Thus, in Valdehueza vs. Republic where the private landowners had remained unpaid ten years after the
termination of the expropriation proceedings, this Court ruled—
‘The points in dispute are whether such payment can still be made and, if so, in what amount. Said lots
have been the subject of expropriation proceedings. By final and executory judgment in said proceedings, they
were condemned for public use, as part of an airport, and ordered sold to the government. x x x. It follows that
both by virtue of the judgment, long final, in the expropriation suit, as well as the annotations upon their title
certificates, plaintiffs are not entitled to recover possession of their expropriated lots—which are still devoted
to the public use for which they were expropriated—but only to demand the market value of the same.
Said relief may be granted under plaintiffs’ prayer for such other remedies, which may be deemed just and
equitable under the premises.’
The Court proceeded to reiterate its pronouncement in Alfonso vs. Pasay City where the recovery of
possession of property taken for public use prayed for by the unpaid landowner was denied even while no
requisite expropriation proceedings were first instituted. The landowner was merely given the relief of
recovering compensation for his property com-
_______________
13
 G.R. No. 146587, July 2, 2002, 383 SCRA 611.
504
504 SUPREME COURT REPORTS ANNOTATED
Reyes vs. National Housing Authority
puted at its market value at the time it was taken and appropriated by the State.
The judgment rendered by the Bulacan RTC in 1979 on the expropriation proceedings  provides not only
for the payment of just compensation to herein respondents but likewise adjudges the property condemned in
favor of petitioner over which parties, as well as their privies, are bound. Petitioner has occupied, utilized
and, for all intents and purposes, exercised dominion over the property pursuant to the judgment. The exercise
of such rights vested to it as the condemnee indeed has amounted to at least a partial compliance or
satisfaction of the 1979 judgment, thereby preempt-ing any claim of bar by prescription on grounds of non-
execution. In arguing for the return of their property on the basis of non-payment, respondents ignore the fact
that the right of the expropriating authority is far from that of an unpaid seller in ordinary sales, to which the
remedy of rescission might perhaps apply. An in rem proceeding, condemnation acts upon the property.After
condemnation, the paramount title is in the public under a new and independent title; thus, by giving notice to
all claimants to a disputed title, condemnation proceedings provide a judicial process for securing better title
against all the world than may be obtained by voluntary conveyance.” (emphasis supplied)
We, however, likewise find the refusal of respondent NHA to pay just compensation, allegedly for
failure of petitioners to pay capital gains tax and surrender the owners’ duplicate certificates of
title, to be unfounded and unjustified.
First, under the expropriation judgment the payment of just compensation is not subject to any
condition. Second, it is a recognized rule that although the right to enter upon and appropriate the
land to public use is completed prior to payment, title to the property expropriated shall pass from
the owner to the expropriator only upon full payment of the just compensation. In the case
of Association of Small Landowners in the Phils., Inc., et al. vs. Secretary of Agrarian Reform,  it 14
was held that:
“Title to property which is the subject of condemnation proceedings does not vest the condemnor until the
judgment fixing just compensation is entered and paid, but the condemnor’s title relates back to the date on
which the petition under the Eminent Domain Act, or the commissioner’s report under the Local Improvement
Act, is filed.
_______________
 175 SCRA 343 (1989).
14
505
VOL. 395, JANUARY 20, 2003 505
Reyes vs. National Housing Authority
x x x Although the right to appropriate and use land taken for a canal is complete at the time of entry, title to
the property taken remains in the owner until payment is actually made.
In Kennedy v. Indianapolis, the US Supreme Court cited several cases holding that title to property does
not pass to the condemnor until just compensation had actually been made. In fact, the decisions appear to be
uniformly to this effect. As early as 1838, in Rubottom v. McLure, it was held that ‘actual payment to the
owner of the condemned property was a condition precedent to the investment of the title to the property in the
State’ albeit ‘not to the appropriation of it to public use.’ In Rexford v. Knight, the Court of Appeals of New
York said that the construction upon the statutes was that the fee did not vest in the State until the payment of
the compensation although the authority to enter upon and appropriate the land was complete prior to the
payment. Kennedy further said that ‘both on principle and authority the rule is x x x that  the right to enter on
and use the property is complete, as soon as the property is actually appropriated under the authority of law
for a public use, but that the title does not pass from the owner without his consent, until just compensation
has been made to him.’ ”
Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes, that:
If the laws which we have exhibited or cited in the preceding discussion are attentively examined it will
be apparent that the method of expropriation adopted in this jurisdiction is such as to afford absolute
reassurance that no piece of land can be finally and irrevocably taken from an unwilling owner until
compensation is paid. x x x.” (emphasis supplied)
With respect to the amount of the just compensation still due and demandable from respondent
NHA, the lower courts erred in not awarding interest computed from the time the property is
actually taken to the time when compensation is actually paid or deposited in court. In  Republic, et
al. vs. Court of Appeals, et al.,  the Court imposed interest at 12% per annum in order to help
15
eliminate the issue of the constant fluctuation and inflation of the value of the currency over time,
thus:
“The constitutional limitation of ‘just compensation’ is considered to be the sum equivalent to the market value
of the property, broadly described to be the price fixed by the seller in open market in the usual and ordinary
course of legal action and competition or the fair value of the property as between one who receives, and one
who desires to sell, it being fixed at the time of the actual taking by the government. Thus, if property
_______________
15
 G.R. No. 146587, July 2, 2002, 383 SCRA 611.
506
506 SUPREME COURT REPORTS ANNOTATED
Reyes vs. National Housing Authority
VOL. 350, JANUARY 29, 2001 487
City of Mandaluyong vs. Aguilar
is taken for public use before compensation is deposited with the court having jurisdiction over the case, the
final compensation must include interests on its just value to be computed from the time the property is taken
to the time when compensation is actually paid or deposited with the court. In fine, between the taking of the
property and the actual payment, legal interests accrue in order to place the owner in a position as good as (but
not better than) the position he was in before the taking occurred.
x x x This allowance of interest on the amount found to be the value of the property as of the time of the
taking computed, being an effective forbearance, at 12% per annum should help eliminate the issue of the
constant fluctuation and inflation of the value of the currency over time. Article 1250 of the Civil Code,
providing that, in case of extraordinary inflation or deflation, the value of the currency at the time of the
establishment of the obligation shall be the basis for the payment when no agreement to the contrary is
stipulated, has strict application only to contractual obligations. In other words, a contractual agreement is
needed for the effects of extraordinary inflation to be taken into account to alter the value of the currency.”
Records show that there is an outstanding balance of P1,218,574.35 that ought to be paid to
petitioners.  It is not disputed that respondent NHA took actual possession of the expropriated
16
properties in 1977.  Perforce, while petitioners are not entitled to the return of the expropriated
17
property, they are entitled to be paid the balance of P1,218,574.35 with legal interest thereon at
12% per annum computed from the taking of the property in 1977 until the due amount shall have
been fully paid.
WHEREFORE, the appealed judgment is modified as follows:
1. 1.Ordering respondent National Housing Authority to pay petitioners the amount of
P1,218,574.35 with legal interest thereon at 12% per annum computed from the taking
of the expropriated properties in 1997 until the amount due shall have been fully paid;
2. 2.Ordering petitioners to pay the capital gains tax; and
3. 3.Ordering petitioners to surrender to respondent National Housing Authority the
owners’ duplicate certificates of title of the expropriated properties upon full payment
of just compensation.
_______________
 Original Records, Volume 3, pp. 731-732.
16
 See Zaballero, et al. vs. NHA, et al., supra, pp. 226-227.
17
507
VOL. 395, JANUARY 20, 2003 507
Santos vs. People
SO ORDERED.
     Panganiban, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
Judgment modified.
Notes.—The authority given to the PEZA to expropriate “for the construction . . . of terminal
facilities, structures and approaches thereto” is broad enough to give it substantial leeway in
deciding for what public use the expropriated property would be utilized. (Estate of Salud Jimenez
vs. Philippine Export Processing Zone, 349 SCRA 240 [2001])
Persons in land which are not in areas proclaimed as Urban Land Reform Zones cannot claim
any right under P.D. No. 1517. (Alcantara vs. Reta, Jr., 372 SCRA 364[2001])
——o0o——
© Copyright 2018 Central Book Supply, Inc. All rights reserved.
G.R. No. 137152. January 29, 2001. *
CITY OF MANDALUYONG, petitioner, vs. ANTONIO N., FRANCISCO N., THELMA N.,
EUSEBIO N., RODOLFO N., all surnamed AGUILAR, respondents.
 Constitutional Law; Expropriation; Order in acquiring lands for socialized housing.—Lands for
socialized housing are to be acquired in the following order: (1) government lands; (2) alienable lands of the
public domain; (3) unregistered or abandoned or idle lands; (4) lands within the declared Areas for Priority
Development (APD), Zonal Improvement Program (ZIP) sites, Slum Improvement and Resettlement (SIR)
sites which have not yet been acquired; (5) BLISS sites which have not yet been acquired; and (6) privately-
owned lands.
Same; Same; Modes for acquiring lands for socialized housing under Republic Act 7279; Mode of
expropriation is subject to two conditions.—Lands for socialized housing under R.A. 7279 are to be acquired
in several modes. Among these modes are the following: (1) community mortgage; (2) land swapping; (3) land
assembly or consolidation; (4) land banking; (5) donation to the government; (6) joint venture agreement; (7)
negotiated purchase; and (8) expropriation. The mode of expropriation is subject to two conditions: (a) it shall
be resorted to only when the other modes of acquisition have been exhausted; and (b) parcels of land owned by
small property owners are exempt from such acquisition.
Same; Same; The type of lands that may be acquired in the order of priority in Section 9 are to be
acquired only in the modes authorized under Section 20.—Section 9 of R.A. 7279 speaks of priorities in the
acquisition of lands. It enumerates the type of lands to be acquired and the heirarchy in their acquisition.
Section 10 deals with the modes of land acquisition or the process of acquiring lands for socialized housing.
These are two different things. They mean that the type of lands that may be acquired in the order of priority
in Section 9 are to be acquired only in the modes authorized under Section 10. The acquisition of the lands in
the priority list must be made subject to the modes and conditions set forth in the next provision. In other
words, land that lies within the APD, such as in the instant case, may be acquired only in the modes under, and
subject to the conditions of Section 10.
_______________
 FIRST DIVISION.
*
488
4 SUPREME COURT REPORTS ANNOTATED
88
City of Mandaluyong vs. Aguilar
Same; Same; Republic Act No. 7279 limits the size of the land sought to be expropriated for socialized
housing.—While we adhere to the expanded notion of public use, the passage of R.A. No. 7279, the “Urban
Development and Housing Act of 1992” introduced a limitation on the size of the land sought to be
expropriated for socialized housing. The law expressly exempted “small property owners” from expropriation
of their land for urban land reform.
Same; Same; Two elements defining “Small-Property Owners.”—“Small-property owners” are
defined by two elements: (1) those owners of real property whose property consists of residential lands with an
area of not more than 300 square meters in highly urbanized cities and 800 square meters in other urban areas;
and (2) that they do not own real property other than the same.
Civil Law; Property; Co-ownership; During the existence of the co-ownership, no individual can
claim title to any definite portion of the community property until the partition thereof and prior to the
partition ail-that the co-owner has is an ideal or abstract quota or proportionate share in the entire land or
thing.—Under a co-ownership, the ownership of an undivided thing or right belongs to different persons.
During the existence of the co-ownership, no individual can claim title to any definite portion of the
community property until the partition thereof, and prior to the partition, all that the co-owner has is an ideal or
abstract quota or proportionate share in the entire land or thing, x x x Before partition in a co-ownership, every
co-owner has the absolute ownership of his undivided interest in the common property. The co-owner is free to
alienate, assign or mortgage his interest, except as to purely personal rights. He may also validly lease his
undivided interest to a third party independently of the other co-owners. The effect of any such transfer is
limited to the portion which may be awarded to him upon the partition of the property.
Same; Same; Same; The rights of the co-owners to have the property partitioned and their share in the
same delivered to them cannot be questioned for no co-owner shall be obliged to remain in the co-ownership .
—As co-owners, all that the respondents had was an ideal or abstract quota or proportionate share in the lots.
This, however, did not mean that they could not separately exercise any rights over the lots. Each respondent
had the full ownership of his undivided interest in the property. He could freely sell or dispose of his interest
independently of the other co-owners. And this interest could have even been attached by his creditors. The
partition in 1998, six (6) months after the filing of the expropriation case, terminated the co-ownership by
converting into certain and definite parts
489
VOL. 350, JANUARY 29, 2001 489
City of Mandaluyong vs. Aguilar
the respective undivided shares of the co-owners. The subject property is not a thing essentially
indivisible. The rights of the co-owners to have the property partitioned and their share in the same delivered to
them cannot be questioned for “[n]o co-owner shall be obliged to remain in the co-ownership.” The partition
was merely a necessary incident of the co-ownership; and absent any evidence to the contrary, this partition is
presumed to have been done in good faith.
PETITION for review on certiorari of a decision of the Regional Trial Court of Pasig City, Br.
168.
The facts are stated in the opinion of the Court.
     Jimmy D. Lacebal for petitioner.
     Ricardo J.M. Rivera Law Office for private respondents.
PUNO, J.:
This is a petition for review under Rule 45 of the Rules of Court of the Orders dated September
17, 1998 and December 29, 1998 of the Regional Trial Court, Branch 168, Pasig City  dismissing 1
the petitioner’s Amended Complaint in SCA No. 1427 for expropriation of two (2) parcels of land
in Mandaluyong City.
The antecedent facts are as follows:
On August 4, 1997, petitioner filed with the Regional Trial Court, Branch 168, Pasig City a
complaint for expropriation entitled “City of Mandaluyong, plaintiff v. Antonio N., Francisco N.,
Thelma N., Eusebio N., Rodolfo N., all surnamed Aguilar, defendants” Petitioner sought to
expropriate three (3) adjoining parcels of land with an aggregate area of 1,847 square meters
registered under Transfer Certificates of Title Nos. 59780, 63766 and 63767 in the names of the
defendants, herein respondents, located at 9 de Febrero Street, Barangay Mauwag, City of
Mandaluyong; on a portion of the 3 lots, respondents constructed residential houses several
decades ago which they had since leased out to tenants until the present; on the vacant portion of
the lots, other families constructed residential structures which they likewise occupied; in
_________________
 Penned by Judge Benjamin V. Pelayo.
1
490
490 SUPREME COURT REPORTS ANNOTATED
City of Mandaluyong vs. Aguilar
1983, the lots were classified by Resolution No. 125 of the Board of the Housing and Urban
Development Coordinating Council as an Area for Priority Development for urban land reform
under Proclamation Nos. 1967 and 2284 of then President Marcos, as a result of this classification,
the tenants and occupants of the lots offered to purchase the land from respondents, but the latter
refused to sell; on November 7, 1996, the Sangguniang Panlungsod of petitioner, upon petition of
the Kapitbisig, an association of tenants and occupants of the subject land, adopted Resolution No.
516, Series of 1996 authorizing Mayor Benjamin Abalos of the City of Mandaluyong to initiate
action for the expropriation of the subject lots and construction of a medium-rise condominium for
qualified occupants of the land; on January 10, 1996, Mayor Abalos sent a letter to respondents
offering to purchase the said property at P3,000.00 per square meter; respondents did not answer
the letter. Petitioner thus prayed for the expropriation of the said lots and the fixing of just
compensation at the fair market value of P3,000.00 per square meter. 2
In their answer, respondents, except Eusebio N. Aguilar who died in 1995, denied having
received a copy of Mayor Abalos’ offer to purchase their lots. They alleged that the expropriation
of their land is arbitrary and capricious, and is not for a public purpose; the subject lots are their
only real property and are too small for expropriation, while petitioner has several properties
inventoried for socialized housing; the fair market value of P3,000.00 per square meter is arbitrary
because the zonal valuation set by the Bureau of Internal Revenue is P7,000.00 per square meter.
As counterclaim, respondents prayed for damages of P21 million. 3
Respondents filed a “Motion for Preliminary Hearing” claiming that the defenses alleged in
their Answer are valid grounds for dismissal of the complaint for lack of jurisdiction over the
Presidential Decree (P.D.) No. 1517, the Urban Land Reform Act, was issued by then
President Marcos in 1978. The decree adopted as a State policy the liberation of human
communities from blight, congestion and hazard, and promotion of their development and
modernization, the optimum use of land as a national resource for public welfare.  Pursuant to this
11

person of the defendants and lack of cause of action. Respondents prayed that the affirmative law, Proclamation No. 1893 was issued in 1979 declaring the entire Metro Manila as Urban Land
defenses be set for preliminary hearing and that the complaint be dismissed.  Petitioner replied.
4
Reform Zone for purposes of urban land reform. This was amended in 1980 by Proclamation No.
________________ 1967 and in 1983 by Proclamation No. 2284 which identified and specified 245 sites in Metro
Manila as Areas for Priority Development and Urban Land Reform Zones.
 Complaint, Records, pp. 2-6.
2
In 1992, the Congress of the Philippines passed Republic Act No. 7279, the “Urban
 Answer with Counterclaim, Records, pp. 73-84.
Development and Housing Act of 1992.” The law lays down as a policy that the state, in
3

 Records, pp. 97-109.

4

491
VOL. 350, JANUARY 29, 2001 491
City of Mandaluyong vs. Aguilar
On November 5, 1997, petitioner filed an Amended Complaint and named as an additional
defendant Virginia N. Aguilar and, at the same time, substituted Eusebio Aguilar with his heirs.
Petitioner also excluded from expropriation TCT No. 59870 and thereby reduced the area sought
to be expropriated from three (3) parcels of land to two (2) parcels totalling 1,636 square meters
cooperation with the private sector, undertake a comprehensive and continuing Urban
Development and Housing Program; uplift the conditions of the underprivileged and homeless
citizens in urban areas and resettlement areas by making available to them decent housing at
affordable cost, basic services and employment opportunities and provide for the rational use and
development of urban land to bring about,
________________
 Petition, p. 3, Rollo, p. 5.
9

 Petition, pp. 4, 6, Rollo, pp. 6, 8.

10

under TCT Nos. 63766 and 63767. 5

 Section 2, P.D. 1517.

11

The Amended Complaint was admitted by the trial court on December 18, 1997. Respondents, 493
who, with the exception of Virginia Aguilar and the Heirs of Eusebio Aguilar had yet to be served
VOL. 350, JANUARY 29, 2001 493
with summons and copies of the Amended Complaint, filed a “Manifestation and Motion”
adopting their “Answer with Counterclaim” and “Motion for Preliminary Hearing” as their answer City of Mandaluyong vs. Aguilar
to the Amended Complaint. 6
among others, equitable utilization of residential lands; encourage more effective people’s
The motion was granted. At the hearing of February 25, 1998, respondents presented Antonio participation in the urban development process and improve the capability of local government
Aguilar who testified and identified several documentary evidence. Petitioner did not present any units in undertaking urban development and housing programs and projects.  Towards this end, all
12

evidence. Thereafter, both parties filed their respective memoranda. 7

On September 17, 1998, the trial court issued an order dismissing the Amended Complaint
after declaring respondents as “small property owners” whose land is exempt from expropriation
under Republic Act No. 7279. The court also found that the expropriation was not for a public
purpose for petitioner’s failure to present any evidence that the intended beneficiaries of the
expropriation are landless and homeless residents of Mandaluyong. The court thus disposed of as
city and municipal governments are mandated to conduct an inventory of all lands and
improvements within their respective localities, and in coordination with the National Housing
Authority, the Housing and Land Use Regulatory Board, the National Mapping Resource
Information Authority, and the Land Management Bureau, identifylands for socialized housing and
resettlement areas for the immediate and future needs of the underprivileged and homeless in the
urban areas, acquire the lands, and disposeof said lands to the beneficiaries of the program. 13

follows: The acquisition of lands for socialized housing is governed by several provisions in the law.
“WHEREFORE, the Amended Complaint is hereby ordered dismissed without pronouncement as to cost. Section 9 of R.A. 7279 provides:
SO ORDERED.” 8
“Sec. 9. Priorities in the Acquisition of Land.—Lands for socialized housing shall be acquired in the following
Petitioner moved for reconsideration. On December 29, 1998, the court denied the motion. Hence order:
this petition.
___________________
1. (a)Those owned by the Government or any of its subdivisions, instrumentalities, or agencies,
including government-owned or controlled corporations and their subsidiaries;
 Amended Complaint, Records, pp. 117-121.
5

2. (b)Alienable lands of the public domain;

 Records, p. 134.
6

3. (c)Unregistered or abandoned and idle lands;

 Records, pp. 257-283, 285-291.
7

 Records, p. 297.
8
4. (d)Those within the declared Areas for Priority Development, Zonal Improvement Program sites,
492 and Slum Improvement and Resettlement Program sites which have not yet been acquired;
5. (e)Bagong Lipunan Improvement of Sites and Services or BLISS Sites which have not yet been
492 SUPREME COURT REPORTS ANNOTATED acquired;
City of Mandaluyong vs. Aguilar 6. (f)Privately-owned lands.
Petitioner claims that the trial court erred
“IN UPHOLDING RESPONDENT’S CONTENTION THAT THEY QUALIFY AS SMALL PROPERTY Where on-site development is found more practicable and advantageous to the beneficiaries, the priorities
OWNERS AND ARE THUS EXEMPT FROM EXPROPRIATION.” 9 mentioned in this section shall not apply. The local government units shall give budgetary priority to onsite
Petitioner mainly claims that the size of the lots in litigation does not exempt the same from development of government lands.”
________________
expropriation in view of the fact that the said lots have been declared to be within the Area for
Priority Development (APD) No. 5 of Mandaluyong by virtue of Proclamation No. 1967, as
 Section 2, R.A. 7279.
amended by Proclamation No. 2284 in relation to Presidential Decree No. 1517.  This declaration
12

 R.A. No. 7279, Secs. 7 and 8, 9 and 12.

10
13

allegedly authorizes petitioner to expropriate the property, ipso facto, regardless of the area of the 494
land.
494 SUPREME COURT REPORTS ANNOTATED
 Resolution No. 516, Series of 1996 of the Sangguniang Panlungsod authorizing the Mayor of
City of Mandaluyong vs. Aguilar
Mandaluyong to effect the expropriation of the subject
Lands for socialized housing are to be acquired in the following order: (1) government lands; (2) ________________
alienable lands of the public domain; (3) unregistered or abandoned or idle lands; (4) lands within
the declared Areas for Priority Development (APD), Zonal Improvement Program (ZIP) sites,  Petition, p. 6, Rollo, p. 8.
16

Slum Improvement and Resettlement (SIR) sites which have not yet been acquired; (5) BLISS  Petition, p. 4, Rollo, p. 6.
17

sites which have not yet been acquired; and (6) privately-owned lands. 496
There is no dispute that the two lots in litigation are privately-owned and therefore last in the 496 SUPREME COURT REPORTS ANNOTATED
order of priority acquisition. However, the law also provides that lands within the declared APD’s
which have not yet been acquired by the government are fourth in the order of priority. According City of Mandaluyong vs. Aguilar
to petitioner, since the subject lots lie within the declared APD, this fact mandates that the lots be property states whether the city government tried to acquire the same by community mortgage,
given priority in acquisition. 14
land swapping, land assembly or consolidation, land banking, donation to the government, or joint
Section 9, however, is not a single provision that can be read separate from the other venture agreement under Section 9 of the law.
provisions of the law. It must be read together with Section 10 of R.A. 7279 which also provides: Section 9 also exempts from expropriation parcels of land owned by small property
“Section 10. Modes of Land Acquisition.—The modes of acquiring lands for purposes of this Act shall include, owners.  Petitioner argues that the exercise of the power of eminent domain is not anymore
18

among others, community mortgage, land swapping, land assembly or consolidation, land banking, donation to conditioned on the size of the land sought to be expropriated.  By the expanded notion of public 19

the Government, joint-venture agreement, negotiated purchase, and expropriation: Provided, however, That use, present jurisprudence has established the concept that expropriation is not anymore confined
expropriation shall be resorted to only when other modes of acquisition have been exhausted: Provided, to the vast tracts of land and landed estates, but also covers small parcels of land.  That only a few 20

further, That where expropriation is resorted to, parcels of land owned by small property owners shall be could actually benefit from the expropriation of the property does not diminish its public use
exempted for purposes of this Act-Provided, finally, That abandoned property, as herein defined, shall be character.  It simply is not possible to provide, in one instance, land and shelter for all who need
21

reverted and escheated to the State in a proceeding analogous to the procedure laid down in Rule 91 of the
Rules of Court. 15
them. 22

For the purposes of socialized housing, government-owned and foreclosed properties shall be acquired by While we adhere to the expanded notion of public use, the passage of R.A. No. 7279, the
the local government units, or by the National Housing Authority primarily through negotiated “Urban Development and Housing Act of
purchase: Provided, That qualified beneficiaries who are actual occupants of the land shall be given the right ___________________
of first refusal.”
_________________ 18
 Likewise exempt are idle residential lands also owned by small property owners under Section 11 of the law which
reads:
“Sec. 11. Expropriation of idle lands.—All idle lands in urban lands in urban and urbanizable areas, as defined and identified in accordance with
 Petition, p. 6, Rollo, p. 8.
14
this Act, shall be expropriated and shall form part of the public domain. These lands shall be disposed of or utilized by the Government for such
 Emphasis supplied.
15
purposes that conform with their land use plans. Expropriation proceedings shall be instituted if, after the lapse of one (1) year following receipt of
495 notice of acquisition, the owner fails to introduce improvements as defined in Section 3 (f) hereof, except in the case of force majeure and other
fortuitous events. Exempted from this provision, however, are residential lands owned by small property owners or those the ownership of which is
VOL. 350, JANUARY 29, 2001 495 subject of a pending litigation.”
 Petition, pp. 8-10, Rollo, pp. 10-12.
19

City of Mandaluyong vs. Aguilar  Phil. Columbian Association v. Panis, 228 SCRA 668, 673 [1993]; J.M. Tuason & Co., Inc, v. Land Tenure
20

Administration, 31 SCRA 413, 427-428 [1970].

Lands for socialized housing under R.A. 7279 are to be acquired in several modes. Among these
 Phil. Columbian Association v. Panis, supra, at 673; Sumulong v. Guerero, 154 SCRA 461 [1987].
21

modes are the following: (1) community mortgage; (2) land swapping; (3) land assembly or  Ibid.
22

consolidation; (4) land banking; (5) donation to the government; (6) joint venture agreement; (7) 497
negotiated purchase; and (8) expropriation. The mode of expropriation is subject to two VOL. 350, JANUARY 29, 2001 497
conditions: (a) it shall be resorted to only when the other modes of acquisition have been
exhausted; and (b) parcels of land owned by small property owners are exempt from such City of Mandaluyong vs. Aguilar
acquisition. 1992” introduced a limitation on the size of the land sought to be expropriated for socialized
Section 9 of RA. 7279 speaks of priorities in the acquisition of lands. It enumerates the type housing. The law expressly exempted “small property owners” from expropriation of their land for
of lands to be acquired and the heirarchy in their acquisition. Section 10 deals with the  modes of urban land reform. R.A. No. 7279 originated as Senate Bill No. 234 authored by Senator Joey
land acquisition or the process of acquiring lands for socialized housing. These are two different Lina  and House Bill No. 34310. Senate Bill No. 234 then provided that one of those lands not
23

things. They mean that the type of lands that may be acquired in the order of priority in Section 9 covered by the urban land reform and housing program was “land actually used by small property
are to be acquired only in the modes authorized under Section 10.The acquisition of the lands in owners within the just and equitable retention limit as provided under this Act.”  “Small property 24

the priority list must be made subject to the modes and conditions set forth in the next provision.
In other words, land that lies within the APD, such as in the instant case, may be acquired only in
the modes under, and subject to the conditions of Section 10.
Petitioner claims that it had faithfully observed the different modes of land acquisition for
socialized housing under R.A. 7279 and adhered to the priorities in the acquisition for socialized
owners” were defined in Senate Bill No. 234 as:
“4. Small Property Owners—are those whose rights are protected under Section 9, Article XIII of the
Constitution of the Philippines, who own small parcels of land within the fair and just retention limit provided
under this Act and which are adequate to meet the reasonable needs of the small property owner’s family and
their means of livelihood.”
25

The exemption from expropriation of lands of small-property owners was never questioned on the
housing under said law.  It, however, did not state with particularity whether it exhausted the other
Senate floor.  This exemption, although with a modified definition, was actually retained in the
16

26

modes of acquisition in Section 9 of the law before it decided to expropriate the subject lots The
consolidation of Senate Bill No. 234 and House Bill No. 34310 which became R.A. No. 7279. 27

law states “expropriation shall be resorted to when other modes of acquisition have been
The question now is whether respondents qualify as “small property owners” as defined in
exhausted.” Petitioner alleged only one mode of acquisition, i.e., by negotiated purchase.
Section 3(q) of R.A. 7279. Section 3 (q) provides:
Petitioner, through the City Mayor, tried to purchase the lots from respondents but the latter “Section 3. x x x (q). “Small property owners” refers to those whose only real property consists of residential
refused to sell.  As to the other modes of acquisition, no mention has been made. Not even
17

lands not exceeding three hun-

___________________ the partition, all that the co-owner has is an ideal or abstract quota or proportionate share in the
entire land or thing. Article 493 of the Civil Code however provides that:
38

 Co-authored by Senators Estrada, Saguisag, Tañada, Herrera and Romulo.

“Art. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining
23

 Sec. 4 (5), Senate Bill No. 234, Record of the Senate, Sept. 2, 1991, Vol. I, Np. 20, pp. 740-741.
24

 Record of the Senate, Sept. 2, 1991, Vol. I, No. 20, p. 741.

25 thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its
 See Interpellations, Record of the Senate, Oct. 22, 1991, Vol. II, No. 47, pp. 374-376; Oct. 23, 1991, Vol. II, No. 47, pp. 409-412; Nov. 26,
26
enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with
1991, Vol. II, No. 55, pp. 689-693; Nov. 28, 1991, Vol. II, No. 57, pp. 764-768; Feb. 3, 1992, Vol. IV, No. 60, pp. 79, 81.
 See Conference Committee Report, Record of the Senate, Feb. 3, 1992, Vol. IV, No. 60, pp. 84, 85-86.
27
respect to the co-owners shall be limited to the portion which may be allotted to him in the division upon
498 termination the co-ownership.” 39

_________________
498 SUPREME COURT REPORTS ANNOTATED
City of Mandaluyong vs. Aguilar  Exhibit “3,” Records, pp. 164
33

 Ibid.
34

dred square meters (300 sq.m.) in highly urbanized cities and eight hundred square meters (800 sq.m.) in other  Exhibit “4,” Records, pp. 171-175.
35

urban areas.”  Petition, p. 5, Rollo, p. 7.

36

“Small-property owners” are defined by two elements: (1) those owners of real property whose  Article 484, Civil Code; Alejandrino v. Court of Appeals, 295 SCRA 536, 548 [1998].
37

property consists of residential lands with an area of not more than 300 square meters in highly  Oliveras v. Lopez, 168 SCRA 431, 437 [1988]; Diversified Credit Corp. v. Rosado, 135 Phil. 491; 26 SCRA
38

470 [1968]; see also cases in Aquino, Civil Code, vol. I, p. 508 [1990].

urbanized cities and 800 square meters in other urban areas; and (2) that they do not own real  Article 493, Civil Code.
39

property other than the same. 500

The case at bar involves two (2) residential lots in Mandaluyong City, a highly urbanized city.
500 SUPREME COURT REPORTS ANNOTATED
The lot under TCT No. 63766 is 687 square meters in area and the second under TCT No. 63767 is
949 square meters, both totalling 1,636 square meters in area. TCT No. 63766 was issued in the City of Mandaluyong vs. Aguilar
names of herein five (5) respondents, viz.: Before partition in a co-ownership, every co-owner has the absolute ownership of his undivided
“FRANCISCO N. AGUILAR, widower; THELMA N. AGUILAR, single; EUSEBIO N. AGUILAR, JR., interest in the common property. The co-owner is free to alienate, assign or mortgage his interest,
widower; RODOLFO N. AGUILAR, single and ANTONIO N. AGUILAR, married to Teresita Puig; all of except as to purely personal rights. He may also validly lease his undivided interest to a third party
40

legal age, Filipinos.” 28

independently of the other co-owners.  The effect of any such transfer is limited to the portion
41

TCT NO 63767 was issued in the names of the five (5) respondents plus Virginia Aguilar, thus: which may be awarded to him upon the partition of the property. 42

“FRANCISCO N. AGUILAR, widower; THELMA N. AGUILAR, single; EUSEBIO N. AGUILAR, JR.,

Article 493 therefore gives the owner of an undivided interest in the property the right to
widower; RODOLFO N. AGUILAR, single and ANTONIO N. AGUILAR, married to Teresita Puig; and
VIRGINIA N. AGUILAR, single, all of legal age, Filipinos.” 29
freely sell and dispose of his undivided interest.  The co-owner, however, has no right to sell or
43

Respondent Antonio Aguilar testified that he and the other registered owners are all siblings who alienate a concrete specific or determinate part of the thing owned in common, because his right
inherited the subject property by intestate succession from their parents.  Their father died in 1945 30
over the thing is represented by a quota or ideal portion without any physical adjudication.  If the 44

and their mother in 1976.  Both TCTs were issued in the siblings’ names on September 2, 1987. In
31 32
co-owner sells a concrete portion, this, nonetheless, does not render the sale void. Such a sale
1986, however, the siblings agreed to extrajudicially partition the lots among themselves, but no affects only his own share, subject to the results of the partition but not those of the other co-
action was taken by them to this end. It was only eleven (11) years later, on November 28, 1997 owners who did not consent to the sale. 45

that a survey of the two lots was In the instant case, the titles to the subject lots were issued in respondents’ names as co-
___________________ owners in 1987—ten (10) years before the expropriation case was filed in 1997. As co-owners, all
that the respondents had was an ideal or abstract quota or proportionate share in the lots. This,
 Exhibit “l, ” Records, p. 123.
28 however, did not mean that they could not
 Exhibit “2,” Records, p. 124.
29 _______________
 TSN of February 25, 1998, pp. 10-12.
30

 TSN of June 17, 1998, pp. 7-8, 10.

31

 The term “personal rights” refers to the personal relations of one co-owner to the others, as when the family residence is
40

 Exhibits “1” and “2,” Records, pp. 123-124.

32

used by the children as co-owners—Padilla, Civil Code, vol. II, pp. 300 & 301 [1972]; Tolentino, Civil Code, Bk. II, p. 203
499 [1992].
VOL. 350, JANUARY 29, 2001 499  Vda. De Castro v. Atienza, 53 SCRA 264, 268 [1973].
41

 Ramirez v. Bautista, 14 Phil. 528, 532-533 [19091; also cited in Padilla, Civil Code, vol. II, p. 302 [1972] and Aquino,
42

City of Mandaluyong vs. Aguilar Civil Code, vol. I, p. 510 [1990].

 Acebedo v. Abesamis, 217 SCRA 186, 194-195 [1993]; Tolentino, Civil Code, vol. II, p. 201 [1992].
43

made  and on February 10, 1998, a consolidation subdivision plan was approved by the Lands
33

 Abad v. Court of Appeals, 179 SCRA 817, 826 [1989]; BailonCasilao v. Court of Appeals, 160 SCRA 738, 745
44

Management Service of the Department of Environment and Natural Resources.  The co-owners 34
[1988]; Santos v. Buenconsejo, 14 SCRA 407, 409 [1965]; Ramirez v. Bautista, supra.
signed a Partition Agreement on February 24, 1998  and on May 21, 1998, TCT Nos. 63766 and
35  Bailon-Casilao v. Court of Appeals, 160 SCRA 738, 745 [1988]; Lopez v. Gonzaga Vda. de Cuaycong, 74 Phil. 601,
45

607 [1944]; Punsalan v. Boon Liat, 44 Phil. 320, 324 [1923].

63767 were cancelled and new titles issued in the names of the individual owners pursuant to the
501
Partition Agreement.
Petitioner argues that the consolidation of the subject lots and their partition was made more VOL. 350, JANUARY 29, 2001 501
than six (6) months after the complaint for expropriation was filed on August 4, 1997, hence, the City of Mandaluyong vs. Aguilar
partition was made in bad faith, for the purpose of circumventing the provisions of R.A. 7279. 36

separately exercise any rights over the lots. Each respondent had the full ownership of his
At the time of filing of the complaint for expropriation, the lots subject of this case were undivided interest in the property. He could freely sell or dispose of his interest independently of
owned in common by respondents. Under a co-ownership, the ownership of an undivided thing or the other co-owners. And this interest could have even been attached by his creditors. The partition 46

right belongs to different persons. During the existence of the co-ownership, no individual can
37

in 1998, six (6) months after the filing of the expropriation case, terminated the co-ownership by
claim title to any definite portion of the community property until the partition thereof, and prior to converting into certain and definite parts the respective undivided shares of the co-owners.  The 47

subject property is not a thing essentially indivisible. The rights of the co-owners to have the
property partitioned and their share in the same delivered to them cannot be questioned for “[n]o  TSN of February 25, 1998, pp. 35-36.
57

 Exhibits “8,” “8-e,” and “8-f,” Records, pp. 179, 184-185.

co-owner shall be obliged to remain in the co-ownership.” The partition was merely a necessary
58

48

503
incident of the co-ownership;  and absent any evidence to the contrary, this partition is presumed
49

to have been done in good faith. VOL. 350, JANUARY 29, 2001 503
Upon partition, four (4) co-owners, namely, Francisco, Thelma, Rodolfo and Antonio Aguilar City of Mandaluyong vs. Aguilar
each had a share of 300 square meters under TCT Nos. 13849, 13852, 13850, 13851.  Eusebio 50

heirs of Eusebio Aguilar, are merely renting their houses and therefore do not own any other real
Aguilar’s share was 347 square meters under TCT No. 13853  while Virginia Aguilar’s was 89
51

property in Metro Manila.  To prove this, they submitted certifications from the offices of the City
59

square meters under TCT No. 13854. 52

and Municipal Assessors in Metro Manila attesting to the fact that they have no registered real
It is noted that Virginia Aguilar, although granted 89 square meters only of the subject lots, is, property declared for taxation purposes in the respective cities. Respondents were certified by the
at the same time, the sole registered owner of TCT No. 59780, one of the three (3) City Assessor of Manila;  Quezon City;  Makati City;  Pasay City;  Parañaque;  Caloocan
60 61 62 63 64

titles initially sought to be expropriated in the original complaint. TCT No. 59780, with a land area City;  Pasig City; Muntinlupa;  Marikina;  and the then municipality of Las Pinas  and the
65 66 67 68 69

of 211 square meters, was dropped in the amended complaint. Eusebio Aguilar was granted 347 municipality of San Juan del Monte  as having no real property registered for taxation in their
70

square meters, which is 47 square meters more than the maximum of 300 square meters set by individual names.
R.A. 7279 for small property owners. In TCT Finally, this court notes that the subject lots are now in the possession of respondents. Antonio
_______________
Aguilar testified that he and the other co-owners filed ejectment cases against the occupants of the
land before the Metropolitan Trial Court, Mandaluyong, Branches 59 and 60. Orders of eviction
 Gotauco & Co. v. Register of Deeds, 59 Phil. 756, 757 [1934]; see alsoTolentino, supra, at 201, citing Cadag v.
46

Trinanes, (CA.), 40 O.G., No. 8, 4th Suppl. 324 [1939]. were issued and executed on September 17, 1997 which resulted in the eviction of the tenants and
 Tolentino, supra, at 204, citing 3 Manresa 508.
47
other occupants from the land in question. 71

 Article 494, Civil Code; see also Ferrer v. Rilloraza, 55 O.G., No. 9, 1575, 1580 [1959].
48
IN VIEW WHEREOF, the petition is DENIED and the orders dated September 17, 1998 and
 Ferrer v. Rilloraza, (CA.) 55 O.G., No. 9, 1575, 1580 [1959]; also cited in Tolentino, supra, 204-205.
December 29, 1998 of the Regional Trial Court, Branch 168, Pasig City in SCA No. 1427 are
49

 Exhibits “12” to “15,” Records, pp. 242-245.

50

 Exhibit “16,” Records, p. 246.

51 AFFIRMED.
 Exhibit “17,” Records, p. 247.
52 ___________________
502
 Exhibits “8-ddd” and “8-eee,” Records, pp. 235, 236.
502 SUPREME COURT REPORTS ANNOTATED
59

60
 Exhibits “8-g,” “8-h,” “8-i” to “8-r,” “8-ff,” Records, pp. 186-196, 237.
City of Mandaluyong vs. Aguilar 61
 Exhibits “8-r” to “8-x,” Records, pp. 197-203.
62
 Exhibit “8-y,” Records, p. 204.
No. 13853, Eusebio’s title, however, appears the following annotation: 63
 Fxhibit “8-z,” “8-aa” to “8-ee,” Records, pp. 205-210.
“. . . subject to x x x, and to the prov. of Sec. 4 Rule 74 of the Rules of Court with respect to the inheritance left 64
 Exhibit “8-zz,” Records, p. 231.
by the deceased Eusebio N. Aguilar.” 53 65
 Exhibits “8-ff” to “8-kk,” Records, pp. 211-216.
Eusebio died on March 23, 1995,  and, according to Antonio’s testimony, the former was survived
54
66
 Exhibit “8-b,” Records, p. 181.
 Exhibit “8-rr,” Records, p. 223.
by five (5) children.  Where there are several co-owners, and some of them die, the heirs of those
67

55

68
 Exhibit “8-ss,” Records, pp. 224.
who die, with respect to that part belonging to the deceased, become also co-owners of the 69
 Exhibits “8-11” to “8-qq,” Records, pp. 217-222.
property together with those who survive.  After Eusebio died, his five heirs became co-owners of
56 70
 Exhibits “8-tt” to “8-yy,” Records, pp. 225-230.
his 347 square-meter portion. Dividing the 347 square meters among the five entitled each heir to 71
 TSN of February 25, 1998, pp. 20-21; Exhibits “5” and “6,” Delivery Receipts of subject property, Records, pp. 176-
177.
69.4 square meters of the land subject of litigation. 504
Consequently, the share of each co-owner did not exceed the 300 square meter limit set in
R.A. 7279. The second question, however, is whether the subject property is the only real property 504 SUPREME COURT REPORTS ANNOTATED
of respondents for them to comply with the second requisite for small property owners. People vs. Maderas
Antonio Aguilar testified that he and most of the original co-owners do not reside on the SO ORDERED.
subject property but in their ancestral home in Paco, Manila.  Respondents therefore appear to own
57
     Davide, Jr. (C.J., Chairman), Kapunan, Pardo and Ynares-Santiago, JJ., concur.
real property other than the lots in litigation. Nonetheless, the records do not show that the Petition denied, orders affirmed.
ancestral home in Paco, Manila and the land on which it stands are owned by respondents or any Note.—A co-owner does not lose his part ownership of a co-owned property when his share is
one of them. Petitioner did not present any title or proof of this fact despite Antonio Aguilar’s mortgaged by another co-owner without the former’s knowledge and consent (Nufable vs.
testimony. Nufable, 309 SCRA 692 [1999])
On the other hand, respondents claim that the subject lots are their only real property  and that 58

they, particularly two of the five ——o0o——

_________________

53
 Exhibit 16, Records, p. 246. © Copyright 2018 Central Book Supply, Inc. All rights reserved.
54
 Exhibit 7, Records, p. 178.
55
 TSN of February 25, 1998, p. 22; TSN of June 17, 1998, pp. 6-7.
56
 Cid v. Peralta, 24 Phil. 142, 147-148 [1913]; also cited in Tolentino, Civil Code, Bk. II, pp. 162-163 [1992].

VOL. 440, OCTOBER 13, 2004 279 G.R. No. 155746. October 13, 2004. *

Lagcao vs. Labra

DIOSDADO LAGCAO, DOROTEO LAGCAO and URSULA LAGCAO, petitioners, vs. JUDGE
GENEROSA G. LABRA, Branch 23, Regional Trial Court, Cebu, and the CITY OF CEBU,
respondent.
Constitutional Law; Local Government; Powers; Eminent Domain;  Local government units have no
inherent power of eminent domain and can exercise it only when expressly authorized by the legislature .—
Under Section 48 of RA 7160, otherwise known as the Local Government Code of 1991, local legislative
power shall be exercised by the Sangguniang Panlungsod of the city. The legislative acts of the Sangguniang
Panlungsod in the exercise of its lawmaking authority are denominated ordinances. Local government units
have no inherent power of eminent domain and can exercise it only when expressly authorized by the
legislature. By virtue of RA 7160, Congress conferred upon local government units the power to expropriate.
Same; Same; Same; Same; Limitations; There are two legal provisions which limit the exercise of this
power.—There are two legal provisions which limit the exercise of this power: (1) no person shall be deprived
of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of
the laws; and (2) private property shall not be taken for public use without just compensation. Thus, the
exercise by local government units of the power of eminent domain is not absolute. In fact, Section 19 of RA
7160 itself explicitly states that such exercise must comply with the provisions of the Constitution and
pertinent laws.
Same; Same; Same; Same; Same;  The foundation of the right to exercise eminent domain is genuine
necessity and that necessity must be of public character.—The due process clause cannot be trampled upon
each time an ordinance orders the expropriation of a private individual’s property. The courts cannot even
adopt a hands-off policy simply because public use or public purpose is invoked by an ordinance, or just
compensation has been fixed and determined. In De Knecht vs. Bautista, we said: It is obvious then that a land-
owner
_______________
 EN BANC.
* Thereafter, Transfer Certificate of Title (TCT) No. 129306 was issued in the name of petitioners
280
2 SUPREME COURT REPORTS ANNOTATED
80
Lagcao vs. Labra
is covered by the mantle of protection due process affords. It is a mandate of reason. It frowns on
arbitrariness, it is the antithesis of any governmental act that smacks of whim or caprice. It negates state power
to act in an oppressive manner. It is, as had been stressed so often, the embodiment of the sporting idea of fair
play. In that sense, it stands as a guaranty of justice. That is the standard that must be met by any governmental
agency in the exercise of whatever competence is entrusted to it. As was so emphatically stressed by the
present Chief Justice, “Acts of Congress, as well as those of the Executive, can deny due process only under
pain of nullity. x x x. The foundation of the right to exercise eminent domain is genuine necessity and that
necessity must be of public character. Government may not capriciously or arbitrarily choose which private
property should be expropriated.
Same; Same; Same; Same; Same;  Expropriation proceedings may be resorted to only after the other
modes of acquisition are exhausted.—Private lands rank last in the order of priority for purposes of socialized
housing. In the same vein, expropriation proceedings may be resorted to only after the other modes of
acquisition are exhausted. Compliance with these conditions is mandatory because these are the only
safeguards of oftentimes helpless owners of private property against what may be a tyrannical violation of due
process when their property is forcibly taken from them allegedly for public use.
Same; Same; Same; Law-Making;  For an ordinance to be valid, it must not only be within the
corporate powers of the city or municipality to enact but must also be passed according to the procedure
prescribed by law.—For an ordinance to be valid, it must not only be within the corporate powers of the city or
municipality to enact but must also be passed according to the procedure prescribed by law. It must be in
accordance with certain well-established basic principles of a substantive nature. These principles require that
an ordinance (1) must not contravene the Constitution or any statute (2) must not be unfair or oppressive (3)
must not be partial or discriminatory (4) must not prohibit but may regulate trade (5) must be general and
consistent with public policy, and (6) must not be unreasonable.
PETITION for review on certiorari of the decision and resolution of the Regional Trial Court of
Cebu City, Br. 23.
281
VOL. 440, OCTOBER 13, 2004 281
Lagcao vs. Labra
The facts are stated in the opinion of the Court.
     Eriberto M. Suson for petitioners.
     Ralph J. Sevilla and Jose Jonas P. Salas for the City of Cebu.
CORONA, J.:
Before us is a petition for review of the decision dated July 1, 2002 of the Regional Trial Court,
Branch 23, Cebu City upholding the validity of the City of Cebu’s Ordinance No. 1843, as well as
1
the lower court’s order dated August 26, 2002 denying petitioner’s motion for reconsideration.
In 1964, the Province of Cebu donated 210 lots to the City of Cebu. One of these lots was Lot
1029, situated in Capitol Hills, Cebu City, with an area of 4,048 square meters. In 1965,
petitioners purchased Lot 1029 on installment basis. But then, in late 1965, the 210 lots, including
Lot 1029, reverted to the Province of Cebu. Consequently, the province tried to annul the sale of
2
Lot 1029 by the City of Cebu to the petitioners. This prompted the latter to sue the province for
specific performance and damages in the then Court of First Instance.
On July 9, 1986, the court a quo ruled in favor of petitioners and ordered the Province of Cebu
to execute the final deed of sale in favor of petitioners. On June 11, 1992, the Court of Appeals
affirmed the decision of the trial court. Pursuant to the ruling of the appellate court, the Province
of Cebu executed on June 17, 1994 a deed of absolute sale over Lot 1029 in favor of petitioners.
and Crispina Lagcao. 3
_______________
 Presided by Judge Generosa G. Labra.
1
 The records of the case do not state why and how the lots reverted to the Province of Cebu.
2
 Now deceased.
3
282
282 SUPREME COURT REPORTS ANNOTATED
Lagcao vs. Labra
After acquiring title, petitioners tried to take possession of the lot only to discover that it was
already occupied by squatters. Thus, on June 15, 1997, petitioners instituted ejectment proceedings
against the squatters. The Municipal Trial Court in Cities (MTCC), Branch 1, Cebu City, rendered
a decision on April 1, 1998, ordering the squatters to vacate the lot. On appeal, the RTC affirmed
the MTCC’s decision and issued a writ of execution and order of demolition.
However, when the demolition order was about to be implemented, Cebu City Mayor Alvin
Garcia wrote two letters  to the MTCC, requesting the deferment of the demolition on the ground
4
that the City was still looking for a relocation site for the squatters. Acting on the mayor’s request,
the MTCC issued two orders suspending the demolition for a period of 120 days from February
22, 1999. Unfortunately for petitioners, during the suspension period, the Sangguniang
Panlungsod (SP) of Cebu City passed a resolution which identified Lot 1029 as a socialized
housing site pursuant to RA 7279.  Then, on June 30, 1999, the SP of Cebu City passed Ordinance
5
No. 1772  which included Lot 1029 among the identified sites for socialized housing. On July, 19,
6
2000, Ordinance No. 1843  was enacted by the SP of Cebu City authorizing the mayor of Cebu
7
City to initiate expropriation proceedings for the acquisition of Lot 1029 which was registered in
the name of peti-
_______________
 Dated February 22, 1999 and May 20, 1999.
4
 The Urban Development and Housing Act of 1992 (Lina Law).
5
 Entitled, “AN ORDINANCE FURTHER AMENDING ORDINANCE NO. 1656 AS AMENDED BY ORDINANCE NO 1684
6
OTHERWISE KNOWN AS THE 1966 REVISED ZONING ORDINANCE OF THE CITY OF CEBU, BY INCORPORATING THEREIN A
NEW DISTRICT CALLED SOCIALIZED HOUSING SITES.”
 Entitled “AN ORDINANCE AUTHORIZING THE CITY MAYOR OF CEBU CITY TO INSTITUTE EXPROPRIATION
7
PROCEEDINGS AGAINST MRS. CRISPINA VDA. DE LAGCAO, OWNER OF LOT NO. 1029 LOCATED AT GREEN VALLEY, CAPITOL
SITE, CEBU CITY, TO ACQUIRE THE SAME FOR PUBLIC USE OR PURPOSE.”
 283
VOL. 440, OCTOBER 13, 2004 285
VOL. 440, OCTOBER 13, 2004 283
Lagcao vs. Labra
Lagcao vs. Labra RA 7160 itself explicitly states that such exercise must comply with the provisions of the
tioners. The intended acquisition was to be used for the benefit of the homeless after its Constitution and pertinent laws.
subdivision and sale to the actual occupants thereof. For this purpose, the ordinance appropriated The exercise of the power of eminent domain drastically affects a landowner’s right to private
the amount of P6,881,600 for the payment of the subject lot. This ordinance was approved by property, which is as much a constitutionally-protected right necessary for the preservation and
Mayor Garcia on August 2, 2000. enhancement of personal dignity and intimately connected with the rights to life and
On August 29, 2000, petitioners filed with the RTC an action for declaration of nullity of liberty. Whether directly exercised by the State or by its authorized agents, the exercise of eminent
14

Ordinance No. 1843 for being unconstitutional. The trial court rendered its decision on July 1, domain is necessarily in derogation of private rights.  For this reason, the need for a painstaking
15

2002 dismissing the complaint filed by petitioners whose subsequent motion for reconsideration
was likewise denied on August 26, 2002.
In this appeal, petitioners argue that Ordinance No. 1843 is unconstitutional as it sanctions the
expropriation of their property for the purpose of selling it to the squatters, an endeavor contrary to
the concept of “public use” contemplated in the Constitution.  They allege that it will benefit only a
8
scrutiny cannot be overemphasized.
The due process clause cannot be trampled upon each time an ordinance orders the
expropriation of a private individual’s property. The courts cannot even adopt a hands-off policy
simply because public use or public purpose is invoked by an ordinance, or just compensation has

been fixed and determined. In De Knecht vs. Bautista, we said: 16

handful of people. The ordinance, according to petitioners, was obviously passed for politicking, “It is obvious then that a land-owner is covered by the mantle of protection due process affords. It is a mandate
the squatters undeniably being a big source of votes. of reason. It frowns on arbitrariness, it is the antithesis of any governmental act that smacks of whim or
In sum, this Court is being asked to resolve whether or not the intended expropriation by the caprice. It negates state power to act in an oppressive manner. It is, as had been stressed so often, the
City of Cebu of a 4,048-square-meter parcel of land owned by petitioners contravenes the embodiment of the sporting idea of fair play. In that sense, it stands as a guaranty of justice. That is the
Constitution and applicable laws. standard that must be met by any governmental agency in the exercise of whatever competence is entrusted to
Under Section 48 of RA 7160,  otherwise known as the Local Government Code of
9
it. As was so emphatically stressed by the present Chief Justice, “Acts of Congress, as well as those of the
Executive, can deny due process only under pain of nullity. x x x.”
1991,  local legislative power shall be
10

_______________
_______________

 Joaquin G. Bernas, The Constitution of the Republic of the Philippines: A Commentary, vol. 1, p. 43, 1987.
14

8
 Article IV, Section 9—“Private property shall not be taken for public use without just compensation.”  City of Manila vs. Chinese Community of Manila, 40 Phil. 349 (1919).
15

9
 Section 48. Local Legislative Power.—Local legislative power shall be exercised by the sangguniang panlalawigan for the province;  G.R. No. L-51078, 30 October 1980, 100 SCRA 660.
16

the sangguniang panlungsod for the city; the sangguniang bayan for the municipality; and the sangguniang barangay for the barangay. 286
10
 The law was approved on October 10, 1991 and it became effective on January 1, 1992.
284 286 SUPREME COURT REPORTS ANNOTATED
284 SUPREME COURT REPORTS ANNOTATED Lagcao vs. Labra
Lagcao vs. Labra The foundation of the right to exercise eminent domain is genuine necessity and that necessity
exercised by the Sangguniang Panlungsod of the city. The legislative acts of the Sangguniang must be of public character.  Government may not capriciously or arbitrarily choose which private
17

Panlungsod in the exercise of its lawmaking authority are denominated ordinances.
Local government units have no inherent power of eminent domain and can exercise it only
when expressly authorized by the legislature.  By virtue of RA 7160, Congress conferred upon
11
local government units the power to expropriate. Ordinance No. 1843 was enacted pursuant to
Section 19 of RA 7160:
“SEC. 19. Eminent Domain.—A local government unit may, through its chief executive and acting pursuant to
an ordinance, exercise the power of eminent domain for public use, or purpose, or welfare for the benefit of the
poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and
property should be expropriated. In this case, there was no showing at all why petitioners’ property
was singled out for expropriation by the city ordinance or what necessity impelled the particular
choice or selection. Ordinance No. 1843 stated no reason for the choice of petitioners’ property as
the site of a socialized housing project.
Condemnation of private lands in an irrational or piecemeal fashion or the random
expropriation of small lots to accommodate no more than a few tenants or squatters is certainly not
the condemnation for public use contemplated by the Constitution. This is depriving a citizen of
his property for the convenience of a few without perceptible benefit to the public. 18

pertinent laws x x x.” (italics supplied).
Ordinance No. 1843 which authorized the expropriation of petitioners’ lot was enacted by the SP
of Cebu City to provide socialized housing for the homeless and low-income residents of the City.
However, while we recognize that housing is one of the most serious social problems of the
country, local government units do not possess unbridled authority to exercise their power of
eminent domain in seeking solutions to this problem.
There are two legal provisions which limit the exercise of this power: (1) no person shall be
deprived of life, liberty, or property without due process of law, nor shall any person be denied the
equal protection of the laws;  and (2) private property shall not be taken for public use without just
12
compensation.  Thus, the exercise by local government units of the power of eminent domain is
13
not absolute. In fact, Section 19 of
_______________
 City of Cincinatti vs. Vester, 281 US 439, 74 L. ed. 950, 50 S Ct. 360.
11
RA 7279 is the law that governs the local expropriation of property for purposes of urban land
reform and housing. Sections 9 and 10 thereof provide:
“SEC. 9. Priorities in the Acquisition of Land.—Lands for socialized housing shall be acquired in the following
order:
1. (a)Those owned by the Government or any of its subdivisions, instrumentalities, or agencies,
including government-owned or controlled corporations and their subsidiaries;
2. (b)Alienable lands of the public domain;
3. (c)Unregistered or abandoned and idle lands;
4. (d)Those within the declared Areas or Priority Development, Zonal Improvement Program sites,
and Slum Improvement and Resettlement Program sites which have not yet been acquired;
5. (e)Bagong Lipunan Improvement of Sites and Services or BLISS which have not yet been acquired;
and

 Article 3, Section 1, 1987 Constitution.

12

 Article 3, Section 9, 1987 Constitution.

13
_______________
285
17
 City of Manila vs. Chinese Community of Manila, supra.
  Urban Estates, Inc vs. Montesa, 88 Phil. 348 (1951).
18
287
VOL. 440, OCTOBER 13, 2004 287
Lagcao vs. Labra
1. (f)Privately-owned lands.
“Where on-site development is found more practicable and advantageous to the beneficiaries, the priorities
mentioned in this section shall not apply. The local government units shall give budgetary priority to on-site
development of government lands. (Emphasis supplied).
“SEC. 10. Modes of Land Acquisition.—The modes of acquiring lands for purposes of this Act shall
include, among others, community mortgage, land swapping, land assembly or consolidation, land banking,
donation to the Government, joint venture agreement, negotiated purchase, and expropriation: Provided,
however, That expropriation shall be resorted to only when other modes of acquisition have been
exhausted: Provided further, That where expropriation is resorted to, parcels of land owned by small property
owners shall be exempted for purposes of this Act: x x x.” (Emphasis supplied).
In the recent case of Estate or Heirs of the Late Ex-Justice Jose B.L. Reyes, et al. vs. City of
Manila,  we ruled that the above-quoted provisions are strict limitations on the exercise of the
19
power of eminent domain by local government units, especially with respect to (1) the order of
priority in acquiring land for socialized housing and (2) the resort to expropriation proceedings as
a means to acquiring it. Private lands rank last in the order of priority for purposes of socialized
housing. In the same vein, expropriation proceedings may be resorted to only after the other modes
of acquisition are exhausted. Compliance with these conditions is mandatory because these are the
only safeguards of oftentimes helpless owners of private property against what may be a tyrannical
violation of due process when their property is forcibly taken from them allegedly for public use.
We have found nothing in the records indicating that the City of Cebu complied strictly with
Sections 9 and 10 of RA
_______________
 G.R. Nos. 132431 and 137146, February 13, 2004, 422 SCRA 551.
19
288
288 SUPREME COURT REPORTS ANNOTATED
Lagcao vs. Labra
7279. Ordinance No. 1843 sought to expropriate petitioners’ property without any attempt to first
acquire the lands listed in (a) to (e) of Section 9 of RA 7279. Likewise, Cebu City failed to
establish that the other modes of acquisition in Section 10 of RA 7279 were first exhausted.
Moreover, prior to the passage of Ordinance No. 1843, there was no evidence of a valid and
definite offer to buy petitioners’ property as required by Section 19 of RA 7160.  We therefore
20
find Ordinance No. 1843 to be constitutionally infirm for being violative of the petitioners’ right to
due process.
It should also be noted that, as early as 1998, petitioners had already obtained a favorable
judgment of eviction against the illegal occupants of their property. The judgment in this ejectment
case had, in fact, already attained finality, with a writ of execution and an order of demolition. But
Mayor Garcia requested the trial court to suspend the demolition on the pretext that the City was
still searching for a relocation site for the squatters. However, instead of looking for a relocation
site during the suspension period, the city council suddenly enacted Ordinance No. 1843 for the
expropriation of petitioners’ lot. It was trickery and bad faith, pure and simple. The
unconscionable manner in which the questioned ordinance was passed clearly indicated that
respondent City transgressed the Constitution, RA 7160 and RA 7279.
For an ordinance to be valid, it must not only be within the corporate powers of the city or
municipality to enact but must also be passed according to the procedure prescribed by law. It
must be in accordance with certain well-established basic principles of a substantive nature. These
principles require that an ordinance (1) must not contravene the Constitution or any statute (2)
must not be unfair or oppressive (3) must not
_______________
20
 Sec. 19. Eminent Domain—“x x x. Provided, however, that the power of eminent domain may not be exercised unless a valid and definite
offer has been previously made to the owner, and such offer was not accepted: x x x.”
289
VOL. 440, OCTOBER 13, 2004 289
Lagcao vs. Labra
be partial or discriminatory (4) must not prohibit but may regulate trade (5) must be general and
consistent with public policy, and (6) must not be unreasonable. 21
Ordinance No. 1843 failed to comply with the foregoing substantive requirements. A clear
case of constitutional infirmity having been thus established, this Court is constrained to nullify
the subject ordinance. We recapitulate:
first, as earlier discussed, the questioned ordinance is repugnant to the pertinent provisions of the Constitution,
RA 7279 and RA 7160;
second, the precipitate manner in which it was enacted was plain oppression masquerading as a pro-poor
ordinance;
third, the fact that petitioners’ small property was singled out for expropriation for the purpose of
awarding it to no more than a few squatters indicated manifest partiality against petitioners, and
fourth, the ordinance failed to show that there was a reasonable relation between the end sought and the
means adopted. While the objective of the City of Cebu was to provide adequate housing to slum dwellers, the
means it employed in pursuit of such objective fell short of what was legal, sensible and called for by the
circumstances.
Indeed, experience has shown that the disregard of basic liberties and the use of short-sighted
methods in expropriation proceedings have not achieved the desired results. Over the years, the
government has tried to remedy the worsening squatter problem. Far from solving it, however,
government’s kid-glove approach has only resulted in the multiplication and proliferation of
squatter colonies and blighted areas. A pro-poor program that is well-studied, adequately funded,
genu-
_______________
 Tatel vs. Municipality of Virac, G.R. No. 40243, 11 March 1992, 207 SCRA 157.
21
290
290 SUPREME COURT REPORTS ANNOTATED
Lagcao vs. Labra
inely sincere and truly respectful of everyone’s basic rights is what this problem calls for, not the
improvident enactment of politics-based ordinances targeting small private lots in no rational
fashion.
WHEREFORE, the petition is hereby GRANTED. The July 1, 2002 decision of Branch 23 of
the Regional Trial Court of Cebu City is REVERSED and SET ASIDE.
SO ORDERED.
     Davide, Jr. (C.J.), Puno, Panganiban, Quisumbing,Ynares-Santiago, Sandoval-
Gutierrez, Carpio, Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.
     Carpio-Morales, Azcuna and Chico-Nazario, JJ., On Leave.
Petition granted, judgment reversed and set aside.
Note.—Upon compliance with the requirements for expropriation, issuance of writ of
possession becomes ministerial. (City of Manila vs. Serrano, 359 SCRA 231[2001])
——o0o——
291
© Copyright 2018 Central Book Supply, Inc. All rights reserved.

654 SUPREME COURT REPORTS ANNOTATED
Sison, Jr. vs. Ancheta
No. L-59431. July 25, 1984. *
ANTERO M. SISON, JR., petitioner, vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau
of Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue;
TOMAS TOLEDO, Deputy Commissioner, Bureau of Internal Revenue; MANUEL ALBA,
Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR
E. A. VIRATA, Minister of Finance, respondents.
Taxation; Constitutional Law; The Constitution sets forth the restrictions to the power to tax.—The
power to tax moreover, to borrow from Justice Malcolm, “is an attribute of sovereignty. It is the strongest of
all the powers of government.” It is, of course, to be ad-
_______________
 EN BANC.
*
655
VOL. 130, JULY 25, 1984 655
Sison, Jr. vs. Ancheta
mitted that for all its plenitude, the power to tax is not unconfined. There are restrictions. The
Constitution sets forth such limits. Adversely affecting as it does property rights, both the due process and
equal protection clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a
revenue measure. If it were otherwise, there would be truth to the 1803 dictum of Chief Justice Marshall that
“the power to tax involves the power to destroy.” In a separate opinion in Graves v. New York, Justice
Frankfurter, after referring to it as an “unfortunate remark,” characterized it as “a flourish of rhetoric
[attributable to] the intellectual fashion of the times [allowing] a free use of absolutes.” This is merely to
emphasize that it is not and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully
conclude: “The web of unreality spun from Marshall’s famous dictum was brushed away by one stroke of Mr.
Justice Holmes’s pen: ‘The power to tax is not the power to destroy while this Court sits.’ ” So it is in the
Philippines.
Same; Same; A bare allegation that Batas 135, which sets different income tax schedules for fixed
income earners and business or professional income earners, is arbitrary does not suffice to invalidate said
tax statute.—The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation,
as here, does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void on its face, he has not made out a case. This is merely
to adhere to the authoritative doctrine that where the due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive
character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.
Same; Same; Due process clause may be invoked where a tax statute is so arbitrary as to find no
support in Constitution.—It is undoubted that the due process clause may be invoked where a taxing statute is
so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to
amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this
Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh
and unreasonable, it is subject to attack on due process grounds.
656
6 SUPREME COURT REPORTS ANNOTATED
56
Sison, Jr. vs. Ancheta
Same; Same; The State is free to select the subjects of taxation and inequalities consequent to its
exercise infringe no constitutional limitation.—The equal protection clause is, of course, inspired by the noble
concept of approximating the ideal of the laws’s benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of the very essence of the idea of law. There is,
however, wisdom, as well as realism, in these words of Justice Frankfurter: “The equality at which the ‘equal
protection’ clause aims is not a disembodied equality. The Fourteenth Amendment enjoins ‘the equal
protection of the laws,’ and laws are not abstract propositions. They do not relate to abstract units A, B and C,
but are expressions of policy arising out of specific difficulties, addressed to the attainment of specific ends by
the use of specific remedies. The Constitution does not require things which are different in fact or opinion to
be treated in law as though they were the same.” Hence the constant reiteration of the view that classification if
rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, this Court, through
Justice J.B.L. Reyes, went so far as to hold “at any rate, it is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a singling
out of one particular class for taxation, or exemption infringe no constitutional limitation.’ ”
Same;  Same; Uniformity in taxation quite similar to the standard of equal protection.—Petitioner
likewise invoked the kindred concept of uniformity. According to the Constitution: “The rule of taxation shall
be uniform and equitable.” This requirement is met according to Justice Laurel in Philippine Trust Company v.
Yatco, decided in 1940, when the tax “operates with the same force and effect in every place where the subject
may be found.” He likewise added: “The rule of uniformity does not call for perfect uniformity or perfect
equality, because this is hardly attainable.” The problem of classification did not present itself in that case. It
did not arise until nine years later, when the Supreme Court held: “Equality and uniformity in taxation means
that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of taxation, * * *. As clarified by
Justice Tuason, where “the differentiation” complained of “conforms to the practical dictates of justice and
equity” it “is not discriminatory within the meaning of this clause and is therefore uniform.” There is quite a
similarity then to the standard of equal protection for all that is required is that the tax “applies equally to all
persons, firms and cor-
657
VOL. 130, JULY 25, 1984 657
Sison, Jr. vs. Ancheta
porations placed in similar situation.”
Same;  Same; Taxpayers may be classified into different categories where it rests on real differences.—
Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate
and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible
items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different
categories. To repeat, it is enough that the classification must rest upon substantial distinctions that make real
differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the discernible
basis of classification is the susceptibility of the income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of
them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no
overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they
are in the same situation more or less. On the other hand, in the case of professionals in the practice of their
calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It
would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately
impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing
the system of net income taxation as regards professional and business income.
PETITION to review the decision of the Acting Commissioner of Internal Revenue.
The facts are stated in the opinion of the Court.
     Antero M. Sison for petitioner and for his own behalf.
     The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding  on 1
the validity of
_______________
 Petitioner must have realized that a suit for declaratory relief must be filed with Regional Trial Courts.
1
658
658 SUPREME COURT REPORTS ANNOTATED
Sison, Jr. vs. Ancheta
Section 1 of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The Over P 10,000 but not over P 30,000 P 500 + 15% of excess over P 10,000
assailed provision further amends Section 21 of the National Internal Revenue Code of 1977,
which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) Over P 30,000 but not over P150,000 P 3,500 + 30% of excess over P 30,000
taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and Over P150,000 but not over P500,000 P 39,500 + 45% of excess over P150,000
yield or any other monetary benefit from deposit substitutes and from trust fund and similar
Over P500,000 P197,000 + 60% of excess over P500,000
arrangements, (e) dividends and share of individual partner in the net profits of taxable  Ibid, Statement, par. 4.
5

partnership, (f) adjusted gross income.  Petitioner  as taxpayer alleges that by virtue thereof, “he
2 3
 Article IV, Section 1 of the Constitution reads: “No person shall be deprived of life, liberty or property without due
6

would be unduly discriminated against by the imposition of higher rates of tax upon his income process of law, nor shall any person be denied the equal protection of the laws.”
arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or  Article VII, Section 7, par. (1) of the Constitution reads: “The rule of taxation shall be uniform and equitable. The
7

Batasang Pambansa shall evolve a progressive system of taxation.”

salaried individual taxpayers.”  He characterizes the above section as ar-
4

 It was filed by Solicitor General Estelito P. Mendoza. He was assisted by Assistant Solicitor General Eduardo D.
8

_______________ Montenegro and Solicitor Erlinda B. Masakayan.

 Answer, pars. 1-6.
9

2
 Batas Pambansa Blg. 135, Section 21 (1981).  Ibid, par. 6.
10

3
 The respondents are Ruben B. Ancheta, Acting Commissioner, Bureau of Internal Revenue; Romulo Villa, Deputy 660
Commissioner, Bureau of Internal Revenue; Tomas Toledo, Deputy Commissioner, Bureau of Internal Revenue; Manuel Alba,
Minister of Budget; Francisco Tantuico, Chairman, Commissioner on Audit; and Cesar E. A. Virata, Minister of Finance. 660 SUPREME COURT REPORTS ANNOTATED
4
 Petition, Parties, par. 1. The challenge is thus aimed at paragraphs (a) and (b) of Section 1 further Amending Section 21
Sison, Jr. vs. Ancheta
of the National Internal Revenue Code of 1977. Par. (a) reads: ‘‘(a) On taxable compensation income.—A tax is hereby
imposed upon the taxable compensation income as determined in Section 28 (a) received during each taxable year from all
sources by every individual, whether a citizen of the Philippines, determined in accordance with the following schedule:
1. 1.It is manifest that the field of state activity has assumed a much wider scope. The
Not over P2.500 0%
reason was so clearly set forth by retired Chief Justice Makalintal thus: “The areas
Over P 2,500 but not overP 5,000 1% which used to be left to private enterprise and initiative and which the government was
Over P 5,000 but not over 10,000 P 25 + 3% of excess over P 5,000 called upon to enter optionally, and only ‘because it was better equipped to administer
for the public welfare than is any private individual or group of individuals,’ continue
Over P 10,000 but not over P 20,000 P 175 + 7% of excess over P 10,000 to lose their well-defined boundaries and to be absorbed within activities that the
Over P 20,000 but not over P 40,000 P 875 + 11% of excess over P 20,000 government must undertake in its sovereign capacity if it is to meet the increasing
social challenges of the times.”  Hence the need for more revenues. The power to tax,
11

Over P 40,000 but not over P 60,000
Over P 60,000 but not over P100,000
Over P100,000 but not over P250,000
P 3,075 + 15% of excess over P 40,000
an inherent prerogative, has to be availed of to assure the performance of vital state
P 6,075 + 19% of excess over P 60,000 functions. It is the source of the bulk of public funds. To paraphrase a recent decision,
P 13,675 + 24% of excess over P 100,000 taxes being the lifeblood of the government, their prompt and certain availability is of
the essence.12

Over P250,000 but not over P500,000 P 49,675 + 29% of excess over P 250,000
2. 2.The power to tax moreover, to borrow from Justice Malcolm, “is an attribute of
Over P500,000 P 122,175 + 35% of excess over P 500,000 sovereignty. It is the strongest of all the powers of government.”  It is, of course, to be
13

Par. (b) reads: “(b) On taxable net income.—A tax is hereby imposed upon the taxable net income as determined in Section 29
(a) received admitted that for all its plenitude, the power to tax is not unconfined. There are
659 restrictions. The Constitution sets forth such limits. Adversely affecting as it does
property rights, both the due process and equal protection clauses may properly be
VOL. 130, JULY 25, 1984 659
invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it
Sison, Jr. vs. Ancheta were otherwise, there would be truth to the 1803 dictum of Chief Justice Marshall that
bitrary amounting to class legislation, oppressive and capricious in character.  For petitioner, 5
“the power to tax involves the power to destroy.”  In a separate opinion in Graves v.
14

therefore, there is a transgression of both the equal protection and due process clauses  of the 6
New York,  Justice Frankfurter, after referring to it as an “unfortunate remark,”
15

Constitution as well as of the rule requiring uniformity in taxation. 7

characterized it as “a flourish of rhetoric [attributable to] the intellectual fashion of the
The Court, in a resolution of January 26, 1982, required respondents to file an answer within times [allowing] a free use of absolutes.”  This is merely to em-
16

10 days from notice. Such an answer, after two extensions were granted the Office of the Solicitor
General, was filed on May 28, 1982. The facts as alleged were admitted but not the allegations
8
_______________
which to their mind are “mere arguments, opinions or conclusions on the part of the petitioner, the
truth [for them] being those stated [in their] Special and Affirmative Defenses.”  The answer then 9
 Agricultural Credit and Cooperative Financing Administration v. Confederation of Unions in Government Corporation
11

affirmed: “Batas Pambansa Big. 135 is a valid exercise of the State’s power to tax. The authorities and Offices, L-21484, November 29, 1969, 30 SCRA 649, 662.
and cases cited, while correctly quoted or paraphrased, do not support petitioner’s stand.”  The 10
 Cf. Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, per Castro, J.
12

 Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).

13

prayer is for the dismissal of the petition for lack of merit.  McCulloch v. Maryland, 4 Wheaton 316.
14

This Court finds such a plea more than justified. The petition must be dismissed.  306 US 466 (1938).
15

_______________  Ibid, 489.

16

661
during each taxable year from all sources by every individual, whether a citizen of the Philippines, or an alien residing in VOL. 130, JULY 25, 1984 661
the Philippines determined in accordance with the following schedule:
Sison, Jr. vs. Ancheta
Not over P10,000 5%
 1. phasize that it is not and there cannot be such a constitutional mandate. Justice
Frankfurter could rightfully conclude: “The web of unreality spun from Marshall’s
famous dictum was brushed away by one stroke of Mr. Justice Holmes’s pen: The
power to tax is not the power to destroy while this Court sits.’ ”  So it is in the 17
Philippines.
2. 3.This Court then is left with no choice. The Constitution as the fundamental law
overrides any legislative or executive act that runs counter to it. In any case therefore
where it can be demonstrated that the challenged statutory provision—as petitioner
same formulation applies as well to taxation measures. The equal protection clause is,
of course, inspired by the noble concept of approximating the ideal of the laws’s
benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of
_______________
 Cf. Manila Gas Co. v. Collector of Internal Revenue, 62 Phil. 895(1936); Wells Fargo Bank and Union Trust Co. v.
19

Collector, 70 Phil. 325(1940); Republic v. Oasan Vda. de Fernandez, 99 Phil. 934 (1956).

here alleges—fails to abide by its command, then this Court must so declare and  The excerpt is from the opinion in J.M. Tuason and Co. v. The Land Tenure Administration, L-21064, February 18,
20

adjudge it null. The inquiry thus is centered on the question of whether the imposition 1970, 31 SCRA 413, 435 and reiterated in Bautista v. Juinio, G.R. No. 50908, January 31, 1984, 127 SCRA 329, 339. The
of a higher tax rate on taxable net income derived from business or profession than on former deals with an eminent domain proceeding and the latter with a suit contesting the validity of a police power measure.
compensation is constitutionally infirm. 663

3. 4.The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a
provision as void on its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a
need for proof of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail. 18
4. 5.It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it
can be shown to amount to the confiscation of property. That would be a clear abuse of
power. It then becomes the duty of this Court to say that such an arbitrary act
VOL. 130, JULY 25, 1984 663
Sison, Jr. vs. Ancheta
1. the idea of law. There is, however, wisdom, as well as realism, in these words of Justice
Frankfurter: “The equality at which the ‘equal protection’ clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins ‘the equal protection of the
laws,’ and laws are not abstract propositions. They do not relate to abstract units A, B
and C, but are expressions of policy arising out of specific difficulties, addressed to the
attainment of specific ends by the use of specific remedies. The Constitution does not
require things which are different in fact or opinion to be treated in law as though they
were the same.”  Hence the constant reiteration of the view that classification if
21

amounted to the rational in character is allowable. As a matter of fact, in a leading case of Lutz V.
Araneta,  this Court, through Justice J.B.L. Reyes, went so far as to hold “at any rate, it
22

_______________ is inherent in the power to tax that a state be free to select the subjects of taxation, and
it has been repeatedly held that ‘inequalities which result from a singling out of one
 Ibid, 490.
17 particular class for taxation, or exemption infringe no constitutional limitation.’ ” 23

 Cf. Ermita-Malate Hotel and Motel Operators Association v. Hon. City Mayor, 127 Phil. 306, 315 (1967); U.S. v.
18

2. 7.Petitioner likewise invoked the kindred concept of uniformity. According to the

Salaveria, 39 Phil. 102, 111 (1918) and Eboña v. Daet, 85 Phil. 369 (1950). Likewise referred to is O’Gorman and Young v.
Hartford Fire Insurance Co., 282 US 251, 328 (1931). Constitution: “The rule of taxation shall be uniform and equitable.”  This requirement
24

662 is met according to Justice Laurel in Philippine Trust Company v. Yatco,  decided in 25

662 SUPREME COURT REPORTS ANNOTATED 1940, when the tax “operates with the same force and effect in every place where the
subject may be found.”  He likewise added: “The rule of uniformity does not call for
26

Sison, Jr. vs. Ancheta perfect uniformity or perfect equality, because this is hardly attainable.”  The problem27

of classification did not present itself in that case. It did not arise until nine years later,
when the Supreme Court held: “Equality and uniformity in taxation means that all
1. exercise of an authority not conferred That properly calls for the application of the
taxable articles or kinds of property of
Holmes dictum. It has also been held that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive
_______________
statute is so harsh and unreasonable, it is subject to attack on due process grounds. 19

2. 6.Now for equal protection. The applicable standard to avoid the charge that there is a  Tigner v. Texas, 310 US 141, 147 (1940).
21

denial of this constitutional mandate whether the assailed act is in the exercise of the  98 Phil. 148 (1955).
22

police power or the power of eminent domain is to demonstrate “that the governmental  Ibid, 153.
23

 Article VIII, Section 17, par. 1, first sentence of the Constitution.

24

act assailed, far from being inspired by the attainment of the common weal was  69 Phil. 420 (1940).
25

prompted by the spirit of hostility, or at the very least, discrimination that finds no  Ibid, 426.
26

support in reason. It suffices then that the laws operate equally and uniformly on all  Ibid, 424.
27

persons under similar circumstances or that all persons must be treated in the same 664
manner, the conditions not being different, both in the privileges conferred and the 664 SUPREME COURT REPORTS ANNOTATED
liabilities imposed. Favoritism and undue preference cannot be allowed. For the
Sison, Jr. vs. Ancheta
principle is that equal protection and security shall be given to every person under
circumstances, which if not identical are analogous. If law be looked upon in terms of
burden or charges, those that fall within a class should be treated in the same fashion,
whatever restrictions cast on some in the group equally binding on the rest.”  That 20
 1. the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation, * * *.  As
clarified by Justice Tuason, where “the differentiation” complained of “conforms to
the practical dictates of justice and equity” it “is not discriminatory within the meaning
of this clause and is therefore uniform.”  There is quite a similarity then to the standard
29
of equal protection for all that is required is that the tax “applies equally to all persons,
firms and corporations placed in similar situation.” 30
2. 8.Further on this point. Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by eliminating all deductible items
and at the same time reducing the applicable tax rate. Taxpayers may be classified into
different categories. To repeat, it is enough that the classification must rest upon
substantial distinctions that make real differences. In the case of the gross income
taxation embodied in Batas Pambansa Blg. 135, the discernible basis of classification
is the susceptibility of the income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a set of reduced tax rates
to be applied to all of them. Taxpayers who are recipients of compensation income are
set apart as a class. As there is practically no overhead expense, these taxpayers are not
entitled to make deductions for income tax purposes because they are in the same
situation more or less. On the other hand, in the case of professionals in the practice of
their calling and businessmen, there is no uniformity in the costs or expenses necessary
to produce their income. It would not be just then to disregard the disparities by giving
all of them zero deduction and indiscriminately impose on all alike the same tax rates
on the basis of gross income. There is ample justification then for the Batasang
Pambansa to adopt the gross system of income taxation to compen-
_______________
 Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949).
28
 Manila Race Horse Trainers Asso. v. De la Fuente, 88 Phil. 60, 65 (1951).
29
 Uy Matias v. City of Cebu, 93 Phil. 300 (1953).
30
665
VOL. 130, JULY 25, 1984 665
Sison, Jr. vs. Ancheta
1. sation income, while continuing the system of net income taxation as regards
professional and business income.
2. 9.Nothing can be clearer, therefore, than that the petition is without merit, considering
the (1) lack of factual foundation to show the arbitrary character of the assailed
provision;  (2) the force of controlling doctrines on due process, equal protection, and
31
322 SUPREME COURT REPORTS ANNOTATED
Reyes vs. Almanzor
G.R. Nos. 49839-46. April 26, 1991. *
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners, vs. PEDRO ALMANZOR,
VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as appointed and Acting Members
of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS,
ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and Acting
Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL, in his
capacity as City Assessor of Manila, respondents.
Political Law; Taxation; The power to tax is the strongest of all the powers of the government.—The
power to tax “is an attribute of sovereignty”. In fact, it is the strongest of all the powers of government. But for
all its plenitude, the power to tax is not unconfined as there are restrictions. Adversely effecting as it does
uniformity in taxation and (3) the reasonableness of the distinction between
28
compensation and taxable net income of professionals and businessmen—certainly not
a suspect classification.
WHEREFORE, the petition is dismissed. Costs against petitioner.
     Makasiar, Concepcion, Jr., Guerrero, Melencio-Herrera, Escolin, Relova, Gutierrez,
Jr., De la Fuente and Cuevas, JJ., concur.
     Teehankee, J., in the result.
     Aquino, J., In the result. The petitioner has no cause of action for prohibition.
     Plana, J., did not take part.
     Abad Santos, J., This is a frivolous suit. While the tax rates for compensation income are
lower than those for net income such circumstance does not necessarily result in lower
tax payments for those receiving compensation income. In fact, the reverse will most likely be the
case; those who file returns on the basis of net income will pay less taxes because they can claim
all sorts of deductions justified or not. I vote for dismissal.
Petition dismissed.
Notes.—Taxes being the chief source of revenue for the Government to keep it running must
be paid immediately and
_______________
 While petitioner cited figures to sustain his assertion, public respondents refuted with other
31
figures that argue against his submission. One reason for requiring declaratory relief proceedings
to start in regional trial courts is precisely to enable petitioner to prove his allegation, absent an
admission in the answer.
666
666 SUPREME COURT REPORTS ANNOTATED
De la Cruz vs. De la Cruz
without delay. (Collector of Internal Revenue vs. Yuseco, 3 SCRA 313.)
Taxes are the lifeblood of government and their prompt and certain availability is an
imperious need. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105.)
The power of taxation should be exercised with caution to minimize injury to the proprietary
rights of a taxpayer. (Roxas vs. Court of Tax Appeals, 23 SCRA 276.)
——o0o——
© Copyright 2018 Central Book Supply, Inc. All rights reserved.
property rights, both the due process and equal protection clauses of the Constitution may properly be invoked
to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1903
dictum of Chief Justice Marshall that “the power to tax involves the power to destroy.” The web or unreality
spun from Marshall’s famous dictum was brushed away by one stroke of Mr. Justice Holmes’ pen, thus: “The
power to tax is not the power to destroy while this Court sits.” “So it is in the Philippines.” (Sison, Jr. v.
Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
Same;  Same; Due process; When the due process clause of the constitution may be invoked.—In the
same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support
in the Constitution. An obvious example is where it can be shown to amount to confiscation of property. That
would be a clear abuse of power (Sison v. Ancheta, supra).
Same;  Same; Appraisal and Assessment of Real Property; The appraisal and assessment of real
property for taxation purposes is that the property must be “appraised at its current and fair market value.”—
Finally under the Real Property Tax Code (P.D. 464 as
_______________
  EN BANC.
*
323
VOL. 196, APRIL 26, 1991 323
Reyes vs. Almanzor
amended), it is declared that the first Fundamental Principle to guide the appraisal and assessment of
real property for taxation purposes is that the property must be “appraised at its current and fair market value.”
Same; Same; Taxes; Collection of taxes should be made in accordance with law as any arbitrariness
will negate the very reason for government itself.—Verily, taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance. However, 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
taxations, which is the promotion of the common good, may be achieved (Commissioner of Internal Revenue
v. Algue, Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social
justice should not now be penalized by the same government by the imposition of excessive taxes petitioners
can ill afford and eventually result in the forfeiture of their properties.
PETITION for certiorari to review the decision of the Central Board of Assessment Appeals.
Almanzor, J.
The facts are stated in the opinion of the Court.
      Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central
Board of Assessment Appeals  in CBAA Cases Nos. 72-79 entitled “J.B.L. Reyes, Edmundo
1
Reyes, et al. v. Board of Assessment Appeals of Manila and City Assessor of Manila” which
affirmed the March 29, 1976 decision
_______________
 Penned by former Chairman and Acting Minister Pedro Al-manzor and concurred in by the then Minister of Justice
1
Vicente Abad Santos and Minister of Local Government and Community Development Jose Roño.
324
324 SUPREME COURT REPORTS ANNOTATED
Reyes vs. Almanzor
of the Board of Tax Assessment Appeals  in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E,
2
“Jose Reyes, et al. v. City Assessor of Manila” and “Edmundo Reyes and Milagros Reyes v. City
Assessor of Manila” upholding the classification and assessments made by the City Assessor of
Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated
in Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as
dwelling sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred
pesos (P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act
No. 6359 prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling
units or of lands on which another’s dwelling is located, where such rentals do not exceed three
hundred pesos (P300.00) a month but allowing an increase in rent by not more than 10%
thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two
years from its effectivity thereby disallowing the ejectment of lessees upon the expiration of the
usual legal period of lease. On October 12, 1972, Presidential Decree No. 20 amended R.A. No.
6359 by making absolute the prohibition to increase monthly rentals below P300.00 and by
indefinitely suspending the aforementioned provision of the Civil Code, excepting leases with a
definite period. Consequently, the Reyeses, petitioners herein, were precluded from raising the
rentals and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified
and reassessed the value of the subject properties based on the schedule of market values duly
reviewed by the Secretary of Finance. The revision, as expected, entailed an increase in the
corresponding tax rates prompting petitioners to file a Memorandum of Disagreement with the
Board of Tax Assessment Appeals. They averred that the reassessments made were “excessive,
unwarranted, inequitable, confiscatory and unconstitutional” considering that the taxes
_______________
 Rendered by then Acting Register of Deeds of Manila Teresita H. Noblejas and concurred in by former City Engineer of
2
Manila Romulo M. del Rosario and OIC of the Office of the City of Auditor Raul C. Flores.
325
VOL. 196, APRIL 26, 1991 325
Reyes vs. Almanzor
imposed upon them greatly exceeded the annual income derived from their properties. They
argued that the income approach should have been used in determining the land values instead of
the comparable sales approach which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of
Tax Assessment Appeals, however, considered the assessments valid, holding thus:
“WHEREFORE, and considering that the appellants have failed to submit concrete evidence which could
overcome the presumptive regularity of the classification and assessments appear to be in accordance with the
base schedule of market values and of the base schedule of building unit values, as approved by the Secretary
of Finance, the cases should be, as they are hereby, upheld.
“SO ORDERED.” (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among
others, the summary of the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity where the subject
properties of petitioners are located. To better appreciate the locational and physical features of the
land, the Board of Hearing Commissioners conducted an ocular inspection with the presence of
two representatives of the City Assessor prior to the hearing of the case. Neither the owners nor
their authorized representatives were present during the said ocular inspection despite proper
notices served them. It was found that certain parcels of land were below street level and were
affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the
dispositive portion of which reads:
“WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots covered by Tax
Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
“For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266, the
appealed Decision is modified by allowing a 20% reduction in their respective market values and apply-
326
326 SUPREME COURT REPORTS ANNOTATED
Reyes vs. Almanzor
ing therein the assessment level of 30% to arrive at the corresponding assessed value.
“SO ORDERED.” (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner’s subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE “COMPARABLE SALES APPROACH”
METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS’ PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in
question. Petitioners maintain that the “Income Approach” method would have been more realistic
for in disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the
properties affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set
increased new assessed values at levels so high and successive that the resulting annual real estate
taxes would admittedly exceed the sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the levels of the values assigned to their
properties as revised and increased on the ground that they were arbitrarily excessive,
unwarranted, inequitable, confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision
that the income approach is used in determining land values in some vicinities, it maintains that
when income is affected by some sort of price control, the same is rejected in the consideration
and study of land values as in the case of properties affected by the Rent Control Law for they do
not project the true market value in the open market (Rollo, p. 21). Thus, respondents opted
instead for the “Comparable Sales Approach” on the ground that the value estimate of the
properties predicated upon prices paid in actual, market transactions would be a uniform and a
more credible standards to use especially in case of mass appraisal of properties (Ibid.). Otherwise
stated, public respondents would have this Court
327
VOL. 196, APRIL 26, 1991 327
Reyes vs. Almanzor
completely ignore the effects of the restrictions of P.D. No. 20 on the market value of properties
within its coverage. In any event, it is unquestionable that both the “Comparable Sales Approach”
and the “Income Approach” are generally acceptable methods of appraisal for taxation purposes
(The Law on Transfer and Business Taxation by Hector S. De Leon, 1988 Edition). However, it is
conceded that the propriety of one as against the other would of course depend on several factors.
Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R.
No. 19297 (44 Phil. 383), it has been stressed that the assessors, in fixing the value of the property,
have to consider all the circumstances and elements of value and must exercise a prudent
discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must
not only be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property
of the same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects
of taxation required in the 1973 Charter (Fernando “The Constitution of the Philippines”, p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax “is an attribute of sovereignty”. In fact, it is the strongest of all the powers of
government. But for all its plenitude, the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of
the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If
it were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that “the
power to tax involves the power to destroy.” The web or unreality spun from Marshall’s famous
dictum was brushed away by one stroke of Mr. Justice Holmes’ pen, thus: “The power to tax is not
the power to destroy while this Court sits.” “So it is in the Philip-
328
328 SUPREME COURT REPORTS ANNOTATED
Reyes vs. Almanzor
pines.” (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal
Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to
amount to confiscation of property. That would be a clear abuse of power (Sison v.
Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for
purposes of taxation but the government’s act must not be prompted by a spirit of hostility, or at
the very least discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different both in the privileges conferred and
the liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes
is that the property must be “appraised at its current and fair market value.”
By no strecth of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the “comparable sales approach” were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm’s length transaction between a willing
seller and a willing buyer and (2) the property must be comparable property (Rollo, p. 27).
Nothing can justify or support their view as it is of judicial notice that for properties covered by
P.D. 20 especially during the time in question, there were hardly any willing buyers. As a general
rule, there were no takers so that there can be no reasonable basis for the conclusion that these
properties were comparable with other residential properties not burdened by P.D. 20. Neither can
the given circumstances be nonchalantly dismissed by public respondents as imposed under
distressed conditions clearly implying that the same were merely tempo-
329
VOL. 196, APRIL 26, 1991 329
Reyes vs. Almanzor
rary in character. At this point in time, the falsity of such premises cannot be more convincingly
demonstrated by the fact that the law has existed for around twenty (20) years with no end to it in
sight.
Verily, taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. However, 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
taxations, which is the promotion of the common good, may be achieved (Commissioner of
Internal Revenue v. Algue, Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that
petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359
and P.D. 20) under the principle of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill afford and eventually result in
the forfeiture of their properties.
By the public respondents’ own computation the assessment by income approach would
amount to only P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of
public respondents are REVERSED and SET ASIDE; and (c) the respondent Board of Assessment
Appeals of Manila and the City Assessor of Manila are ordered to make a new assessment by the
income approach method to guarantee a fairer and more realistic basis of computation (Rollo, p.
71).
SO ORDERED.
      Fernan (C.J.), Narvasa, Melencio-Herrera, Gutierrez,
Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Griño-Aquino, Medialdea, Regalado 
and Davide, Jr., JJ., concur.
Petition granted; decisions reversed and set aside.
Note.—The Constitution sets forth the restrictions to the power to tax. ( Sison, Jr. vs.
Ancheta, 130 SCRA 654.)
——o0o——
330
© Copyright 2018 Central Book Supply, Inc. All rights reserved.

G.R. No. 148191. November 25, 2003. *
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SOLIDBANK CORPORATION,
respondent.
Taxation; The amount of interest income withheld in payment of the 20% FWT (Final Withholding
Tax) forms part of gross receipts in computing for the GRT (Gross Receipts Tax) on banks.—We agree with
petitioner. In fact, the same issue has been raised recently in China Banking Corporation v. Court of Appeals,
where this Court held that the amount of interest income withheld in payment of the 20% FWT forms part of
gross receipts in computing for the GRT on banks.
Same; Percentage Tax Distinguished from Income Tax.—A percentage tax is a national tax measured
by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported;
or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to
withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income
realized in a taxable year. It is subject to withholding.
_______________
 FIRST DIVISION.
*
437
VOL. 416, NOVEMBER 25, 2003 437
Commissioner of Internal Revenue vs. Solidbank Corporation
Same; The rules on actual and constructive possession provided in Articles 531 and 532 of the Civil
Code applied by analogy to the receipt of income.—By analogy, we apply to the receipt of income the rules
on actual and constructive possession provided in Articles 531 and 532 of our Civil Code.
Same; In our withholding tax system, possession is acquired by the payor as the withholding agent of
the government.—In our withholding tax system, possession is acquired by the payor as the withholding agent
of the government, because the taxpayer ratifies the very act of possession for the government. There is
thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits and yield on
deposit substitutes that are subjected to FWT are indeed—for legal purposes—tantamount to delivery, receipt
or remittance. Besides, respondent itself admits that its income is subjected to a tax burden immediately upon
“receipt,” although it claims that it derives no pecuniary benefit or advantage through the withholding process.
There being constructive receipt of such income—part of which is withheld—RR 17-84 applies, and that
income is included as part of the tax base upon which the GRT is imposed.
Same; Administrative Law; Generally, rules and regulations issued by administrative or executive
officers pursuant to the procedure or authority conferred by law upon the administrative agency have the
force and effect, or partake of the nature, of a statute.—In general, rules and regulations issued by
administrative or executive officers pursuant to the procedure or authority conferred by law upon the
administrative agency have the force and effect, or partake of the nature, of a statute. The reason is that statutes
express the policies, purposes, objectives, remedies and sanctions intended by the legislature in general terms.
The details and manner of carrying them out are oftentimes left to the administrative agency entrusted with
their enforcement.
Same; Same; A revenue regulation is binding on the courts as long as the procedure fixed for its
promulgation is followed.—A revenue regulation is binding on the courts as long as the procedure fixed for its
promulgation is followed. Even if the courts may not be in agreement with its stated policy or innate wisdom,
it is nonetheless valid, provided that its scope is within the statutory authority or standard granted by the
legislature. Specifically, the regulation must (1) be germane to the object and purpose of the law; (2) not
contradict, but conform to, the standards the law prescribes; and (3) be issued for the sole purpose of carrying
into effect the general provisions of our tax laws.
Same; Same; Statutes; Statutory Construction; A repeal may be express or implied.—A repeal may be
express or implied. It is express when there is
438
4 SUPREME COURT REPORTS ANNOTATED
38
Commissioner of Internal Revenue vs. Solidbank Corporation
a declaration in a regulation—usually in its repealing clause—that another regulation, identified by its
number or title, is repealed. All others are implied repeals. An example of the latter is a general provision that
predicates the intended repeal on a substantial conflict between the existing and the prior regulations.
Same;  Same; Same;  Same; Two Well-Settled Categories of Implied Repeals.—There are two well-
settled categories of implied repeals: (1) in case the provisions are in irreconcilable conflict, the later
regulation, to the extent of the conflict, constitutes an implied repeal of an earlier one; and (2) if the later
regulation covers the whole subject of an earlier one and is clearly intended as a substitute, it will similarly
operate as a repeal of the earlier one.
Same;  Tax Refunds; Those who claim to be exempt from the payment of a particular tax must do so
under clear and unmistakable terms found in the statute.—Tax refunds are in the nature of tax exemptions.
Such exemptions are strictly construed against the taxpayer, being highly disfavored and almost said “to be
odious to the law.” Hence, those who claim to be exempt from the payment of a particular tax must do so
under clear and unmistakable terms found in the statute. They must be able to point to some positive provision,
not merely a vague implication, of the law creating that right.
Same;  Double Taxation; Meaning of.—Double taxation means taxing the same property twice when it
should be taxed only once; that is, “x x x taxing the same person twice by the same jurisdiction for the same
thing.” It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as
“direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose,
by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of
the same kind or character.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
     The Solicitor General for petitioner.
     Esquivias, Cruz, Conlu & Yabut for private respondent.
PANGANIBAN, J.:
Under the Tax Code, the earnings of banks from “passive” income are subject to a twenty percent
final withholding tax (20% FWT). This tax is withheld at source and is thus not actually and
physi-
439
VOL. 416, NOVEMBER 25, 2003 439
Commissioner of Internal Revenue vs. Solidbank Corporation
cally received by the banks, because it is paid directly to the government by the entities from
which the banks derived the income. Apart from the 20% FWT, banks are also subject to a five
percent gross receipts tax (5% GRT) which is imposed by the Tax Code on their gross receipts,
including the “passive” income.
Since the 20% FWT is constructively received by the banks and forms part of their gross
receipts or earnings, it follows that it is subject to the 5% GRT. After all, the amount withheld is
paid to the government on their behalf, in satisfaction of their withholding taxes. That they do
not actually receive the amount does not alter the fact that it is remitted for their benefit in
satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax system in place in this
country, this 20 percent portion of the “passive” income of banks would actually be paid to the
banks and then remitted by them to the government in payment of their income tax. The institution
of the withholding tax system does not alter the fact that the 20 percent portion of their “passive”
income constitutes part of their actual earnings, except that it is paid directly to the government on
their behalf in satisfaction of the 20 percent final income tax due on their “passive” incomes.
The Case
Before us is a Petition for Review  under Rule 45 of the Rules of Court, seeking to annul the July
1
18, 2000 Decision  and the May 8, 2001 Resolution  of the Court of Appeals  (CA) in CA-G.R. SP
2 3 4
No. 54599. The decretal portion of the assailed Decision reads as follows:
“WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court of Tax Appeals.” 5
The challenged Resolution denied petitioner’s Motion for Reconsideration.
_______________
  Rollo, pp. 8-19.
1
Commissioner of Internal Revenue x x x, wherein it was held that the 20% [final withholding tax] on [a]
 Id., pp. 21-29.
2
bank’s interest income should not form part of its taxable gross receipts for purposes of computing the [gross
 Id., p. 31.
3

receipts tax].”7

 Sixth Division. Penned by Justice Ma. Alicia Austria-Martinez (Division chairman and now a member of this Court)
4

and concurred in by Justices Portia Alifio-Hormachuelos and Elvi John S. Asuncion (members). Ruling of the CA
 Assailed Decision, p. 8; Rollo, p. 28.
The CA held that the 20% FWT on a bank’s interest income did not form part of the taxable gross
5

440
receipts in computing the 5% GRT, because the FWT was not actually received by the bank but
440 SUPREME COURT REPORTS ANNOTATED was directly remitted to the government. The appellate court curtly said that while the Tax Code
Commissioner of Internal Revenue vs. Solidbank Corporation “does not specifically state any exemption, x x x the statute must receive a sensible construction
such as will give effect to the legislative intention, and so as to avoid an unjust or absurd
The Facts conclusion.” 8

Quoting petitioner, the CA  summarized the facts of this case as follows:

6

Hence, this appeal. 9

“For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage Tax Returns reflecting
gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount of P1,474,691,693.44 with Issue
corresponding gross receipts tax payments in the sum of P73,734,584.60, broken down as follows: Petitioner raises this lone issue for our consideration:
_______________
Period Covered Gross Receipts Gross Receipts Tax
January to March 1994 P 188,406,061.95 P 9,420,303.10  Assailed Decision, pp. 1-3; Rollo, pp. 21-23.
7

 Id., pp. 5 & 25.

8

April to June 1994 370,913,832.70 18,545,691.63  This case was deemed submitted for decision on January 24, 2002, upon receipt by this Court of petitioner’s
9

Memorandum, signed by Attys. Pablo M. Bastes, Jr. and Rhodora J. Corcuera-Menzon. Respondent’s Memorandum, signed
July to September 1994 481,501,838.98 24,075,091.95 by Atty. P. Winston G. Conlu, was received by this Court on January 10, 2002.
October to December 1994 433,869,959.81 21,693,497.98 442

Total P1,474,691,693.44 P73,734,584.60 442 SUPREME COURT REPORTS ANNOTATED

“[Respondent] alleges that the total gross receipts in the amount of P1,474,691,693.44 included the sum Commissioner of Internal Revenue vs. Solidbank Corporation
of P350,807,875.15 representing gross receipts from passive income which was already subjected to 20% final “Whether or not the 20% final withholding tax on [a] bank’s interest income forms part of the taxable gross
withholding tax. receipts in computing the 5% gross receipts tax.” 10

“On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case No. 4720
entitled Asian Bank Corporation vs. Commissioner of Internal Revenue[,] wherein it was held that the 20%
final withholding tax on [a] bank’s interest income should not form part of its taxable gross receipts for
purposes of computing the gross receipts tax.
“On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed with the Bureau of
Internal Revenue [BIR] a letter-request for the refund or issuance of [a] tax credit certificate in the aggregate
amount of P3,508,078.75, representing allegedly overpaid gross receipts tax for the year 1995, computed as
follows:
Gross Receipts Subjected to the Final Tax Derived from Passive [Income]
P350,807,875.15
Multiply by Final Tax rate 20%
The Court’s Ruling
The Petition is meritorious.
Sole Issue: 
Whether the 20% FWT Forms Part of the Taxable Gross Receipts
Petitioner claims that although the 20% FWT on respondent’s interest income was not actually
received by respondent because it was remitted directly to the government, the fact that the
amount redounded to the bank’s benefit makes it part of the taxable gross receipts in computing
the 5% GRT. Respondent, on the other hand, maintains that the CA correctly ruled otherwise.
We agree with petitioner. In fact, the same issue has been raised recently in China Banking
Corporation v. CA, where this Court held that the amount of interest income withheld in payment
11

20% Final Tax Withheld at Source P 70,161,575.03 of the 20% FWT forms part of gross receipts in computing for the GRT on banks.
Multiply by [Gross Receipts Tax] rate 5% The FWT and the GRT: 
_______________
Two Different Taxes
The 5% GRT is imposed by Section 119  of the Tax Code, which provides:
12 13

 Words in brackets [ ] supplied. In its Memorandum, respondent likewise cites this narration of facts by the CA.
“SEC. 119. Tax on banks and non-bank financial intermediaries.—There shall be collected a tax on gross
6

441
receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in
VOL. 416, NOVEMBER 25, 2003 441 accordance with the following schedule:
_______________
Commissioner of Internal Revenue vs. Solidbank Corporation
Overpaid [Gross Receipts Tax] P 3,508.078.75  Petitioner’s Memorandum, p. 3; Rollo, p. 120. Original in upper case.
10

 G.R. No. 146749, p. 10, June 10, 2003, 403 SCRA 634, per Carpio, J.
“Without waiting for an action from the [petitioner], [respondent] on the same day filed [a] petition for review
11

 Now §121.
12

[with the Court of Tax Appeals] in order to toll the running of the two-year prescriptive period to judicially  Now RA 8424, approved on December 11, 1997, and effective January 1, 1998.
13

claim for the refund of [any] overpaid internal revenue tax[,] pursuant to Section 230 [now 229] of the Tax 443
Code [also ‘National Internal Revenue Code’] x x x.
x x x     x x x     x x x VOL. 416, NOVEMBER 25, 2003 443
“After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its decision ordering x
Commissioner of Internal Revenue vs. Solidbank Corporation
x x petitioner to refund in favor of x x x respondent the reduced amount of P1,555,749.65 as overpaid [gross
receipts tax] for the year 1995. The legal issue x x x was resolved by the [Court of Tax Appeals], with Hon.
Amancio Q. Saga dissenting, on the strength of its earlier pronouncement in x x x  Asian Bank Corporation vs.
 1. “(a) On interest, commissions and discounts from lending activities as well as income from collection of the tax in order to ensure its payment. Obviously, this amount that is used to settle the
financial leasing, on the basis of remaining maturities of instruments from which such receipts are tax liability is deemed sourced from the proceeds constitutive of the tax base.  These proceeds are
24

derived. either actual or constructive. Both parties herein agree that there is no actual receipt by the bank of
the amount withheld. What needs to be deter-
_______________
     Short-term maturity not in excess of two (2) years .............. 5%
     Medium-term maturity—over two (2) years but not ex  On June 3, 1977, P.D. 1156 required the withholding of a 15% tax on the interest income from bank deposits. This was
18

a creditable tax—not a FWT—and the entire interest income still formed part of taxable gross receipts. On September 17,
     ceeding four (4) years ...................... 3% 1980, however, PD 1739 made this a FWT of 15% on savings accounts and 20% on time deposits. (China Ranking Corp. v.
Court of Appeals, supra, pp. 11-12)
     Long-term maturity:    Now §27(D)(1).
19

 Now §57(A).
     (i) Over four (4) years but not exceeding 
20

 Now §58.
21

     seven (7) years ................ 1%  De Leon, The Fundamentals of Taxation (12th ed.), 1998, p. 136.
22

 Id., p. 92.
23

     (ii) Over seven (7) years ................ 0%  The withholding tax concept obviously and necessarily implies that the amount withheld comes from the income earned
24

by a taxpayer. (China Banking Corp. v. Court of Appeals, supra, p. 31)

     “(b) On dividends ............ 0% 445
     “(c) On royalties, rentals of property, real or  VOL. 416, NOVEMBER 25, 2003 445
     personal, profits from exchange and all  Commissioner of Internal Revenue vs. Solidbank Corporation
     other items treated as gross income un mined is if there is constructive receipt thereof. Since the payee—not the payor—is the real
taxpayer, the rule on constructive receipt can be easily rationalized, if not made clearly manifest. 25

     der Section 28  of this Code ............

14
5%
Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru Constructive Receipt Versus Actual Receipt
pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes Applying Section 7 of Revenue Regulations (RR) No. 17-84,  petitioner contends that there
26

of classifying the transaction as short, medium or long term and the correct rate of tax shall be applied is constructive receipt of the interest on deposits and yield on deposit substitutes. Respondent, 27

accordingly. however, claims that even if there is, it is Section 4(e) of RR 12-80  that nevertheless governs the
28

“Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on
situation.
persons performing similar banking activities.”
The 5% GRT  is included under “Title V. Other Percentage Taxes” of the Tax Code and is not
15
Section 7 of RR 17-84 states:
“SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes.—
subject to withholding. The banks and non-bank financial intermediaries liable therefor shall,
under Section 125 (a) (1),  file quarterly returns on the amount of gross receipts and pay the taxes
16

due thereon within twenty (20)  days after the end of each taxable quarter.
17
1. ‘(a)The interest earned on Philippine Currency bank deposits and yield from deposit substitutes
_______________ subjected to the withholding taxes in accordance with these regulations need not be included in
the gross income in computing the depositor’s/investor’s income tax liability in accordance with
 Now §32.
14
the provision of Section 29(b),  (c)  and (d) of the National Internal Revenue Code, as amended.
29 30

 On October 1, 1946, RA 39 amended §249 of the 1939 Tax Code by imposing a GRT on banks. Their taxable gross
15
2. ‘(b)Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for
receipts included interest income on their own deposits with other banks, without deduction or any withholding tax until June purposes of imposing the withholding taxes in accordance with these regulations shall be allowed
1977. (China Banking Corp. v. Court of Appeals, supra, p. 11).
 Now §128 (A)(1).
16
as interest expense deductible for purposes of computing taxable net income of the payor.
 Now twenty-five (25) days.
17

444 _______________
444 SUPREME COURT REPORTS ANNOTATED
 Bank of America NT & SA v. Court of Appeals, 234 SCRA 302, July 21, 1994.
25

Commissioner of Internal Revenue vs. Solidbank Corporation  Dated October 12, 1984, these regulations cover the “Income Taxation of Interest Income Derived from Deposits and
26

The 20% FWT,  on the other hand, falls under Section 24(e)(l)  of “Title II. Tax on Income.” It is a
18 19 Yield from Deposit Substitutes” as provided for by P.D. No. 1959.
 “Interest” is the amount paid by a borrower to a lender in consideration for the use of the lender’s money. It is an
tax on passive income, deducted and withheld at source by the payor-corporation and/or person as
27

expense item to the borrower and an income item to the lender. Hence, the total interest expense paid by a depository bank
withholding agent pursuant to Section 50,  and paid in the same manner and subject to the same
20
forms part of the gross income of a lending bank. (China Banking Corp. v. Court of Appeals, supra, p. 28)
conditions as provided for in Section 51. 21  Respondent’s Memorandum, p. 8; Rollo, p. 81. Dated November 7, 1980, these regulations cover the “Taxation of
28

A perusal of these provisions clearly shows that two types of taxes are involved in the present Certain Income Derived from Banking Activities.”
 Now §32(A).
29

controversy: (1) the GRT, which is a percentage tax; and (2) the FWT, which is an income tax. As  Now §32(B).
30

a bank, petitioner is covered by both taxes. 446

A percentage tax is a national tax measured by a certain percentage of the gross selling price
446 SUPREME COURT REPORTS ANNOTATED
or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings
derived by any person engaged in the sale of services.  It is not subject to withholding.
22 Commissioner of Internal Revenue vs. Solidbank Corporation
An income tax, on the other hand, is a national tax imposed on the net or the gross income
realized in a taxable year.  It is subject to withholding.
23

1. ‘(c)If the recipient of the above-mentioned items of income are financial institutions, the same shall
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is be included as part of the tax base upon which the gross receipts] tax is imposed.’ ”
imposed; the payor, a separate entity, acts as no more than an agent of the government for the
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on the gross
receipts of banks, non-bank financial intermediaries; financing companies, and other non-bank
financial intermediaries not performing quasi-banking activities shall be based on all items of
income actually received. This provision reads:
“SEC. 4. x x x     x x x     x x x
1. ‘(e)Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other
non-bank financial intermediaries not performing quasi-banking activities.—The rates of tax to be
imposed on the gross receipts of such financial institutions shall be based on all items of income
actually received. Mere accrual shall not be considered, but once payment is received on such
accrual or in cases of prepayment, then the amount actually received shall be included in the tax
base of such financial institutions, as provided hereunder x x x.”
Respondent argues that the above-quoted provision is plain and clear: since there is
no actual receipt, the FWT is not to be included in the tax base for computing the GRT. There is
supposedly no pecuniary benefit or advantage accruing to the bank from the FWT, because the
income is subjected to a tax burden immediately upon receipt through the withholding process.
Moreover, the earlier RR 12-80 covered matters not falling under the later RR 17-84. 31
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and constructive possession
provided in Articles 531 and 532 of our Civil Code.
Under Article 531: 32
_______________
 Respondent’s Memorandum, p. 10; Rollo, p. 83.
31
32
 The possession by a sheriff by virtue of a court order is one of the ways of constructive possession. (Paras,  Civil Code
of the Philippines, Vol. II [10th ed.], 1981, p. 359; Muyco v. Montilla, 7 Phil. 498, February 18, 1907) And so is the inscription
of información posesoria or possessory information titles. (Bishop of Nueva Segovia v. Municipality of Bantay, 28 Phil. 347,
November 7, 1914. See Alcala v. Alcala, 35 Phil. 679, December 11, 1916)
447
VOL. 416, NOVEMBER 25, 2003
Commissioner of Internal Revenue vs. Solidbank Corporation
“Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is
subject to the action of our will, or by the proper acts and legal formalities established for acquiring such
right.”
Article 532 states:
“Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or
by any person without any power whatever; but in the last case, the possession shall not be considered as
acquired until the person in whose name the act of possession was executed has ratified the same, without
prejudice to the juridical consequences of negotiorum gestio in a proper case.” 33
The last means of acquiring possession under Article 531 refers to juridical acts—the acquisition
of possession by sufficient title—to which the law gives the force of acts of
possession.  Respondent argues that only items of income actually received should be included in
34
its gross receipts. It claims that since the amount had already been withheld at source, it did not
have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of
possession is through the proper acts and legal formalities established therefor. The withholding
process is one such act. There may not be actual receipt of the income withheld; however, as
provided for in Article 532, possession by any person without any power whatsoever shall be
considered as acquired when ratified by the person in whose name the act of possession is
executed.
In our withholding tax system, possession is acquired by the payor as the withholding agent of
the government, because the taxpayer ratifies the very act of possession for the government. There
is thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits
and yield on deposit substitutes
_______________
 “The most usual form of the authority to acquire possession for another is that of agency, whether it be a special power
33
or a general authority. Where there is such authorization, the principal acquires the possession from the moment the agent
holds the thing for the former.” Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. II
(1992 ed.), p. 263.
 Id., p. 262.
34
448
448 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Solidbank Corporation
that are subjected to FWT are indeed—for legal purposes—tantamount to delivery, receipt or
remittance.  Besides, respondent itself admits that its income is subjected to a tax burden
35
immediately upon “receipt,” although it claims that it derives no pecuniary benefit or advantage
through the withholding process. There being constructive receipt of such income—part of which
is withheld—RR 17-84 applies, and that income is included as part of the tax base upon which the
GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income constructively received.
In general, rules and regulations issued by administrative or executive officers pursuant to the
procedure or authority conferred by law upon the administrative agency have the force and effect,
or partake of the nature, of a statute.  The reason is that statutes express the policies, purposes,
36
objectives, remedies and sanctions intended by the legislature in general terms. The details and
manner of carrying them out are oftentimes left to the administrative agency entrusted with their
enforcement.
In the present case, it is the finance secretary who promulgates the revenue regulations, upon
recommendation of the BIR commissioner. These regulations are the consequences of a delegated
power to issue legal provisions that have the effect of law.
37
A revenue regulation is binding on the courts as long as the procedure fixed for its
promulgation is followed. Even if the courts may not be in agreement with its stated policy or
innate wisdom, it is nonetheless valid, provided that its scope is within the statutory authority or
standard granted by the legislature.  Specifically, the regulation must (1) be germane to the object
38
447 and purpose of the law;  (2) not contradict, but conform to, the standards the law pre-
39
_______________
 Commissioner of Internal Revenue v. Royal Interocean Lines,34 SCRA 9, 15, July 30, 1970.
35
 Victorias Milling Co., Inc. v. Social Security Commission, 114 Phil. 555, 558; 4 SCRA 627, March 17, 1962.
36
 Kenneth Culp Davis, Administrative Law Treatise, Vol. I (1958 ed.), p. 299.
37
 Victorias Milling Co., Inc. v. Social Security Commission, supra.
38
 Director of Forestry v. Muñoz, 23 SCRA 1183, 1198, June 28, 1968.
39
449
VOL. 416, NOVEMBER 25, 2003 449
Commissioner of Internal Revenue vs. Solidbank Corporation
scribes;  and (3) be issued for the sole purpose of carrying into effect the general provisions of our
40
tax laws. 41
In the present case, there is no question about the regularity in the performance of official
duty. What needs to be determined is whether RR 12-80 has been repealed by RR 17-84.
_______________
 People v. Exconde, 101 Phil. 1125, 1129, August 30, 1957.
40
“The delegated power, if at all, therefore, is not the determination of what the law shall be, but merely the ascertainment of the facts and
circumstances upon which the application of said law is to be predicated.” Calalang v. Williams, 70 Phil. 726, 731, December 2, 1940, per
Laurel, J.
“Delegata potestas non potest delegare x x x has been made to adapt itself to the complexities of modern governments, giving rise to the
adoption, within certain limits, of the principle of ‘subordinate legislation’ x x x. The difficulty lies in the fixing of the limit and extent of the
authority. While courts have undertaken to lay down general principles, the safest is to decide each case according to its peculiar environment,
having in mind the wholesome legislative purpose intended to be achieved.” People v. Rosenthal, 68 Phil. 328, 343, June 12, 1939, per Laurel, J.
“Accordingly, with the growing complexity of modem life, the multiplication of the subjects of governmental regulation, and the increased
difficulty of administering the laws, there is a constantly growing tendency toward the delegation of greater powers by the legislature, and toward
the approval of the practice by the courts.” Pangasinan Transportation Co., Inc. v. Public Service Commission,  70 Phil. 221, 229, June 26, 1940,
per Laurel, J.
 “Discretion x x x may be committed by the Legislature to an executive department or official. The Legislature may make decisions of relating to the same subject, unless it is either repugnant to or fully inclusive of the subject matter
executive departments or subordinate officials thereof, to whom it has committed the execution of certain acts, final on questions of fact.”  Rubi v.
Provincial Board of Mindoro, 39 Phil. 660, 701, March 7, 1919, per Malcolm, J. of an earlier one, or unless the reason for the earlier one is “beyond peradventure removed.”  Every 50

 The true distinction is between the delegation of power to make the law, which necessarily involves a discretion as to
41
effort must be exerted to make all regulations stand—and a later rule will not operate as a repeal of
what it shall be, and the conferment of an authority or discretion as to its execution, to be exercised under and in pursuance of
the law. The first cannot be done; to the latter, no valid objection can be made. (Calalang v. Williams, supra, 730. See
an earlier one, if by any reasonable construction, the two can be reconciled. 51

also Rubi v. Provincial Board of Mindoro, supra, pp. 700-701; State v. Fields,35 NE 2d 744, 750, July 15, 1938; and Matz v. RR 12-80 imposes the GRT only on all items of income actually received, as opposed to their
J.L. Curtis Cartage Co.,7 NE 2d 220, 226, March 17, 1937) mere accrual, while RR 17-84 includes all interest income in computing the GRT. RR 12-80 is
450 superseded by the later rule, because Section 4(e) thereof is not restated in RR 17-84. Clearly
450 SUPREME COURT REPORTS ANNOTATED therefore, as petitioner correctly states, this particu-
_______________
Commissioner of Internal Revenue vs. Solidbank Corporation
A repeal may be express or implied. It is express when there is a declaration in a regulation—  Agpalo, Statutory Construction (2nd ed.), 1990, p. 279.
47

usually in its repealing clause—that another regulation, identified by its number or title, is  Parras v. Land Registration Commission, 108 Phil. 1142, 1146, July 26, 1960.
48

repealed. All others are implied repeals.  An example of the latter is a general provision that
42
 Victorias Milling Co., Inc. v. Social Security Commission, supra.
49

 Smith, Bell & Co. v. Estate of Maronilla, 41 Phil. 557, 562, February 5, 1916, per Carson, J.
50

predicates the intended repeal on a substantial conflict between the existing and the prior  Ibid.
51

regulations. 43
452
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof that are 452 SUPREME COURT REPORTS ANNOTATED
inconsistent with the provisions of the said RR are thereby repealed. This declaration proceeds on
the premise that RR 17-84 clearly reveals such an intention on the part of the Department of Commissioner of Internal Revenue vs. Solidbank Corporation
Finance. Otherwise, later RRs are to be construed as a continuation of, and not a substitute for, lar provision was impliedly repealed when the later regulations took effect. 52

earlier RRs; and will continue to speak, so far as the subject matter is the same, from the time of Reconciling the Two Regulations
the first promulgation. 44

There are two well-settled categories of implied repeals: (1) in case the provisions are in
irreconcilable conflict, the later regulation, to the extent of the conflict, constitutes an implied
repeal of an earlier one; and (2) if the later regulation covers the whole subject of an earlier one
and is clearly intended as a substitute, it will similarly operate as a repeal of the earlier one.  There
Granting that the two regulations can be reconciled, respondent’s reliance on Section 4(e) of RR
12-80 is misplaced and deceptive. The “accrual” referred to therein should not be equated with the
determination of the amount to be used as tax base in computing the GRT. Such accrual merely
refers to an accounting method that recognizes income as earned although not received, and
45

expenses as incurred although not yet paid.

is no implied repeal of an earlier RR by the mere fact that its subject matter is related to a later RR, Accrual should not be confused with the concept of constructive possession or receipt as
which may simply be a cumulation or continuation of the earlier one. 46

earlier discussed. Petitioner correctly points out that income that is merely  accrued—earned, but
Where a part of an earlier regulation embracing the same subject as a later one may not be not yet received—does not form part of the taxable gross receipts; income that has been received,
enforced without nullifying the pertinent albeit constructively,does. 53

_______________
The word “actually,” used confusingly in Section 4(e), will be clearer if removed entirely.
42
 Mecano v. Commission on Audit, 216 SCRA 500, 504, December 11, 1992.
Besides, if actually is that important, accrual should have been eliminated for being a mere
43
 Id., p. 505. surplusage. The inclusion of accrual stresses the fact that Section 4(e) does not distinguish
44
 Posadas, Jr. v. National City Bank of New York, 296 US 497, 503, 80 L. Ed. 351, 55, January 6, 1936. between actual and constructive receipt. It merely focuses on the method of accounting known as
45
 Ibid. the accrual system.
A subsequent regulation, which revises the whole subject matter of a previous one and is evidently intended as a substitute for it, operates to repeal
it. (People v. Almuete, 69 SCRA 410, 414, February 27, 1976) Under this system, income is accrued or earned in the year in which the taxpayer’s right
When both intent and scope clearly evince the idea of a repeal, then all parts and provisions of the previous regulation that are omitted from thereto becomes fixed and definite, even though it may not be actually received until a later year;
the revised one are deemed repealed. (People v. Binuya,61 Phil. 208, 210, February 27, 1935)
 Valera v. Tuason, Jr., 80 Phil. 823, 827, April 30, 1948.
46 while a deduction for a liability is to be accrued or incurred and taken when the liability becomes
451 fixed and certain, even though it may not be actually paid until later. 54

_______________
VOL. 416, NOVEMBER 25, 2003 451
Commissioner of Internal Revenue vs. Solidbank Corporation  Petitioner’s Memorandum, p. 7; Rollo, p. 124. Indeed, RR 17-84 supplanted RR 12-80; §4(e) of the earlier regulation
52

was not readopted by the later one. (China Banking Corp. v. Court of Appeals, supra, pp. 33-34)
provision of the latter, the earlier regulation is deemed impliedly amended or modified to the  Id., pp. 9 & 126. In fact, we ruled in China Banking Corp. v. Court of Appeals that Section 4(e) did not exclude accrued
53

extent of the repugnancy.  The unaffected provisions or portions of the earlier regulation remain in
47
interest income from taxable gross receipts, but merely postponed its inclusion until actual payment, physically or
force, while its omitted portions are deemed repealed.  An exception therein that is amended by its
48 constructively, to a lending bank, pp. 30-31.
subsequent elimination shall now cease to be so and instead be included within the scope of the  Commissioner of Internal Revenue v. Elaine, Mackay, Lee Co., 141 F. 2d 201, 203, March 6, 1944. See Brown v.
54

Helvering, 291 US 193, 199, 78 L. Ed. 725, 730, January 15, 1934.

general rule. 49

453
Section 4(e) of the earlier RR 12-80 provides that only items of income actually received shall
be included in the tax base for computing the GRT, but Section 7(c) of the later RR 17-84 makes VOL. 416, NOVEMBER 25, 2003 453
no such distinction and provides that all interests earned shall be included. The exception having Commissioner of Internal Revenue vs. Solidbank Corporation
been eliminated, the clear intent is that the later RR 17-84 includes the exception within the scope Under any system of accounting, no duty or liability to pay an income tax upon a transaction arises
of the general rule. until the taxable year in which the event constituting the condition precedent occurs.  The liability 55

Repeals by implication are not favored and will not be indulged, unless it is manifest that the to pay a tax may thus arise at a certain time and the tax paid within another given time. 56

administrative agency intended them. As a regulation is presumed to have been made with In reconciling these two regulations, the earlier one includes in the tax base for
deliberation and full knowledge of all existing rules on the subject, it may reasonably be GRT all income, whether actually or constructively received, while the later one includes
concluded that its promulgation was not intended to interfere with or abrogate any earlier rule
specifically interest income. In computing the income tax liability, the only exception cited in the
Commissioner of Internal Revenue vs. Solidbank Corporation
later regulations is the exclusion from gross income of interest income, which is already subjected
or constitutional, unless it interferes with interstate commerce or violates the requirement as to
to withholding. This exception, however, refers to a different tax altogether. To extend
uniformity of taxation.
mischievously such exception to the GRT will certainly lead to results not contemplated by the
69

Moreover, we have emphasized that the BIR has consistently ruled that “gross receipts” does
legislators and the administrative body promulgating the regulations.
not admit of any deduction.  Following the principle of legislative approval by reenactment,  this
70 71

Manila Jockey Club Inapplicable interpretation has been adopted by the legislature throughout the various reenactments of then
In Commissioner of Internal Revenue v. Manila Jockey Club,  we held that the term “gross 57
Section 119 of the Tax Code. 72

receipts” shall not include money which, although delivered, has been especially earmarked by Given that a tax is imposed upon total receipts and not upon net earnings,  shall the income 73

law or regulation for some person other than the taxpayer. 58

withheld be included in the tax base upon which such tax is imposed? In other words, shall interest
To begin, we have to nuance the definition of gross receipts  to determine what it is exactly. In
59
income constructively received still be included in the tax base for computing the GRT?
this regard, we note that US cases have persuasive effect in our jurisdiction, because Philippine We rule in the affirmative.
income tax law is patterned after its US counterpart. 60
Manila Jockey Club does not apply to this case. Earmarking is not the same
_______________ as withholding. Amounts earmarked do not form part of gross receipts, because, although
delivered or received, these are by law or regulation reserved for some person other than the
 Utah-Idaho Sugar Co. v. State Tax Commission, 73 P. 2d 974, 977-978, December 2, 1937.
taxpayer. On the contrary, amounts withheld form part of gross receipts, because these are
55

56
 Lorenzo v. Posadas, 64 Phil. 353, 368, June 18, 1937.
57
 108 Phil. 821, 825-826, June 30, 1960. in constructive possession and not subject to any reservation, the withholding agent being merely a
58
 See Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal Revenue, 121 Phil. 337; 13 SCRA 357, February 27, conduit in the collection process.
1965. The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys
 From RA 39 to the present Tax Code, there has been no statutory definition of “gross receipts” as applied to taxes on
59

banks. (China Banking Corp. v. Court of Appeals, supra, p. 14) amounts that never became the property of the race track.  Unlike these amounts, the interest
74

 Limpan Investment Corp. v. Commissioner of Internal Revenue,17 SCRA 703, 709, July 26, 1966. See
60 income that had been withheld for the government became property of the finan-
also Consolidated Mines, Inc. v. Court of Tax Appeals, 58 SCRA 618, August 29, 1974. _______________
454

454 SUPREME COURT REPORTS ANNOTATED  Id., p. 1788.

69

The rule of taxation shall be uniform and equitable. §28(1), Art. VI, 1987 Constitution.
Commissioner of Internal Revenue vs. Solidbank Corporation  China Ranking Corp. v. Court of Appeals, supra, p. 19.
70

 “When a statute is susceptible of the meaning placed upon it by a ruling of the government agency charged with its
“ ‘[G]ross receipts’ with respect to any period means the sum of: (a) The total amount received or accrued
71

during such period from the sale, exchange, or other disposition of x x x other property of a kind which would
properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property
held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, and (b) The
enforcement and the [legislature thereafter [reenacts] the provisions with substantial change, such action is to some extent
confirmatory that the ruling carries out the legislative purpose.” Alexander Howden & Co., Ltd. v. Collector (now
Commissioner) of Internal Revenue, 121 Phil. 579, 587; 13 SCRA 601, April 14, 1965, per Bengzon, J.P., J.
 China Ranking Corp. v. Court of Appeals, supra.
72

gross income, attributable to a trade or business, regularly carried on by the taxpayer, received or accrued  State v. Illinois Cent. K Co., 92 NE 847, Oct. 28, 1910.
73

during such period x x x.” 61  Manila Jockey Club merely held that these amounts were held in trust and did not form part of gross receipts.
74

“x x x [B]y gross earnings from operations x x x was intended all operations x x x including incidental, 456
subordinate, and subsidiary operations, as well as principal operations.” 62

456 SUPREME COURT REPORTS ANNOTATED

“When we speak of the ‘gross earnings’ of a person or corporation, we mean the entire earnings or
receipts of such person or corporation from the business or operations to which we refer.” 63
From these cases, “gross receipts”  refer to the total, as opposed to the net, income.  These are
64
therefore the total receipts before any deduction  for the expenses of management.  Webster’s New
66
International Dictionary, in fact, defines gross as “whole or entire.”
Commissioner of Internal Revenue vs. Solidbank Corporation
65
cial institutions upon constructive possession thereof. Possession was indeed acquired, since it was
67
ratified by the financial institutions in whose name the act of possession had been executed. The
money indeed belonged to the taxpayers; merely holding it in trust was not enough. 75

Statutes taxing the gross “receipts,” “earnings,” or “income” of particular corporations are The government subsequently becomes the owner of the money when the financial institutions
found in many jurisdictions.  Tax thereon is generally held to be within the power of a state to
68
pay the FWT to extinguish their obligation to the government. As this Court has held before, this
impose; is the consideration for the transfer of ownership of the FWT from these institutions to the
_______________ government.  It is ownership that determines whether interest income forms part of taxable gross
76

receipts.  Being originally owned by these financial institutions as part of their interest income, the
77

 Lucky Lager Brewing Co. v. Commissioner of Internal Revenue, 246 F. 2d, 621, 622, June 24, 1957, per Denman, C.J.
61

FWT should form part of their taxable gross receipts.

 State v. United Electric Light & Water Co., 97 A. 857, 859, June 2, 1916, per Thayer, J.
62

 Ibid.
63
Besides, these amounts withheld are in payment of an income tax liability, which is different
 “Gross receipts,” absent a statutory definition, is to be understood in its plain and ordinary meaning. The words are to
64 from a percentage tax liability. Commissioner of Internal Revenue v. Tours Specialists, Inc. aptly
be taken in their usual and familiar signification, with due regard to their general and popular use. This principle applies to all held thus: 78

statutes, including tax statutes. (China Banking Corp. v. Court of Appeals, supra, p. 17) “x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the
 Ibid. See Taylor v. Rosenthal, 213 SW 2d 437, April 23, 1948. The Taylor case, however, is not a tax case. It refers to a
65

lease contract covering the rental of a motion picture theater.

 Deducting any amount from gross receipts changes the meaning to net receipts. (China Banking Corp. v. Court of
66
Appeals, supra, p. 16, citing Commonwealth v. Koppers Co., Inc., 156 A. 2d 328, 332, Nov. 24, 1959, and Laclede Gas Co. v.
taxpayer which do not belong to them and do not redound to the taxpayer’s benefit; and it is not necessary that
there must be a law or regulation which would exempt such monies and receipts within the meaning of gross
receipts under the Tax Code.” 79

City of St. Louis, 253 SW 2d 832, 835, January 9, 1953) _______________

 Cooley, The Law on Taxation, Vol. II (1924), pp. 1789-1790; State v. Illinois Cent. K Co., 92 NE 848, Oct. 28, 1910.
67

 Ibid., pp. 1786-1787.

68

 A trustee does not own money received in trust. It is a basic concept in taxation that such money does not constitute
75

455 taxable income to the trustee. (China Hanking Corp. v. Court of Appeals, supra, p. 27)
 Ibid., p. 26.
VOL. 416, NOVEMBER 25, 2003 455
76

 Ibid., p. 27.
77
 78
 183 SCRA 402, March 21, 1990.  Bromley v. McCaughn, 280 US 124, 137, 74 L. Ed. 226, 230, November 25, 1929.
88

79
 Id., p. 412, per Gutierrez, Jr., J.  “It is a general rule in the interpretation of all statutes levying taxes or duties upon subjects or citizens, not to extend
89

In an earlier case—Philippine Long Distance Telephone Co. v. Collector of Internal Revenue, 90 Phil. 674, January 21, 1952—cited in the
Dissenting Opinion of CTA Associate Judge Amancio Q. Saga, receipts means amounts actually received; otherwise, they will not be receipts. A
careful reading of this case, however, reveals that receipts are equated with earnings, the latter word having been used in the legislative acts referred
to therein; and dealing with collection, not accrual. In fact, these acts have been construed so as not to be rendered unconstitutional.
457
VOL. 416, NOVEMBER 25, 2003
their provisions by implication beyond the clear import of the language used, or to enlarge their operation so as to embrace
matters not specifically pointed out, although standing on a close analogy. In every case, therefore, of doubt, such statutes are
construed most strongly against the government, and in favor of the subjects or citizens, because burdens are not to be
imposed, nor presumed to be imposed, beyond what the statutes expressly and clearly import. Revenue statutes are in no just
sense either remedial laws, or laws founded upon any permanent public policy, and therefore are not to be liberally
457 construed.” Froelich & Kuttner v. Collector of Customs, 18 Phil. 461, 481-482, March 2, 1911, per Moreland, J.
 Churchill and Tait v. Rafferty, 32 Phil. 580, 585, December 21, 1915, per Trent, J.
90

Commissioner of Internal Revenue vs. Solidbank Corporation  Lorenzo v. Posadas, Jr., supra, p. 371, per Laurel, J.
91

 Republic v. Lim Tian Teng Sons & Co., Inc., 16 SCRA 584, 590, March 31, 1966, per Bengzon, J.P., J. See
In the construction and interpretation of tax statutes and of statutes in general, the primary
92

also Churchill and Tait v. Rafferty, supra.

consideration is to ascertain and give effect to the intention of the legislature.  We ought to impute 80
 A. Magnano Co. v. Hamilton, 292 US 40, 46, 78 L. Ed. 1109, 1115, April 2, 1934.
93

to the lawmaking body the intent to obey the constitutional mandate, as long as its enactments 459
fairly admit of such construction.  In fact, “x x x no tax can be levied without express authority of
81

VOL. 416, NOVEMBER 25, 2003 459

law, but the statutes are to receive a reasonable construction with a view to carrying out their
purpose and intent.” 82 Commissioner of Internal Revenue vs. Solidbank Corporation
Looking again into Sections 24(e)(l) and 119 of the Tax Code, we find that the first imposes intent must exist to uphold the taxes as against a taxpayer in whose favor doubts will be
an income tax; the second, a percentage tax. The legislature clearly intended two different taxes. resolved.  No such doubts exist with respect to the Tax Code, because the income and percentage
94

The FWT is a tax on passive income, while the GRT is on business.  The withholding of one is not 83 taxes we have cited earlier have been imposed in clear and express language for that purpose. 95

equivalent to the payment of the other. This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the
application of the law according to its express terms—construction and interpretation being called
Non-Exemption of FWT from GRT: Neither Unjust nor Absurd
for only when such literal application is impossible or inadequate without them.  In Quijano v.
Taxing the people and their property is essential to the very existence of government. Certainly,
96

Development Bank of the Philippines,  we stressed as follows:

one of the highest attributes of sovereignty is the power of taxation,  which may legitimately be
97

_______________
84

exercised on the objects to which it is applicable to the utmost extent as the government may
choose.  Being an incident of sovereignty, such power is coextensive with that to which it is an
85
94
 Moran v. Leccony Smokeless Coal Co., 10 SE 2d 581, June 22, 1940.
incident.  The interest on deposits and yield on deposit substitutes of financial institutions, on the
86 Tax laws are to be strictly construed against the taxing power. (Miller v. Illinois Cent. R Co. Ill. So. 559, February 28, 1927)
one hand, and their business as such, on the other, are the two objects over which the State has  “If there is any doubt whether the language of an act was intended to authorize the taxation of certain property, the
95

language of the act will not be extended beyond its clear import in order to make the property subject to the tax. In case of
chosen to extend its sovereign power. Those not so chosen are, upon the soundest principles, doubt such statutes are construed most strongly against the government and in favor of the citizen.”  People ex rel. Chicago v.
exempt from taxation. 87
Barrett, 139 NE 903, 906, June 20,1923, per Carter, J.
_______________ “Before one is liable for taxes he must come within the express provisions of the taxing statute.”  Miller v. Illinois Cent.
R. Co., supra.
 Lizarraga Hermanos v. Yap Tico, 24 Phil. 504, 513, March 27, 1913. See Pacific Oxygen & Acetylene Co. v. Central
96

 Hart v. Smith, 64 NE 661, 662, June 27, 1902.

80

Bank of the Philippines,22 SCRA 917, 921, March 1, 1968.

 Ibid.
81

“Where language is plain, subtle refinements which tinge words so as to give them the color of a particular judicial
 Scottish Union & National Insurance Co. v. Bowland, 196 US 611, 629, 49 L. Ed. 619, 627, February 20, 1905, per
82

theory are not only unnecessary but decidedly harmful. That which has caused so much confusion in the law, which has made
Day, J.
it so difficult for the public to understand and know what the law is with respect to a given matter, is in considerable measure
 China Banking Corp. v. Court of Appeals, supra, p. 40.
83

the unwarranted interference by judicial tribunals with the English language as found in statutes and contracts, cutting out
 Hart v. Smith, supra.
84

words here and inserting them there, making them fit personal ideas of what the legislature ought to have done or what parties
 Kirtland v. Hotchkiss, 100 US 491, 497, 25 L. Ed. 558, 561-562, November 17, 1879.
85

should have agreed upon, giving them meanings which they do not ordinarily have, cutting, trimming, fitting, changing and
 M’Culloch v. Maryland, 4 Wheaton 316, 429, 4 L. Ed. 579, 607, February 1819.
86

coloring until lawyers themselves are unable to advise their clients as to the meaning of a given statute or contract until it has
 Kirtland v. Hotchkiss, supra, p. 562.
87

been submitted to some court for its interpretation and construction.” Nery v. Lorenzo, 44 SCRA 431, 437, April 27, 1972, per
458 Fernando, J. See Yangco v. Court of First Instance of Manila, 29 Phil. 183, 188, January 6, 1915.
458 SUPREME COURT REPORTS ANNOTATED  35 SCRA 270, October 16, 1970.
97

460
Commissioner of Internal Revenue vs. Solidbank Corporation
460 SUPREME COURT REPORTS ANNOTATED
While courts will not enlarge by construction the government’s power of taxation,  neither will 88

they place upon tax laws so loose a construction as to permit evasions, merely on the basis of Commissioner of Internal Revenue vs. Solidbank Corporation
fanciful and insubstantial distinctions.  When the legislature imposes a tax on income and another
89 “No process of interpretation or construction need be resorted to where a provision of law peremptorily calls
on business, the imposition must be respected. The Tax Code should be so construed, if need be, for application.” 98

as to avoid empty declarations or possibilities of crafty tax evasion schemes. We have consistently A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to
ruled thus: absurd results, or contradict the evident meaning of the statute taken as a whole.  Unlike the CA, 99

“x x x [l]t is upon taxation that the [government chiefly relies to obtain the means to carry on its operations,
and it is of the utmost importance that the modes adopted to enforce the collection of the taxes levied should be
summary and interfered with as little as possible, x x x.” 90
“Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes,
we find that the literal application of the aforesaid sections of the Tax Code and its implementing
regulations does not operate unjustly or contradict the evident meaning of the statute taken as a
whole. Neither does it lead to absurd results. Indeed, our courts are not to give words meanings
that would lead to absurd or unreasonable consequences.  We have repeatedly held thus: 100

may derange the operations of government, and thereby cause serious detriment to the public.” 91
“x x x [Statutes should receive a sensible construction, such as will give effect to the legislative intention and
“No government could exist if all litigants were permitted to delay the collection of its taxes.” 92
so as to avoid an unjust or an absurd conclusion.” 101

A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its “While it is true that the contemporaneous construction placed upon a statute by executive officers whose
language.  Its clarity and implied
93
duty is to enforce it should be given great weight by the courts, still if such construction is so erroneous, x x x
_______________ the same must be declared as null and void.” 102
It does not even matter that the CTA, like in China Corporation,  relied erroneously on Manila
103

No Double Taxation
Jockey Club.Under our tax system, the CTA acts as a highly specialized body specifically created We have repeatedly said that the two taxes, subject of this litigation, are different from each other.
for the purpose of reviewing tax cases.  Because of its recognized expertise, its findings of fact
104

The basis of their imposition may be the same, but their natures are different, thus leading us to a
will ordinarily not be reviewed, final point. Is there double taxation?
_______________
The Court finds none.
 Id., p. 277, per Barredo, J.
98
Double taxation means taxing the same property twice when it should be taxed only once; that
 In Re Allen, 2 Phil. 630, 643, October 29, 1903.
99 is, “x x x taxing the same person twice by the same jurisdiction for the same thing.”  It is 117

 Commissioner of Internal Revenue v. Esso Standard Eastern, Inc.,172 SCRA 364, 370, April 18, 1989.
100
obnoxious when the taxpayer is taxed twice, when it should be but once. 118

 People v. Rivera, 59 Phil. 236, 242, December 22, 1933, per Imperial, J.
101
_______________
 Insular Bank of Asia and America Employees’ Union v. Indong, 132 SCRA 663, 673, October 23, 1984, per
102

Makasiar, J. (later C.J.). See Chartered Bank Employees Association v. Ople, 138 SCRA 273, 280, August 28, 1985, per
Gutierrez, J.
112
 §28 (4) of Art. VI states:
“No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.”
 China Banking Corp. v. Court of Appeals, supra, p. 24.
103

 Davao Light & Power Co., Inc. v. Commissioner of Customs, supra.

113

 It was created by Congress pursuant to Republic Act No. 1125, effective June 16, 1954.
104

 Manila Electric Co. v. Vera, 67 SCRA 351, 357-358, October 22, 1975. See Asiatic Petroleum Co., Ltd. v.
114

461 Llanes, supra.
VOL. 416, NOVEMBER 25, 2003 461  China Hanking Corp. v. Court of Appeals, supra, p. 22.
115

 Ibid., p. 23.
116

Commissioner of Internal Revenue vs. Solidbank Corporation  Afisco Insurance Corp. v. Court of Appeals, 361 Phil. 671; 302 SCRA 1, January 25, 1999, per Panganiban, J.
117

 San Miguel Brewery, Inc. v. City of Cebu, 43 SCRA 275, 280, February 26, 1972. See also Villanueva v. City of
absent any showing of gross error or abuse on its part. Such findings are binding on the Court and,
118

105

Iloilo, 135 Phil. 572, 588; 26 SCRA 578, December 28, 1968, and Commissioner of Internal Revenue v. Lednicky, 120 Phil.
absent strong reasons for us to delve into facts, only questions of law are open for determination. 106
586, 593; 11 SCRA 603, July 31, 1964.
Respondent claims that it is entitled to a refund on the basis of excess GRT payments. We 463
disagree. VOL. 416, NOVEMBER 25, 2003 463
Tax refunds are in the nature of tax exemptions.  Such exemptions are strictly construed
107

against the taxpayer, being highly disfavored  and almost said “to be odious to the law.” Hence,
108
Commissioner of Internal Revenue vs. Solidbank Corporation
those who claim to be exempt from the payment of a particular tax must do so under clear and Otherwise described as “direct duplicate taxation,”  the two taxes must be imposed on the same
119

unmistakable terms found in the statute. They must be able to point to some positive provision, not subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction,
merely a vague implication,  of the law creating that right.
109 110 during the same taxing period; and they must be of the same kind or character. 120

The right of taxation will not be surrendered, except in words too plain to be mistaken. The
reason is that the State cannot strip itself of this highest attribute of sovereignty—its most essential
power of taxation—by vague or ambiguous language. Since tax refunds are in the nature of tax
exemptions, these are deemed to be “in derogation of sovereign authority and to be
construed strictissimi juris against the person or entity claiming the exemption.” 111
_______________
First, the taxes herein are imposed on two different subject matters. The subject matter of the
FWT is the passive income generated in the form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT is the privilege of engaging in the business of
banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is an
excise  rather than a property tax.  It is not an income tax, unlike the FWT. In fact, we have
121 122

already held that one can be taxed for engaging in business and further taxed differently for the
 The Coca-Cola Export Corp. v. Commissioner of Internal Revenue, 56 SCRA 5, 14, March 15, 1974.
105
income derived therefrom.  Akin to our ruling in Velilla v. Posadas,  these two taxes are entirely
123 124

See Commissioner of Internal Revenue v. Court of Appeals, 242 SCRA 289, 304, March 10, 1995. distinct and are assessed under different provisions.
 Commissioner of Internal Revenue v. Tours Specialists, Inc., 183 SCRA 402, 407, March 21, 1990. See Philippine
106

Refining Co. v. Court of Appeals, 256 SCRA 667, 675-676, May 8, 1996. Second, although both taxes are national in scope because they are imposed by the same
 Commissioner of Internal Revenue v. S.C. Johnson & Son, Inc., 368 Phil. 388, 411; 309 SCRA 87, June 25,
107 taxing authority—the national government under the Tax Code—and operate within the same
1999; Magsaysay Lines, Inc. v. Court of Appeals, 329 Phil. 310, 324; 260 SCRA 513, August 12, 1996; Commissioner of Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are
Internal Revenue v. Tokyo Shipping Co., Ltd., 314 Phil. 220, 228; 244 SCRA 332, May 26, 1995.
 Whoever claims an exemption must justify it by the clearest grant of organic or statute law. ( China Banking Corp. v.
108
different. The FWT is deducted and withheld as soon as the income is earned, and is paid after
Court of Appeals, supra, p. 37) every calendarquarter in
 Ibid. See Davao Light & Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122, 130, March 29, 1972.
109 _______________
 Asiatic Petroleum Co., Ltd. v. Llanes, 49 Phil. 466, 471, October 20, 1926.
110

 Commissioner of Internal Revenue v. SC Johnson and Son, Inc., supra, p. 411, per Gonzaga-Reyes, J.
111

 Victorias Milling, Co., Inc. v. Municipality of Victorias, Province of Negros Occidental,  134 Phil. 180, 198; 25 SCRA
119

462 192, September 27, 1968.

 Villanueva v. City of Iloilo, supra.
462 SUPREME COURT REPORTS ANNOTATED
120

 Generally stated, an excise tax is one that is imposed on the performance of an act, the engagement in an occupation, or
121

Commissioner of Internal Revenue vs. Solidbank Corporation the enjoyment of a privilege; and the word has come to have a broader meaning that includes every form of taxation not a
burden laid directly on persons or property. (Manila Electric Company v. Vera, 67 SCRA 352, October 22, 1975. See
No less than our 1987 Constitution provides for the mechanism for granting tax exemptions.  They 112

also State ex rel. Janes v. Brown, 148 NE 95, 96, May 19, 1925; Buckstqff Bath House Co. v. McKinley, 127 SW 2d 802, 806,
certainly cannot be granted by implication or mere administrative regulation. Thus, when an April 10, 1939; and State v. Fields, 35 NE 2d 744, 749, July 15, 1938)
exemption is claimed, it must indubitably be shown to exist, for every presumption is against  Cooley, The Law on Taxation, Vol. II, 1924, p. 1785.
122

 We have also ruled that there is no double taxation when the law imposes two different taxes on the same income,
it,  and a well-founded doubt is fatal to the claim.  In the instant case, respondent has not been able
123

113 114

business or property. (China Banking Corp. v. Court of Appeals, supra, p. 40. See also Sanchez v. Collector of Internal
to satisfactorily show that its FWT on interest income is exempt from the GRT. Like China Revenue, 97 Phil. 687, 690, Oct. 18, 1955, and People v. Mendaros, 97 Phil. 958, 959, May 27, 1955)
Banking Corporation, its argument creates a tax exemption where none exists. 115  62 Phil. 624, 632, December 19, 1935.
124

No exemptions are normally allowed when a GRT is imposed. It is precisely designed to 464
maintain simplicity in the tax collection effort of the government and to assure its steady source of 464 SUPREME COURT REPORTS ANNOTATED
revenue even during an economic slump. 116

Commissioner of Internal Revenue vs. Solidbank Corporation
which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only
after every taxablequarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax subject
to withholding, while the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same taxing
authority, within the same jurisdiction, for the same purpose, in different taxing periods, some of
the property in the territory.  Subjecting interest income to a 20% FWT and including it in the
125
computation of the 5% GRT is clearly not double taxation.
WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court
of Appeals are hereby REVERSED and SET ASIDE. No costs.
SO ORDERED.
     Davide, Jr. (C.J., Chairman), Ynares-Santiago, Carpio and Azcuna, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
VOL. 433, JUNE 29, 2004 119
Lung Center of the Philippines vs. Quezon City
G.R. No. 144104. June 29, 2004. *
LUNG CENTER OF THE PHILIPPINES, petitioner, vs.QUEZON CITY and CONSTANTINO P.
ROSAS, in his capacity as City Assessor of Quezon City, respondents.
Taxation; Lung Center of the Philippines; Charitable Institutions; Test of Charitable
Character; Words and Phrases; 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 purpose, 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; 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. The test whether an enterprise is charitable or not is whether it exists to carry out a
purpose recognized in law as charitable or whether it is maintained for gain, profit, or private advantage.—
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. 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. It
may be applied to almost anything that tend to promote
_______________
 EN BANC.
*
120
1 SUPREME COURT REPORTS ANNOTATED
20
Lung Center of the Philippines vs. Quezon City
the well-doing and well-being of social man. It embraces the improvement and promotion of the
happiness of man. The word “charitable” is not restricted to relief of the poor or sick. 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.
Same; Same; Same; The Lung Center of the Philippines 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; Any person, the rich as well as the poor, may fall sick or be injured or wounded and become a
subject of charity.—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
Note.—Exemptions from taxation are highly disfavored in law and he who claims tax
exemption must be able to justify his claim or right. (Afisco Insurance Corporation vs. Court of
Appeals, 302 SCRA 1 [1999])
——o0o——
_______________
 Afisco Insurance Corp. v. Court of Appeals, supra. De Leon, The Fundamentals of Taxation (12th ed.) 1998, p. 51.
125
465
VOL. 416, NOVEMBER 25, 2003 465
Estrada vs. Sandiganbayan
© Copyright 2018 Central Book Supply, Inc. All rights reserved.
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: x x x 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.
Same;  Same; Same;  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.—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. In Congregational
Sunday School, etc. v. Board of Review, 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
121
VOL. 433, JUNE 29, 2004 121
Lung Center of the Philippines vs. Quezon City
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.
Same;  Same; Same;  The Lung Center of the Philippines 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.—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:
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.
Same;  Same; Same;  Those portions of Lung Center’s 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.—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.
 Same; Same; Same; Statutory Construction; Taxation is the rule and exemption is the exception—the
effect of an exemption is equivalent to an appropriation.—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. As held in Salvation Army v. Hoehn: 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.
122
1 SUPREME COURT REPORTS ANNOTATED
22
Lung Center of the Philippines vs. Quezon City
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 . …
Same; Same; Same; Same; It is plain as day that under P.D. 1823, the Lung Center of the Philippines
does not enjoy any property tax exemption privileges for its real properties as well as the building constructed
thereon.—It is plain as day that under the decree (P.D. 1823), 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.
Same; Same; Same; Same; The exemption must not be so enlarged by construction.—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.
Same; Same; Same; Same; The tax exemption under Section 28 (3), Article VI of the 1987
Constitution covers property taxes only.—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. The tax
123
VOL. 433, JUNE 29, 2004 123
Lung Center of the Philippines vs. Quezon City
exemption under this constitutional provision covers propertytaxes only. 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.”
Same; Same; Same; Same; 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.—We note that under the 1935 Constitution, “. . . all lands, buildings, and
improvements used ‘exclusively’ for . . . charitable . . . purposes shall be exempt from taxation.” 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. In light of the foregoing
substantial changes in the Constitution, the petitioner cannot rely on our ruling in Herrera v. Quezon City
Board of Assessment Appeals which was promulgated on September 30, 1961 before the 1973 and 1987
Constitutions took effect.
Same;  Same; Same;  Same; Words and Phrases; 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—the words “dominant
use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the
Constitutions and the law.—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 EXCLUSIVELYused 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.” 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. The words “dominant use” or “principal use” cannot be
substituted for the words “used exclusively” without doing violence to the Constitutions and the law. Solely is
synonymous with exclusively. 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.
124
1 SUPREME COURT REPORTS ANNOTATED
24
Lung Center of the Philippines vs. Quezon City
Same;  Same; Same;  Portions of the land leased to private entities as well as those parts of Lung
Center leased to private individuals are not exempt from taxes but portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real
property taxes.—We hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the
land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying,
are exempt from real property taxes.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
     The Government Corporate Counsel for petitioner.
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision  dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014which affirmed
1
the decision of the Central Board of Assessment Appeals holding that the lot owned by the
petitioner and its hospital building constructed thereon are subject to assessment for purposes of
real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on
January 16, 1981 by virtue of Presidential Decree No. 1823.  It is the registered owner of a parcel
2
_______________
1
 Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate Justices Fermin A. Martin, Jr. and Salvador
J. Valdez, Jr. concurring.
2
 SECTION 1.—CREATION OF THE LUNG CENTER OF THE PHILIPPINES. There is hereby created a trust, under
the name and style of Lung Center of the Philippines, which, subject to the provisions of this Decree, shall be administered,
according to the Articles of Incorporation, By-Laws and Objectives of the Lung Center of the Philippines, Inc., duly registered
(reg. No. 85886) with the Securities and Exchange Commission of the Republic of the Philippines, by the Office of the
President, in coordi-
125
VOL. 433, JUNE 29, 2004 125
Lung Center of the Philippines vs. Quezon City
of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon
Avenue corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463
square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of
Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung
Center of the Philippines. A big space at the ground floor is being leased to private parties, for
canteen and small store spaces, and to medical or professional practitioners who use the same as
their private clinics for their patients whom they charge for their professional services. Almost
one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle,
while a big portion on the right side, 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 P4,554,860 by the City Assessor of Quezon
City.  Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A)
3
were issued for the land and the hospital building, respectively.  On August 25, 1993, the petitioner
4
filed a Claim for Exemption  from real property taxes with the City Assessor, predicated on its
5
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 averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and
that the major thrust of its hospital operation is to serve charity patients. The petitioner contends
that
_______________
nation with the Ministry of Human Settlements and the Ministry of Health.
 Annex “C”, Rollo, p. 49.
3
 Annexes “2” & “2-A”, id. at pp. 93-94.
4
 Annex “D”, id., at pp. 50-52.
5 a lease contract over 7,663.13 square meters of the property in 1990 for only P20,000 a month,
126
126 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
it is a charitable institution and, as such, is exempt from real property taxes. The QC-LBAA
rendered judgment dismissing the petition and holding the petitioner liable for real property taxes.
The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of
Assessment Appeals of Quezon City (CBAA, for brevity)  which ruled that the petitioner was not a
7
charitable institution and that its real properties were not actually, directly and exclusively used for
charitable purposes; hence, it was not entitled to real property tax exemption under the constitution
and the law. The petitioner sought relief from the Court of Appeals, which rendered judgment
affirming the decision of the CBAA. 8 hospital bills. And, without these bills being first settled, the poor patient cannot be allowed to leave the
Undaunted, the petitioner filed its petition in this Court contending that:
1. A.THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT
ENTITLED TO REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS
LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE
NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR
CHARITABLE PURPOSES.
2. 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
_______________
 Annex “E”, id., at pp. 53-55.
6
 Annexes “4” & “5”, id., at pp. 100-109.
7
 Annex “A”, id., at pp. 33-41.
8
127
VOL. 433, JUNE 29, 2004 127
Lung Center of the Philippines vs. Quezon City
mean “solely.” Hence, even if a portion of its real estate is leased out to private individuals from
whom it derives income, it does not lose its character as a charitable institution, and its exemption
from the payment of real estate taxes on its real property. The petitioner cited our ruling
in Herrera v. QC-BAA  to bolster its pose. The petitioner further contends that even if P.D. No.
9
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
when the monthly rental should be P357,000 a month as determined by the Commission on Audit;
and that instead of complying with the directive of the COA for the cancellation of the contract for
being grossly prejudicial to the government, the petitioner renewed the same on March 13, 1995
for a monthly rental of only P24,000. They assert that the petitioner uses the subsidies granted by
the government for charity patients and uses the rest of its income from the property for the benefit
6
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
_______________
9
 3 SCRA 187 (1961).
128
128 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
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
_______________
 Rollo, pp. 83-84.
10
 See Workmen’s Circle Educational Center of Springfield v. Board of Assessors of City of Springfield, 51 N.E.2d 313
11
(1943).
129
VOL. 433, JUNE 29, 2004 129
Lung Center of the Philippines vs. Quezon City
government.  It may be applied to almost anything that tend to promote the well-doing and well-
12
being of social man. It embraces the improvement and promotion of the happiness of man.  The
word “charitable” is not restricted to relief of the poor or sick.  The test of a charity and a
14
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;
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;
_______________
 Congregational Sunday School & Publishing Society v. Board of Review, 125 N.E. 7 (1919) , citing Jackson v. Philipps,
12
14 Allen (Mass.) 539.
 Bader Realty & Investment Co. v. St. Louis Housing Authority, 217 S.W.2d 489 (1949).
13
 Board of Assessors of Boston v. Garland School of Homemaking, 6 N.E.2d 379.
14
130
130 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
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. 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. 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. 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. 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. 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. 6.To assist universities and research institutions in their studies about lung diseases, to encourage
13 advanced training in matters of the lung and related fields and to support educational programs of
value to general health;
7. 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
_______________
15
 Rollo, pp. 119-120.
131
VOL. 433, JUNE 29, 2004 131
Lung Center of the Philippines vs. Quezon City
1. programmatic approach on the common problems relative to the objectives enumerated herein;
2. 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;
3. 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;
4. 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;
5. 11.To participate, as circumstances may warrant, in any activity designed and carried on to promote
the general health of the community;
6. 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;
 7. 13.To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties,
whether real or personal, for purposes herein mentioned; and
8. 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
_______________
 Id., at pp. 123-125.
16
 Scripps Memorial Hospital v. California Employment Commission,24 Cal.2d 669, 151 P.2d 109 (1944).
17
132
132 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
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.  In Congregational Sunday School, etc. v. Board of Review,  the State
18 19
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
_______________
 Sisters of Third Order of St. Frances v. Board of Review of Peoria County, 83 N.E. 272.
18
 See note 12.
19
 Id., at p. 10.
20
 167 N.W. 148 (1918), citing State v. Powers, 10 Mo. App. 263, 74 Mo. 476.
21
 Id., at p. 149.
22
133
VOL. 433, JUNE 29, 2004 133
Lung Center of the Philippines vs. Quezon City
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 Care and
the present case, the crux is the presence or absence of material reciprocity. It is entirely irrelevant to this
analysis that the government, rather than a private benefactor, chose to make up the deficit resulting from the
exchange between St. Mark’s Tower and the tenants by making a contribution to the landlord, just as it would
have been irrelevant in Intermountain Health Care if the patients’ income supplements had come from private
individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government
rather than private charitable contributions does not 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
_______________
 See O’brien v. Physicians’ Hospital Association, 116 N.E. 975 (1917).
23
 714 P.2d 653 (1986).
24
 Id., at pp. 660-661.
25
134
134 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
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.  As held in Salvation Army v. Hoehn:
26 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 nonprofit, 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
_______________
26
 Commissioner of Internal Revenue v. Court of Appeals, 298 SCRA 83(1998).
27
 188 S.W.2d. 826 (1945).
28
 Id., at p. 829.
29
 Rollo, p. 120. (Italics supplied.)
 135  Ibid. Citing II RECORDS OF THE CONSTITUTIONAL COMMISSION 90.
34

 Italics supplied.
35

VOL. 433, JUNE 29, 2004 135  Article VI, Section 22, par. (3) of the 1935 Constitution provides that, “Cemeteries, churches and parsonages or
36

convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or
Lung Center of the Philippines vs. Quezon City educational purposes shall be exempt from taxation.”
otherwise, the same should have been among the enumeration of tax exempt privileges under  Article VIII, Section 17, par. (3) of the 1973 Constitution provides that, “Charitable institutions, churches, parsonages
37

Section 2: or convents appurtenant thereto, mosques, and non-profit cemeteries, and all lands, buildings, and improvements actually,
directly, and exclusively used for religious or charitable purposes shall be exempt from taxation.”
It is a settled rule of statutory construction that the express mention of one person, thing, or consequence
137
implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio
alterius. VOL. 433, JUNE 29, 2004 137
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 Lung Center of the Philippines vs. Quezon City
tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation ber 30, 1961 before the 1973 and 1987 Constitutions took effect.  As this Court held in Province
38

or construction, be extended to other matters. of Abra v. Hernando: 39

...
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.  As Chief Justice
33
Hilario G. Davide, Jr., then a
_______________
. . . Under the 1935 Constitution: “Cemeteries, churches, and parsonages or convents appurtenant thereto, and
all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall
be exempt from taxation.” The present Constitution added “charitable institutions, mosques, and non-profit
cemeteries” and required that for the exemption of “lands, buildings, and improvements,” they should not only
be “exclusively” but also “actually” and “directly” used for religious or charitable purposes. The Constitution
is worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on
past decisions would have sufficed were the words “actually” as well as “directly” not added. There must be
proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation . . .
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. “Exclusive” is
defined as possessed and enjoyed to the exclusion of others; debarred from participation or
enjoyment; and “exclusively” is defined, “in a manner to exclude; as enjoying a privilege exclu-
sively.” If real property is used for one or more commercial purposes, it is not exclusively used for
40

the exempted purposes but is subject to taxation.  The words “dominant use” or “principal use”
41

 Malinias v. Commission on Elections, 390 SCRA 480 (2002).

30
cannot be substituted for the words “used exclusively” without doing violence to the Constitutions
 St. Louis Young Men’s Christian Association v. Gehner, 47 S.W.2d 776 (1932).
and the law.  Solely is synonymous with exclusively.
31

 Italics supplied.
42 43
32

 Commissioner of Internal Revenue v. Court of Appeals, supra.

33 What is meant by actual, direct and exclusive use of the property for charitable purposes is the
136 direct and immediate and actual application of the property itself to the purposes for which the
136 SUPREME COURT REPORTS ANNOTATED charitable institution is organized. It is not the use of the income
_______________
Lung Center of the Philippines vs. Quezon City
member of the 1986 Constitutional Commission, explained: “. . . what is exempted is not the  3 SCRA 186 (1961).
38

institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements  107 SCRA 105 (1981).
39

 Young Men’s Christian Association of Omaha v. Douglas County, 83 N.W. 924 (1900).
40

actually, directly and exclusively used for religious, charitable or educational purposes.” 34

 St. Louis Young Men’s Christian Association v. Gehner, supra.

41

Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act  See State ex rel Koeln v. St. Louis Y.M.C.A., 168 S.W. 589 (1914).
42

No. 7160 (otherwise known as the Local Government Code of 1991) as follows:  Lodge v. Nashville, 154 S.W. 141.
43

SECTION 234. Exemptions from Real Property Tax.—The following are exempted from payment of the real 138
property tax: 138 SUPREME COURT REPORTS ANNOTATED
...
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or Lung Center of the Philippines vs. Quezon City
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for from the real property that is determinative of whether the property is used for tax-exempt
religious, charitable or educational purposes. 35

purposes. 44

We note that under the 1935 Constitution, “. . . all lands, buildings, and improvements used The petitioner failed to discharge its burden to prove that the entirety of its real property is
‘exclusively’ for … charitable . . . purposes shall be exempt from taxation.” However, under the
36

actually, directly and exclusively used for charitable purposes. While portions of the hospital are
1973 and the present Constitutions, for “lands, buildings, and improvements” of the charitable used for the treatment of patients and the dispensation of medical services to them, whether paying
institution to be considered exempt, the same should not only be “exclusively” used for charitable or non-paying, other portions thereof are being leased to private individuals for their clinics and a
purposes; it is required that such property be used “actually” and “directly” for such purposes. 37

canteen. Further, a portion of the land is being leased to a private individual for her business
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on enterprise under the business name “Elliptical Orchids and Garden Center.” Indeed, the
our ruling in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on petitioner’s evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28
Septem- for 1992 from the said lessees.
_______________
 Accordingly, we hold that the portions of the land leased to private entities as well as those
parts of the hospital leased to private individuals are not exempt from such taxes.  On the other
45
hand, the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The
respondent Quezon City Assessor is hereby DIRECTED to determine, after due hearing, the
precise portions of the land and the area thereof which are leased to private persons, and to
compute the real property taxes due thereon as provided for by law.
SO ORDERED.
     Davide, Jr. (C.J.), Puno, Panganiban, Quisumbing, Sandoval-
Gutierrez, Carpio, Corona, Carpio-Morales, Azcuna and Tinga, JJ., concur.
     Vitug, J., On Official Leave.
     Ynares-Santiago and Austria-Martinez, JJ., On Leave.
Petition partially granted.
_______________
44
 Christian Business College v. Kalamanzoo, 131 N.W. 553.
VOL. 401, APRIL 9, 2003 259
National Power Corporation vs. City of Cabanatuan
G.R. No. 149110. April 9, 2003. *
NATIONAL POWER CORPORATION, petitioner, vs. CITY OF CABANATUAN, respondent.
Constitutional Law; Local Governments; Local Government Code; Taxation; Words and
Phrases; “Franchise”, defined.—Section 131 (m) of the LGC defines a “franchise” as “a right or privilege,
affected with public interest which is conferred upon private persons or corporations, under such terms and
conditions as the government and its political subdivisions may impose in the interest of the public welfare,
security and safety.”
Same; Same; Same; Same; Same;  “Business”, defined.—On the other hand, section 131 (d) of the
LGC defines “business” as “trade or commercial activity regularly engaged in as means of livelihood or with a
view to profit.” Petitioner claims that it is not engaged in an activity for profit, in as much as its charter
specifically provides that it is a “non-profit organization.”
Same; Same; Same; Same; The theory behind the exercise of the power to tax emanates from
necessity.—Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very
existence of the state whose social contract with its citizens obliges it to promote public interest and common
good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of the people.
Same; Same; Same; Same; The power to tax is no longer vested exclusively on Congress.—In recent
years, the increasing social challenges of the times expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable distribution of wealth, economic progress and the
protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater
significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other
charges pursuant to Article X, section 5 of the 1987 Constitution.
Same; Same; Same; Same; One of the most significant provisions of the Local Government Code is
the removal of the blanket exclusion of instrumentalities and agencies of the national government from the
coverage
_______________
 THIRD DIVISION.
*
260
2 SUPREME COURT REPORTS ANNOTATED
60
National Power Corporation vs. City of Cabanatuan
of local taxation.—One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National
 See Young Men’s Christian Association of Omaha v. Douglas County, supra; Martin v. City of New Orleans, 58 Am.
45
194 (1886).
139
VOL. 433, JUNE 29, 2004 139
People vs. Tonog, Jr.
Notes.—It is settled that tax exemptions should be strictly construed against those claiming to
be qualified thereto. (Commissioner of Customs vs. Court of Tax Appeals, 328 SCRA 822 [2000])
The presumption of regularity does not apply to administrative proceedings resulting in the
deprivation of a citizen or a taxpayer of his property. (Requiron vs. Sinaban, 398 SCRA
713 [2003])
——o0o——
© Copyright 2018 Central Book Supply, Inc. All rights reserved.
Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific
provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned
entities, viz.: “Section 133. Common Limitations on the Taxing Powers of the 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: x x x (o) Taxes, fees, or charges of any kind on the
National Government, its agencies and instrumentalities, and local government units.” (emphasis supplied)
Same;  Same; Same;  Same; Franchises; A franchise may refer to a general or primary franchise, or to
a special or secondary franchise.—In its specific sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by
virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation.
The right under a primary or general franchise is vested in the individuals who compose the corporation and
not in the corporation itself. On the other hand, the latter refers to the right or privileges conferred upon an
existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or
string wires. The rights under a secondary or special franchise are vested in the corporation and may ordinarily
be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except
such special or secondary franchises as are charged with a public use.
Same;  Same; Same;  Same; Words and Phrases; Franchise Tax; Definition; Requisites.—As
commonly used, a franchise tax is “a tax on the privilege of transacting business in the state and exercising
corporate franchises granted by the state.” It is not levied on the corporation simply for existing as a
corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the
government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and
exercise its franchise. It is within this context that the phrase “tax on businesses enjoying a franchise” in
section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is
covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a
“franchise” in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges
under this franchise within the territory of the respondent city government.
261
VOL. 401, APRIL 9, 2003 261
National Power Corporation vs. City of Cabanatuan
Same;  Same; Same;  Same; The power to tax is the most effective instrument to raise needed revenues
to finance and support myriad activities of the local government units.—Doubtless, the power to tax is the
most effective instrument to raise needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. As this Court observed in the  Mactan case, “the
original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises.” With the added burden of devolution, it is
even more imperative for government entities to share in the requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
     The Solicitor General for petitioner.
     Edgardo G. Villarin for respondent.
     Trese D. Wenceslao collaborating counsel for respondent.
PUNO, J.:
This is a petition for review  of the Decision  and the Resolution  of the Court of Appeals dated
1 2
March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation
(NPC) liable to pay franchise tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under Commonwealth
1. (a)From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court
or administrative proceedings in which it may be a party, restrictions and duties to the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities;
2. (b)From all income taxes, franchise taxes and realty taxes to be paid to the National Government,
its provinces, cities, municipalities and other government agencies and instrumentalities;
3. (c)From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import
of foreign goods required for its operations and projects; and
3
4. (d)From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power.” 12

Act No. 120, as amended.  It is tasked to undertake the “development of hydroelectric generations
4

of power and the production of electricity from nuclear, geothermal The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding
_______________
that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax,
and 2% monthly interest.  Respondent alleged that petitioner’s exemption from local taxes has
13

 Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure. See Petition, Rollo, pp. 8-28.
been repealed by section 193 of Rep. Act No. 7160,  which reads as follows:
1

14

 CA-G.R. CV No. 53297, penned by Assoc. Justice Rodrigo Cosico. SeeAnnex “A” of the Petition, Rollo, pp. 30-38.
2

 Id., Annex “B” of the Petition, Rollo, p. 39.

3 “Sec. 193. Withdrawal of Tax Exemption Privileges.—Unless otherwise provided in this Code, tax exemptions
 Among the amendments to Comm. Act No. 120 are Rep. Act No. 6395 (1971) and Pres. Decree No. 938 (1976).
4 or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
262 government owned or controlled corporations, except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the
262 SUPREME COURT REPORTS ANNOTATED effectivity of this Code.”
National Power Corporation vs. City of Cabanatuan _______________

and other sources, as well as, the transmission of electric power on a nationwide
 Rep. Act No. 6395, sec. 13, as amended by P.D. No. 938.
basis.”  Concomitant to its mandated duty, petitioner has, among others, the power to construct,
12

 Complaint, Records, pp. 1-3. The case was docketed as Civil Case No. 1659-AF and was raffled to Branch 30 presided
13

operate and maintain power plants, auxiliary plants, power stations and substations for the purpose by Judge Federico B. Fajardo, Jr.
of developing hydraulic power and supplying such power to the inhabitants. 6  “The Local Government Code of 1991.” The law took effect on January 1, 1992.
14

For many years now, petitioner sells electric power to the residents of Cabanatuan City, 264
posting a gross income of P107,814,187.96 in 1992.  Pursuant to section 37 of Ordinance No. 165-
7
264 SUPREME COURT REPORTS ANNOTATED
92,  the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing
8

National Power Corporation vs. City of Cabanatuan

75% of 1% of the latter’s gross receipts for the preceding year. 9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine On January 25, 1996, the trial court issued an Order dismissing the case. It ruled that the tax
15

Government,  refused to pay the tax assessment. It argued that the respondent has no authority to
10
exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the
impose tax on government entities. Petitioner also contended that as a non-profit organization, it is following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep.
exempted from the payment of all forms of taxes, charges, duties or fees  in accordance with sec. 11
Act No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an
13 of Rep. Act No. 6395, as amended, viz.: implied repeal which is not favored; and (3) local governments have no power to tax
“Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and instrumentalities of the national government. Pertinent portion of the Order reads:
Other Charges by Government and Governmental Instrumentalities.—The Corporation shall be non-profit and “The question of whether a particular law has been repealed or not by a subsequent law is a matter of
shall devote all its return from its capital investment, as well as excess legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions
_______________ which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended to be
repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law, identified
 Rep. Act No. 6395, sec. 2.
5 by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160
 Id., sec. 3.
6
is an implied repealing clause because it fails to identify the act or acts that are intended to be repealed. It is a
 Rollo, p. 41.
well-settled rule of statutory construction that repeals of statutes by implication are not favored. The
7

 “Section 37. Imposition of Tax—Notwithstanding any exemption granted by law or other special law, there is hereby imposed an annual tax
8

on a business enjoying franchise at a rate of 75% of 1% of the gross receipts for the preceding year realized within the territorial jurisdiction of presumption is against inconsistency and repugnancy for the legislative is presumed to know the existing laws
Cabanatuan City.” on the subject and not to have enacted inconsistent or conflicting statutes. It is also a well-settled rule that,
 Rollo, p. 41.
generally, general law does not repeal a special law unless it clearly appears that the legislative has intended by
9

 Rollo, p. 48. Rep. Act No. 6395, sec. 5. “Capital Stock of the Corporation.—The authorized capital stock of the Corporation is three
10

hundred million pesos divided into three million shares having a par value of one hundred pesos each, which shares are not to be transferred, the latter general act to modify or repeal the earlier special law. Thus, despite the passage of R.A. No. 7160
negotiated, pledged, mortgaged, or otherwise given as a security for the payment of any obligation. The said capital stock has been subscribed and from which the questioned Ordinance No. 165-92 was based, the tax exemption privileges of defendant NPC
paid wholly by the Government of the Philippines in accordance with the provisions of Republic Act Numbered Four Thousand Eight Hundred
Ninety-Seven.”
remain.
 Rollo, pp. 52-53.
11 Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco
263 vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:
‘Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or
VOL. 401, APRIL 9, 2003 263 controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. x
x x Being an instrumentality of the government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its
National Power Corporation vs. City of Cabanatuan operation might be burdened, impeded or subjected to control by mere local government.’
revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and
and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the its shares of stocks owned by the
Corporation is hereby exempt: _______________
  Records, pp. 45-54.
15
265
VOL. 401, APRIL 9, 2003 265
National Power Corporation vs. City of Cabanatuan
National Government, is beyond the taxing power of the Local Government. Corollary to this, it should be
noted here that in the NPC Charter’s declaration of Policy, Congress declared that: ‘x x x (2) the total
electrification of the Philippines through the development of power from all services to meet the needs of
industrial development and dispersal and needs of rural electrification are primary objectives of the nations
which shall be pursued coordinately and supported by all instrumentalities and agencies of the government,
including its financial institutions.’ (italics supplied). To allow plaintiff to subject defendant to its tax-
ordinance would be to impede the avowed goal of this government instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to
that which is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly,
with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could
not impose the subject tax on the defendant.” 16
On appeal, the Court of Appeals reversed the trial court’s Order  on the ground that section 193, in
17
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the
petitioner.  It ordered the petitioner to pay the respondent city government the following: (a) the
18
sum of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992,
(b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to
pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P10,000.00 as litigation
expense. 19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal’s
Decision. This was denied by the appellate court, viz.:
“The Court finds no merit in NPC’s motion for reconsideration. Its arguments reiterated therein that the taxing
power of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or
corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law
may not impliedly repeal the NPC Charter which is a special law—finds the answer in Section 193 of
_______________
16
 Records, pp. 52-54.
 Supra note 2.
17
18
 Id., at pp. 36-37.
19
 Id., at p. 38.
266
266 SUPREME COURT REPORTS ANNOTATED
National Power Corporation vs. City of Cabanatuan
the LGC to the effect that ‘tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations except local water
districts x x x are hereby withdrawn.’ The repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED.” 20
In this petition for review, petitioner raises the following issues:
1. “A.THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A
PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE
TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL
GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO
PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
2. B.THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC’S
EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE
PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF
A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE
CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
3. C.THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT
AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD
PREVAIL OVER THE LOCAL GOVERNMENT CODE.” 21
It is beyond dispute that the respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on “businesses enjoying a franchise,” pursuant to section 151 in
relation to section 137 of the LGC, viz.:
“Sec. 137. Franchise Tax.—Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of
one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
_______________
 Rollo, p. 39.
20
 Petition, pp. 9-10; Rollo, pp. 16-17.
21
267
VOL. 401, APRIL 9, 2003 267
National Power Corporation vs. City of Cabanatuan
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax
shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided
herein.” (emphasis supplied)
xxx
Sec. 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.”
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent
city government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit
the taxing power of the respondent city government to private entities that are engaged in trade or
occupation for profit. 22
Section 131 (m) of the LGC defines a “franchise” as “a right or privilege, affected with public
interest which is conferred upon private persons or corporations, under such terms and conditions
as the government and its political subdivisions may impose in the interest of the public welfare,
security and safety.” From the phraseology of this provision, the petitioner claims that the word
“private” modifies the terms “persons” and “corporations.” Hence, when the LGC uses the term
“franchise,” petitioner submits that it should refer specifically to franchises granted to private
natural persons and to private corporations.  Ergo, its charter should not be considered a
23
“franchise” for the purpose of imposing the franchise tax in question.
On the other hand, section 131 (d) of the LGC defines “business” as “trade or commercial
activity regularly engaged in as means of livelihood or with a view to profit.” Petitioner claims
that it is not engaged in an activity for profit, in as much as its charter specifically provides that it
is a “non-profit organization.” In any case,
_______________
 Rollo, p. 18.
22
 Petition, p. 11; Rollo, p. 18.
23
268
268 SUPREME COURT REPORTS ANNOTATED
National Power Corporation vs. City of Cabanatuan
petitioner argues that the accumulation of profit is merely incidental to its operation; all these
profits are required by law to be channeled for expansion and improvement of its facilities and
services. 24
 Petitioner also alleges that it is an instrumentality of the National Government,  and as such, 25
may not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation where this Court held that local governments have no power
26
to tax instrumentalities of the National Government, viz.:
“Local governments have no power to tax instrumentalities of the National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental,
which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of
the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might
be burdened, impeded or subjected to control by a mere local government.
‘The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. ( MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)’
This doctrine emanates from the ‘supremacy’ of the National Government over local governments.
‘Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to
touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even seriously burden it from accomplishment of them.’ (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesir-
_______________
24
 Ibid.
25
 Citing the case of Maceda v. Macaraig, 197 SCRA 771, 800 (1991).
26
 197 SCRA 52 (1991).
269
VOL. 401, APRIL 9, 2003 269
National Power Corporation vs. City of Cabanatuan
able activities or enterprise using the power to tax as ‘a tool regulation’ (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the ‘power to destroy’ (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the
inherent power to wield it.” 27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A special law,
its charter cannot be amended or modified impliedly by the local government code which is a
general law. Consequently, petitioner claims that its exemption from all taxes, fees or charges
under its charter subsists despite the passage of the LGC, viz.:
“It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as
much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that
the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in
statutory construction that the enactment of a later legislation which is a general law cannot be construed to
have repealed a special law. Where there is a conflict between a general law and a special statute, the special
statute should prevail since it evinces the legislative intent more clearly than the general statute.”
28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power,
should prevail over the LGC. It alleges that the power of the local government to impose franchise
tax is subordinate to petitioner’s exemption from taxation; “police power being the most
pervasive, the least limitable and most demanding of all powers, including the power of taxation.”
The petition is without merit.
Taxes are the lifeblood of the government,  for without taxes, the government can neither exist
30
nor endure. A principal attribute
_______________
 Id., at pp. 64-65.
27
 Rollo, p. 21.
28
 Id., at pp. 21-22.
29
 Commissioner vs. Pineda, 21 SCRA 105, 110 (1967) citing Bull vs. United States, 295 U.S. 247, 15 AFTR 1069,
30
1073; Surigao Electric Co., Inc. vs. Court of Tax Appeals, 57 SCRA 523 (1974).
270
270 SUPREME COURT REPORTS ANNOTATED
National Power Corporation vs. City of Cabanatuan
of sovereignty,  the exercise of taxing power derives its source from the very existence of the state
31
whose social contract with its citizens obliges it to promote public interest and common good. The
theory behind the exercise of the power to tax emanates from ne-cessity;  without taxes, 32
government cannot fulfill its mandate of promoting the general welfare and well-being of the
people.
In recent years, the increasing social challenges of the times expanded the scope of state
activity, and taxation has become a tool to realize social justice and the equitable distribution of
wealth, economic progress and the protection of local industries as well as public welfare and
similar objectives.  Taxation assumes even greater significance with the ratification of the 1987
33
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
34
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
35
_______________
31
 Hong Kong & Shanghai Banking Corp. vs. Rafferty, 19 Phil. 145(1918); Wee Poco vs. Posadas, 64 Phil.
640 (1937); Reyes vs. Almanzor, 196 SCRA 322, 327; (1991).
32
 Phil. Guaranty Co., Inc. vs. CIR, 13 SCRA 775, 780 (1965).
33
 Vitug and Acosta, Tax Law and Jurisprudence, 2nd ed. (2000) at 1.
34
 Mactan Cebu International Airport Authority vs. Marcos, 261 SCRA 667, 680 (1996) citing Cruz, Isagani
A., Constitutional Law (1991) at 84.
35
 Pimentel, The Local Government Code of 1991: The Key to National Development (1993) at pp. 2-4.
271
VOL. 401, APRIL 9, 2003 271
National Power Corporation vs. City of Cabanatuan
shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to generate their own sources for the purpose. To
achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a
local government code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers, viz.:
“Section 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the different local government units their
29
powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal,
term, salaries, powers and functions and duties of local officials, and all other matters relating to the
organization and operation of the local units.”
To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government
36
Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These
include the Barrio Charter of 1959,  the Local Autonomy Act of 1959,  the Decentralization Act of
37 38
1967  and the Local Government Code of 1983.  Despite these initiatives, however, the shackles of
39 40
dependence on the national government remained. Local government units were faced with the
same problems that hamper their capabilities to participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources
of income, (c) limited authority to prioritize and approve development projects, (d) heavy
dependence on external sources of income, and (e) limited supervisory control over personnel of
national line agencies. 41
_______________ or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or
otherwise, to a taxable person as provided in the item (a) of the first paragraph of section 12.’ ” 47

 Supra note 14.
36
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
 Rep. Act No. 2370 (1959).
37
respondent city government to impose on the petitioner the franchise tax in question.
 Rep. Act No. 2264 (1959).
In its general signification, a franchise is a privilege conferred by government authority, which
38

 Rep. Act No. 5185 (1967).

39

 B.P. Blg. 337 (1983).

40 does not belong to citizens of the country generally as a matter of common right:  In its specific 48

 Sponsorship Remarks of Cong. Hilario De Pedro III, Records of the House of Representatives, 3rd Regular Session
41
sense, a franchise may refer to a general or primary franchise, or to a special or secondary
(1989-1990), vol. 8, p. 757.
franchise. The former relates to the right to exist as a corporation, by virtue of duly approved
272
articles of incorporation, or a charter pursuant to a special law creating the corporation.  The right 49

272 SUPREME COURT REPORTS ANNOTATED under a primary or general franchise is vested in the individuals who compose the corporation and
National Power Corporation vs. City of Cabanatuan not in the corporation itself.  On the other hand, the latter refers to the right or
50

_______________
Considered as the most revolutionary piece of legislation on local autonomy,  the LGC effectively
42

deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes  Supra note 34.
45

which were prohibited by previous laws such as the imposition of taxes on forest products, forest  Id., at p. 692.
46

concessionaires, mineral products, mining operations, and the like. The LGC likewise provides  Id., at p. 686.
47

enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not  J.R.S. Business Corp., et al. vs. Ofilada, et al., 120 Phil. 618, 628; 11 SCRA 634 (1964).
48

 J. Campos, Jr., I Corporation Code (1990) at 2.

49

prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and  Supra note 48.
50

leaves the determination of the actual rates to the respective sanggunian. 43

274
One of the most significant provisions of the LGC is the removal of the blanket exclusion of
274 SUPREME COURT REPORTS ANNOTATED
instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National National Power Corporation vs. City of Cabanatuan
Government, its agencies and instrumentalities, this rule now admits an exception,  i.e., when privileges conferred upon an existing corporation such as the right to use the streets of a
specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the municipality to lay pipes of tracks, erect poles or string wires.  The rights under a secondary or
51

aforementioned entities, viz.: special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under
“Section 133. Common Limitations on the Taxing Powers of the Local Government Units.—Unless otherwise a general power granted to a corporation to dispose of its property, except such special or
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not secondary franchises as are charged with a public use. 52

extend to the levy of the following: In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a
xxx
secondary or special franchise. This is to avoid any confusion when the word franchise is used in
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities,
and local government units.” (emphasis supplied) the context of taxation. As commonly used, a franchise tax is “a tax on the privilege of transacting
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement business in the state and exercising corporate franchises granted by the state.”  It is not levied on
53

and Gaming Corporation  relied upon by the petitioner to support its claim no longer applies. To
44
the corporation simply for existing as a corporation, upon its property  or its income,  but on its
54 55

emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law exercise of the rights or privileges granted to it by the government. Hence, a corporation need not
empowering the local government units to tax instrumentalities of the National Government was in pay franchise tax from the time it ceased to do business and exercise its franchise.  It is within this 56

effect. However, as this Court ruled in the case of Mactan Cebu Interna- context that the phrase “tax on businesses enjoying a franchise” in section 137 of the LGC should
_______________ be interpreted and understood. Verily, to determine whether the petitioner is covered by the
franchise tax in question, the following requisites should concur: (1) that petitioner has a
 Pimentel, supra note 20; “Brilliantes, Issues and Trends in Local Governance in the Philippines,” The Local
42 “franchise” in the sense of a secondary or special franchise; and (2) that it is exercising its rights or
Government Code: An Assessment” (1999) at 3. privileges under this franchise within the territory of the respondent city government.
 Supra note 41.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No.
43

 Supra note 26.
44

273 7395, constitutes petitioner’s primary and secondary franchises. It serves as the petitioner’s
charter, defining its composition, capitalization, the appointment and the specific duties of its
VOL. 401, APRIL 9, 2003 273 corporate officers, and its corporate
National Power Corporation vs. City of Cabanatuan _______________
tional Airport Authority (MCIAA) vs. Marcos,  nothing prevents Congress from decreeing that
45

 Ibid.
even instrumentalities or agencies of the government performing governmental functions may be
51

 Ibid.
52

subject to tax.  In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and
46
 People v. Knight, 67 N.E. 65, 66, 174 N.Y. 475, 63 L.R.A. 87.
53

agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this  Tremont & Sufflok Mills v. City of Lowell, 59 N.E. 1007, 178 Mass. 469.
54

Court held that MCIAA, although an instrumentality of the national government, was subject to  United North & South Development Co. v. Health, Tex. Civ. App., 78 S.W.2d 650, 652.
55

 In re Commercial Safe Deposit Co. of Buffalo, 266 N.Y.S. 626, 148 Misc. 527.
56

real property tax, viz.: 275

“Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid
down in section 133, the taxing power of local governments cannot extend to the levy of inter alia, ‘taxes, fees VOL. 401, APRIL 9, 2003 275
and charges of any kind on the national government, its agencies and instrumentalities, and local government
National Power Corporation vs. City of Cabanatuan
units’; however, pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area
may impose the real property tax except on, inter alia, ‘real property owned by the Republic of the Philippines life span.  As its secondary franchise, Commonwealth Act No. 120, as amended, vests the
57

petitioner the following powers which are not available to ordinary corporations, viz.:
“x x x
1. (e)To conduct investigations and surveys for the development of water power in any part of the
Philippines;
2. (f)To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for
the purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian
owners and from persons owning or interested in waters which are or may be necessary for said
purposes, upon payment of just compensation therefor; to alter, straighten, obstruct or increase the
flow of water in streams or water channels intersecting or connecting therewith or contiguous to
its works or any part thereof: Provided, That just compensation shall be paid to any person or
persons whose property is, directly or indirectly, adversely affected or damaged thereby;
3. (g)To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,
transmission lines, power stations and substations, and other works for the purpose of developing
hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying
such power to the inhabitants thereof; to acquire, construct, install, maintain, operate, and
improve gas, oil, or steam engines, and/or other prime movers, generators and machinery in plants
and/or auxiliary plants for the production of electric power; to establish, develop, operate,
maintain and administer power and lighting systems for the transmission and utilization of its
power generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or
provincial systems and other government institutions, (3) electric cooperatives, (4) franchise
holders, and (5) real estate subdivisions x x x;
4. (h)To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose
of property incident to, or necessary, convenient or proper to carry out the purposes for which the
Corporation was created: Provided, That in case a right of way is necessary for its transmission
lines, easement of right of way shall only be sought: Provided, however, That in case the property
itself shall be acquired by purchase, the cost thereof shall be the fair market value at the time of
the taking of such property;
_______________
 Rep. Act No. 6395, sec. 2 extends NAPOCOR’s corporate existence “for fifty years from and after the expiration of its
57
present corporate existence.”
276
276 SUPREME COURT REPORTS ANNOTATED
National Power Corporation vs. City of Cabanatuan
1. (i)To construct works across, or otherwise, any stream, water-course, canal, ditch, flume, street,
avenue, highway or railway of private and public ownership, as the location of said works may
require x x x;
2. (j)To exercise the right of eminent domain for the purpose of this Act in the manner provided by
law for instituting condemnation proceedings by the national, provincial and municipal
governments;
xxx
1. (m)To cooperate with, and to coordinate its operations with those of the National Electrification
Administration and public service entities;
2. (n)To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of
plants and/or projects constructed or proposed to be constructed by the Corporation. Upon
determination by the Corporation of the areas required for watersheds for a specific project, the
Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon written
advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all areas
embraced within the watersheds, subject to existing private rights, the needs of waterworks
systems, and the requirements of domestic water supply;
3. (o)In the prosecution and maintenance of its projects, the Corporation shall adopt measures to
prevent environmental pollution and promote the conservation, development and maximum
utilization of natural resources x x x” 58
With these powers, petitioner eventually had the monopoly in the veneration and distribution of
electricity. This monopoly was strengthened with the issuance of Pres. Decree No.
40,  nationalizing the electric power industry. Although Exec. Order No. 215  thereafter allowed
59 60
private sector participation in the generation of electricity, the transmission of electricity remains
the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city
government’s territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act
No. 120, as amended. From its operations in the City of Cabanatuan, petitioner realized a gross
income of P107,814,187.96 in 1992. Fulfill-
_______________
 Rep. Act No. 6395, sec. 3.
58
 “Establishing Basic Policies for the Electric Power Industry.” Issued by former President Ferdinand E. Marcos on
59
November 7, 1972.
 “Amending Presidential Decree No. 40 and Allowing the Private Sector to Generate Electricity.” Issued by former
60
President Corazon C. Aquino on July 10, 1987.
277
VOL. 401, APRIL 9, 2003 277
National Power Corporation vs. City of Cabanatuan
ing both requisites, petitioner is, and ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply
because its stocks are wholly owned by the National Government, and its charter characterized it
as a “non-profit” organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by the
corporation of a privilege to do business. The taxable entity is the corporation which exercises the
franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a
separate and distinct entity from the National Government. It can sue and be sued under its own
name,  and can exercise all the powers of a corporation under the Corporation Code.
61 62
To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No.
2029  classifies government-owned or controlled corporations (GOCCs) into those performing
63
governmental functions and those performing proprietary functions, viz.:
“A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing
governmental or proprietary functions, which is directly chartered by special law or if organized under the
general corporation law is owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock
x x x.” (emphases supplied)
Governmental functions are those pertaining to the administration of government, and as such, are
treated as absolute obligation on the part of the state to perform while proprietary functions are
those that are undertaken only by way of advancing the general
_______________
 Rep. Act No. 6395, sec. 3 (d).
61
 Rep. Act No. 6395, sec. 4 (p) authorizes NAPOCOR to “exercise all the powers of a corporation under the Corporation
62
Law insofar as they are not inconsistent with the provisions of this Act.”
 Approved on February 4, 1986.
63
278
278 SUPREME COURT REPORTS ANNOTATED
National Power Corporation vs. City of Cabanatuan
interest of society, and are merely optional on the government.  Included in the class of GOCCs
64
performing proprietary functions are “business-like” entities such as the National Steel
Corporation (NSC), the National Development Corporation (NDC), the Social Security System
(SSS), the Government Service Insurance System (GSIS), and the National Water Sewerage
Authority (NAWASA),  among others.
65
 Petitioner was created to “undertake the development of hydroelectric generation of power
and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis.”  Pursuant to this mandate, petitioner
66
generates power and sells electricity in bulk. Certainly, these activities do not partake of the
sovereign functions of the government. They are purely private and commercial undertakings,
albeit imbued with public interest. The public interest involved in its activities, however, does not
distract from the true nature of the petitioner as a commercial enterprise, in the same league with
similar public utilities like telephone and telegraph companies, railroad companies, water supply
and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of
which are declared by this Court as ministrant or proprietary functions of government aimed at
advancing the general interest of society. 67
A closer reading of its charter reveals that even the legislature treats the character of the
petitioner’s enterprise as a “business,” although it limits petitioner’s profits to twelve percent
(12%), viz.:
68
“(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction
of its business or to carry out the purposes for which it was organized, to contract indebtedness and
_______________
 Social Security System Employees Association vs. Soriano, 7 SCRA 1016, 1020 (1963).
64
 See Boy Scouts of the Philippines vs. National Labor Relations Commission,196 SCRA 176, 185 (1991); Shipside Incorporated vs. Court of
65
Appeals, 352 SCRA 334, 350 (2001).
 Rep. Act No. 6395, Sec. 2.
66
 National Waterworks & Sewerage Authority vs. NWSA Consolidated Unions,11 SCRA 766, 774(1964).
67
 Rep. Act No. 7648, sec. 4. The law, also known as “Electric Power Crisis Act,” was signed on April 5, 1993.
68
279
VOL. 401, APRIL 9, 2003 279
National Power Corporation vs. City of Cabanatuan
issue bonds subject to approval of the President upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary to carry out the  business
and purposes for which it was organized, or which, from time to time, may be declared by the Board to be
necessary, useful, incidental or auxiliary to accomplish the said purpose x x x” (emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of
its electricity requirement from the petitioner are likewise imposed the cap of twelve percent
(12%) on profits.  The main difference is that the petitioner is mandated to devote “all its returns
69
from its capital investment, as well as excess revenues from its operation, for expansion”  while
other franchise holders have the option to distribute their profits to its stockholders by declaring
dividends. We do not see why this fact can be a source of difference in tax treatment. In both
instances, the taxable entity is the corporation, which exercises the franchise, and not the
individual stockholders.
We also do not find merit in the petitioner’s contention that its tax exemptions under its
charter subsist despite the passage of the LGC.
_______________
 Rep. Act No. 6395, sec. 14 reads: “Contract with Franchise Holders, Conditions of.—The Corporation shall, in any
69
contract for the supply of electric power to a franchise holder, require as a condition that the franchise holder, if it receives at
least sixty per cent of its electric power and energy from the Corporation, shall not realize a rate of return of more than twelve
per cent annually on a rate base composed of the sum of its net assets in operation revalued from time to time, plus two-month
operating capital, subject to the non-impairment-of-obligations-of-contracts provision of the Constitution: Provided, That in
determining the rate of return, interest on loans, bonds and other debts shall not be included as expenses. It shall likewise be a
condition in the contract that the Corporation shall cancel or revoke the contract upon judgment of the Public Service
Commission after due hearing and upon a showing by customers of the franchise holder that household electrical appliances,
have been damaged resulting from deliberate overloading by, or power deficiency of, the franchise holder. The Corporation
shall renew all existing contracts with franchise holders for the supply of electric power and energy in order to give effect to
the provisions hereof.”
 Rep. Act No. 6395, sec. 13.
70
280
280 SUPREME COURT REPORTS ANNOTATED
National Power Corporation vs. City of Cabanatuan
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown
to exist clearly and categorically, and supported by clear legal provisions. In the case at bar, the
71
petitioner’s sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, “all
income taxes, franchise taxes and realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other government agencies and instrumentalities.” However,
section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges
previously enjoyed by private and public corporations. Contrary to the contention of petitioner,
section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions
from local taxes.  It reads:
72
“Sec. 193. Withdrawal of Tax Exemption Privileges.—Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.” (emphases supplied)
It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.  Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-
73
stock and nonprofit hospital or educational institution, petitioner clearly does not belong to the
exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC
that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs
can impose franchise tax “notwithstanding any exemption granted by any law or other special
law.” This particular provision of the LGC does not admit any exception.
_______________
 Commissioner of Internal Revenue v. Guerrero, 21 SCRA 180 (1967).
71
 City Government of San Pablo, Laguna v. Reyes, 305 SCRA 353(1999).
72
 Commissioner of Customs vs. Court of Tax Appeals, 251 SCRA 42, 56 (1995).
73
281
VOL. 401, APRIL 9, 2003 281
National Power Corporation vs. City of Cabanatuan
In City Government of San Pablo, Laguna v. Reyes, MERALCO’s exemption from the payment of
74
franchise taxes was brought as an issue before this Court. The same issue was involved in the
70
subsequent case of Manila Electric Company v. Province of Laguna.  Ruling in favor of the local
75
government in both instances, we ruled that the franchise tax in question is imposable despite any
exemption enjoyed by MERALCO under special laws, viz.:
“It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their
position that MERALCO’s tax exemption has been withdrawn. The explicit language of section 137 which
authorizes the province to impose franchise tax ‘notwithstanding any exemption granted by any law or other
special law’ is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed
under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise
provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations except (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) nonstock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to
the three enumerated entities. It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the familiar maxim  expressio unius est
exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in
point, any existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended
to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local
government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts
for the preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by
the language used on (sic) Sections 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the
existing statutes providing for special tax exemptions or privileges, the LGC provided for an express,
_______________

74
 Supra note 72.
75
 306 SCRA 750 (1999).
282

282 SUPREME COURT REPORTS ANNOTATED

National Power Corporation vs. City of Cabanatuan
albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been
used.”  (emphases supplied).
76

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or reliefs.  But in enacting section 37 of Ordinance
77

No. 165-92 which imposes an annual franchise tax “notwithstanding any exemption granted by
law or other special law,” the respondent city government clearly did not intend to exempt the
petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. As this Court observed in the Mactan case, “the original reasons for
the withdrawal of tax exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated enterprises.”  With the added
78

burden of devolution, it is even more imperative for government entities to share in the
requirements of development, fiscal or otherwise, by paying taxes or other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are
hereby AFFIRMED.
SO ORDERED.
     Panganiban, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
Petition denied, judgment and resolution affirmed.
_______________

 Supra note 72 at pp. 361-362.

76

 “Sec. 192. Authority to Grant Tax Exemption Privileges.—Local government units may, through ordinances duly
77

approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.”
 Supra note 34 at p. 690.
78

283

VOL. 401, APRIL 10, 2003 283

Department of Agrarian Reform vs. Apex Investment and Financing Corporation
Note.—While taxes are the lifeblood of the government and should be collected without
unnecessary hindrance, such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself. (Marcos II vs. Court of Appeals, 273 SCRA
47 [1997])

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