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G.R. No.

L-14355

October 31, 1919

THE CITY OF MANILA, plaintiff-appellant, vs. CHINESE COMMUNITY OF MANILA, ET AL., defendants-appellees. City Fiscal Diaz for appellant. Crossfield and O'Brien, Williams, Ferrier and Sycip, Delgado and Delgado, Filemon Sotto, and Ramon Salinas for appellees.

JOHNSON, J.: The important question presented by this appeal is: In expropriation proceedings by the city of Manila, may the courts inquire into, and hear proof upon, the necessity of the expropriation? That question arose in the following manner: On the 11th day of December, 1916, the city of Manila presented a petition in the Court of First Instance of said city, praying that certain lands, therein particularly described, be expropriated for the purpose of constructing a public improvement. The petitioner, in the second paragraph of the petition, alleged: That for the purpose of constructing a public improvement, namely, the extension of Rizal Avenue, Manila, it is necessary for the plaintiff to acquire ownership in fee simple of certain parcels of land situated in the district of Binondo of said city within Block 83 of said district, and within the jurisdiction of this court. The defendant, the Comunidad de Chinos de Manila [Chinese Community of Manila], answering the petition of the plaintiff, alleged that it was a corporation organized and existing under and by virtue of the laws of the Philippine Islands, having for its purpose the benefit and general welfare of the Chinese Community of the City of Manila; that it was the owner of parcels one and two of the land described in paragraph 2 of the complaint; that itdenied that it was either necessary or expedient that the said parcels be expropriated for street purposes; that existing street and roads furnished ample means of communication for the public in the district covered by such proposed expropriation; that if the construction of the street or road should be considered a public necessity, other routes were available, which would fully satisfy the plaintiff's purposes, at much less expense and without disturbing the resting places of the dead; that it had a Torrens title for the lands in question; that the lands in question had been used by the defendant for cemetery purposes; that a great number of Chinese were buried in said cemetery; that if said expropriation be carried into effect, it would disturb the resting places of the dead, would require the expenditure of a large sum of money in the transfer or removal of the bodies to some other place or site and in the purchase of such new sites, would involve the destruction of existing monuments and the erection of new monuments in their stead, and would create irreparable loss and injury to the defendant and to all those persons owning and interested in the graves and monuments which would have to be destroyed; that the plaintiff was without right or authority to expropriate said cemetery or any part or portion thereof for street purposes; and that the expropriation, in fact, was not necessary as a public improvement. The defendant Ildefonso Tambunting, answering the petition, denied each and every allegation of the complaint, and alleged that said expropriation was not a public improvement; that it

was not necessary for the plaintiff to acquire the parcels of land in question; that a portion of the lands in question was used as a cemetery in which were the graves of his ancestors; that monuments and tombstones of great value were found thereon; that the land had become quasipublic property of a benevolent association, dedicated and used for the burial of the dead and that many dead were buried there; that if the plaintiff deemed it necessary to extend Rizal Avenue, he had offered and still offers to grant a right of way for the said extension over other land, without cost to the plaintiff, in order that the sepulchers, chapels and graves of his ancestors may not be disturbed; that the land so offered,free of charge, would answer every public necessity on the part of the plaintiff. The defendant Feliza Concepcion de Delgado, with her husband, Jose Maria Delgado, and each of the other defendants, answering separately, presented substantially the same defense as that presented by theComunidad de Chinos de Manila and Ildefonso Tambunting above referred to. The foregoing parts of the defense presented by the defendants have been inserted in order to show the general character of the defenses presented by each of the defendants. The plaintiff alleged that the expropriation was necessary. The defendants each alleged (a) that no necessity existed for said expropriation and (b) that the land in question was a cemetery, which had been used as such for many years, and was covered with sepulchres and monuments, and that the same should not be converted into a street for public purposes. Upon the issue thus presented by the petition and the various answers, the Honorable Simplicio del Rosario, judge, in a very elucidated opinion, with very clear and explicit reasons, supported by ambulance of authorities, decided that there was no necessity for the expropriation of the particular strip of land in question, and absolved each and all of the defendants from all liability under the complaint, without any finding as to costs. From that judgment the plaintiff appealed and presented the above question as its principal ground of appeal. The theory of the plaintiff is, that once it has established the fact, under the law, that it has authority to expropriate land, it may expropriate any land it may desire; that the only function of the court in such proceedings is to ascertain the value of the land in question; that neither the court nor the owners of the land can inquire into the advisible purpose of purpose of the expropriation or ask any questions concerning the necessities therefor; that the courts are mere appraisers of the land involved in expropriation proceedings, and, when the value of the land is fixed by the method adopted by the law, to render a judgment in favor of the defendant for its value. That the city of Manila has authority to expropriate private lands for public purposes, is not denied. Section 2429 of Act No. 2711 (Charter of the city of Manila) provides that "the city (Manila) . . . may condemn privateproperty for public use." The Charter of the city of Manila contains no procedure by which the said authority may be carried into effect. We are driven, therefore, to the procedure marked out by Act No. 190 to ascertain how the said authority may be exercised. From an examination of Act No. 190, in its section 241, we find how the right of eminent domain may be exercised. Said section 241 provides that, "The Government of the Philippine Islands, or of any province or department thereof, or of any municipality, and any person, or public or private corporation having, by law, the right to condemn private property for public use, shall exercise that right in the manner hereinafter prescribed."

Section 242 provides that a complaint in expropriation proceeding shall be presented; that the complaint shall state with certainty the right of condemnation, with a description of the property sought to be condemned together with the interest of each defendant separately. Section 243 provides that if the court shall find upon trial that the right to expropriate the land in question exists, it shall then appoint commissioners. Sections 244, 245 and 246 provide the method of procedure and duty of the commissioners. Section 248 provides for an appeal from the judgment of the Court of First Instance to the Supreme Court. Said section 248 gives the Supreme Court authority to inquire into the right of expropriation on the part of the plaintiff. If the Supreme Court on appeal shall determine that no right of expropriation existed, it shall remand the cause to the Court of First Instance with a mandate that the defendant be replaced in the possession of the property and that he recover whatever damages he may have sustained by reason of the possession of the plaintiff. It is contended on the part of the plaintiff that the phrase in said section, "and if the court shall find the rightto expropriate exists," means simply that, if the court finds that there is some law authorizing the plaintiff to expropriate, then the courts have no other function than to authorize the expropriation and to proceed to ascertain the value of the land involved; that the necessity for the expropriation is a legislative and not a judicial question. Upon the question whether expropriation is a legislative function exclusively, and that the courts cannot intervene except for the purpose of determining the value of the land in question, there is much legal legislature. Much has been written upon both sides of that question. A careful examination of the discussions pro and con will disclose the fact that the decisions depend largely upon particular constitutional or statutory provisions. It cannot be denied, if the legislature under proper authority should grant the expropriation of a certain or particular parcelof land for some specified public purpose, that the courts would be without jurisdiction to inquire into the purpose of that legislation. If, upon the other hand, however, the Legislature should grant general authority to a municipal corporation to expropriate private land for public purposes, we think the courts have ample authority in this jurisdiction, under the provisions above quoted, to make inquiry and to hear proof, upon an issue properly presented, concerning whether or not the lands were private and whether the purpose was, in fact, public. In other words, have no the courts in this jurisdiction the right, inasmuch as the questions relating to expropriation must be referred to them (sec. 241, Act No. 190) for final decision, to ask whether or not the law has been complied with? Suppose in a particular case, it should be denied that the property is not private property but public, may not the courts hear proof upon that question? Or, suppose the defense is, that the purpose of the expropriation is not public butprivate, or that there exists no public purpose at all, may not the courts make inquiry and hear proof upon that question? The city of Manila is given authority to expropriate private lands for public purposes. Can it be possible that said authority confers the right to determine for itself that the land is private and that the purpose is public, and that the people of the city of Manila who pay the taxes for its support, especially those who are directly affected, may not question one or the other, or both, of these questions? Can it be successfully contended that the phrase used in Act No. 190, "and if the court upon trial shall find that such right exists," means simply that the court shall examine the statutes simply for the purpose of ascertaining whether a law exists authorizing the petitioner to exercise the right of eminent domain? Or, when the case arrives in the Supreme Court, can it be possible that the phrase, "if the Supreme Court shall determine that no right of expropriation exists," that that simply

means that the Supreme Court shall also examine the enactments of the legislature for the purpose of determining whether or not a law exists permitting the plaintiff to expropriate? We are of the opinion that the power of the court is not limited to that question. The right of expropriation is not an inherent power in a municipal corporation, and before it can exercise the right some law must exist conferring the power upon it. When the courts come to determine the question, they must only find (a) that a law or authority exists for the exercise of the right of eminent domain, but (b) also that the right or authority is being exercised in accordance with the law. In the present case there are two conditions imposed upon the authority conceded to the City of Manila: First, the land must be private; and, second, the purpose must be public. If the court, upon trial, finds that neither of these conditions exists or that either one of them fails, certainly it cannot be contended that the right is being exercised in accordance with law. Whether the purpose for the exercise of the right of eminent domain is public, is a question of fact. Whether the land is public, is a question of fact; and, in our opinion, when the legislature conferred upon the courts of the Philippine Islands the right to ascertain upon trial whether the right exists for the exercise of eminent domain, it intended that the courts should inquire into, and hear proof upon, those questions. Is it possible that the owner of valuable land in this jurisdiction is compelled to stand mute while his land is being expropriated for a use not public, with the right simply to beg the city of Manila to pay him the value of his land? Does the law in this jurisdiction permit municipalities to expropriate lands, without question, simply for the purpose of satisfying the aesthetic sense of those who happen for the time being to be in authority? Expropriation of lands usually calls for public expense. The taxpayers are called upon to pay the costs. Cannot the owners of land question the public use or the public necessity? As was said above, there is a wide divergence of opinion upon the authority of the court to question the necessity or advisability of the exercise of the right of eminent domain. The divergence is usually found to depend upon particular statutory or constitutional provisions. It has been contended and many cases are cited in support of that contention, and section 158 of volume 10 of Ruling Case Law is cited as conclusive that the necessity for taking property under the right of eminent domain is not a judicial question. But those who cited said section evidently overlooked the section immediately following (sec. 159), which adds: "But it is obvious that if the property is taken in the ostensible behalf of a public improvement which it can never by any possibility serve, it is being taken for a use not public, and the owner's constitutional rights call for protection by the courts. While many courts have used sweeping expression in the decisions in which they have disclaimed the power of supervising the power of supervising the selection of the sites of public improvements, it may be safely said that the courts of the various states would feel bound to interfere to prevent an abuse of the discretion delegated by the legislature, by an attempted appropriation of land in utter disregard of the possible necessity of its use, or when the alleged purpose was a cloak to some sinister scheme." (Norwich City vs. Johnson, 86 Conn., 151; Bell vs. Mattoon Waterworks, etc. Co., 245 Ill., 544; Wheeling, etc. R. R. Co. vs. Toledo Ry. etc. Co., 72 Ohio St., 368; State vs. Stewart, 74 Wis., 620.) Said section 158 (10 R. C. L., 183) which is cited as conclusive authority in support of the contention of the appellant, says: The legislature, in providing for the exercise of the power of eminent domain, may directly determine the necessity for appropriating private property for a particular improvement for public use, and it may select the exact location of the improvement. In such a case, it is well settled that the utility of the proposed improvement, the extent of the public necessity for its construction, the expediency of constructing it, the suitableness of the

location selected and the consequent necessity of taking the land selected for its site, are all questions exclusively for the legislature to determine, and the courts have no power to interfere, or to substitute their own views for those of the representatives of the people. Practically every case cited in support of the above doctrine has been examined, and we are justified in making the statement that in each case the legislature directly determined the necessity for the exercise of the right of eminent domain in the particular case. It is not denied that if the necessity for the exercise of the right of eminent domain is presented to the legislative department of the government and that department decides that there exists a necessity for the exercise of the right in a particular case, that then and in that case, the courts will not go behind the action of the legislature and make inquiry concerning the necessity. But, in the case ofWheeling, etc. R. R. Co. vs. Toledo, Ry, etc., Co. (72 Ohio St., 368 [106 Am. St. rep., 622, 628]), which was cited in support of the doctrine laid down in section 158 above quoted, the court said: But when the statute does not designate the property to be taken nor how may be taken, then the necessity of taking particular property is a question for the courts. Where the application to condemn or appropriate is made directly to the court, the question (of necessity) should be raised and decided in limene. The legislative department of the government was rarely undertakes to designate the precise property which should be taken for public use. It has generally, like in the present case, merely conferred general authority to take land for public use when a necessity exists therefor. We believe that it can be confidently asserted that, under such statute, the allegation of the necessity for the appropriation is an issuable allegation which it is competent for the courts to decide. (Lynch vs. Forbes, 161 Mass., 302 [42 Am. St. Rep., 402, 407].) There is a wide distinction between a legislative declaration that a municipality is given authority to exercise the right of eminent domain, and a decision by the municipality that there exist a necessity for the exercise of that right in a particular case. The first is a declaration simply that there exist reasons why the right should be conferred upon municipal corporation, while the second is the application of the right to a particular case. Certainly, the legislative declaration relating to the advisability of granting the power cannot be converted into a declaration that a necessity exists for its exercise in a particular case, and especially so when, perhaps, the land in question was not within the territorial authority was granted. Whether it was wise, advisable, or necessary to confer upon a municipality the power to exercise the right of eminent domain, is a question with which the courts are not concerned. But when that right or authority is exercised for the purpose of depriving citizens of their property, the courts are authorized, in this jurisdiction, to make inquiry and to hear proof upon the necessity in the particular case, and not the general authority. Volume 15 of the Cyclopedia of Law and Procedure (Cyc.), page 629, is cited as a further conclusive authority upon the question that the necessity for the exercise of the right of eminent domain is a legislative and not a judicial question. Cyclopedia, at the page stated, says: In the absence of some constitutional or statutory provision to the contrary, the necessity andexpediency of exercising the right of eminent domain are questions essentially political and not judicial in their character. The determination of those questions (the necessity and the expediency) belongs to the sovereign power; the legislative department is final and conclusive, and the courts have no power to review it (the necessity and the expediency) . . . . It (the legislature) may designate the particular property to be condemned, and its determination in this respect cannot be reviewed by the courts.

The volume of Cyclopedia, above referred to, cites many cases in support of the doctrine quoted. While time has not permitted an examination of all of said citations, many of them have been examined, and it can be confidently asserted that said cases which are cited in support of the assertion that, "the necessity and expediency of exercising the right of eminent domain are questions essentially political and not judicial," show clearly and invariably that in each case the legislature itself usually, by a special law, designated the particular case in which the right of eminent domain might be exercised by the particular municipal corporation or entity within the state. (Eastern R. Co. vs. Boston, etc., R. Co., 11 Mass., 125 [15 Am. Rep., 13]; Brooklyn Park Com'rs vs. Armstrong, 45 N.Y., 234 [6 Am. Rep., 70]; Hairston vs. Danville, etc. Ry. Co., 208 U. S. 598; Cincinnati vs. Louisville, etc. Ry. Co., 223 U. S., 390; U.S. vs. Chandler-Dunbar Water Power Co., 229 U. S., 53; U.S. vs. Gettysburg, etc. Co., 160 U. S., 668; Traction Co. vs. Mining Co., 196 U.S., 239; Sears vs. City of Akron, 246 U.S., 351 [erroneously cited as 242 U.S.].) In the case of Traction Co. vs. Mining Co. (196 U.S., 239), the Supreme Court of the United States said: "It is erroneous to suppose that the legislature is beyond the control of the courts in exercising the power of eminent domain, either as to the nature of the use or the necessity to the use of any particular property. For if the use be not public or no necessity for the taking exists, the legislature cannot authorize the taking of private property against the will of the owner, notwithstanding compensation may be required." In the case of School Board of Carolina vs. Saldaa (14 Porto Rico, 339, 356), we find the Supreme Court of Porto Rico, speaking through Justice MacLeary, quoting approvingly the following, upon the question which we are discussing: "It is well settled that although the legislature must necessarily determine in the first instance whether the use for which they (municipalities, etc.) attempt to exercise the power is a public one or not, their (municipalities, etc.) determination is not final, but is subject to correction by the courts, who may undoubtedly declare the statute unconstitutional, if it shall clearly appear that the use for which it is proposed to authorize the taking of private property is in reality not public but private." Many cases are cited in support of that doctrine. Later, in the same decision, we find the Supreme Court of Porto Rico says: "At any rate, the rule is quite well settled that in the cases under consideration the determination of the necessity of taking a particular piece or a certain amount of land rests ultimately with the courts." (Spring Valley etc. Co. vs. San Mateo, etc. Co., 64 Cal., 123.) . In the case of Board of Water Com'rs., etc. vs. Johnson (86 Conn., 571 [41 L. R. A., N. S., 1024]), the Supreme Court of Connecticut approvingly quoted the following doctrine from Lewis on Eminent Domain (3d ed.), section 599: "In all such cases the necessity of public utility of the proposed work or improvement is a judicial question. In all such cases, where the authority is to take property necessary for the purpose, the necessity of taking particular property for a particular purpose is a judicial one, upon which the owner is entitled to be heard." (Riley vs. Charleston, etc. Co., 71 S. C., 457, 489 [110 Am. St. Rep., 579]; Henderson vs. Lexington 132 Ky., 390, 403.) The taking of private property for any use which is not required by the necessities or convenience of the inhabitants of the state, is an unreasonable exercise of the right of eminent domain, and beyond the power of the legislature to delegate. (Bennett vs. Marion, 106 Iowa, 628, 633; Wilson vs. Pittsburg, etc. Co., 222 Pa. St., 541, 545; Greasy, etc. Co. vs. Ely, etc. Co., 132 Ky., 692, 697.) In the case of New Central Coal Co. vs. George's etc. Co. (37 Md., 537, 564), the Supreme Court of the State of Maryland, discussing the question before us, said: "To justify the exercise of this extreme power (eminent domain) where the legislature has left it to depend upon the necessity

that may be found to exist, in order to accomplish the purpose of the incorporation, as in this case, the party claiming the right to the exercise of the power should be required to show at least a reasonable degree of necessity for its exercise. Any rule less strict than this, with the large and almost indiscriminate delegation of the right to corporations, would likely lead to oppression and the sacrifice of private right to corporate power." In the case of Dewey vs. Chicago, etc. Co. (184 Ill., 426, 433), the court said: "Its right to condemn property is not a general power of condemnation, but is limited to cases where a necessity for resort to private property is shown to exist. Such necessity must appear upon the face of the petition to condemn. If the necessary is denied the burden is upon the company (municipality) to establish it." (Highland, etc. Co. vs. Strickley, 116 Fed., 852, 856; Kiney vs. Citizens' Water & Light Co., 173 Ind., 252, 257 ; Bell vs. Mattoon Waterworks, etc. Co., 245 Ill., 544 [137 Am. St. Rep. 338].) It is true that naby decisions may be found asserting that what is a public use is a legislative question, and many other decisions declaring with equal emphasis that it is a judicial question. But, as long as there is a constitutional or statutory provision denying the right to take land for any use other than a public use, it occurs to us that the question whether any particular use is a public one or not is ultimately, at least, a judicial question. The legislative may, it is true, in effect declare certain uses to be public, and, under the operation of the well-known rule that a statute will not be declared to be unconstitutional except in a case free, or comparatively free, from doubt, the courts will certainly sustain the action of the legislature unless it appears that the particular use is clearly not of a public nature. The decisions must be understood with this limitation; for, certainly, no court of last resort will be willing to declare that any and every purpose which the legislative might happen to designate as a public use shall be conclusively held to be so, irrespective of the purpose in question and of its manifestly private character Blackstone in his Commentaries on the English Law remarks that, so great is the regard of the law for private property that it will not authorize the least violation of it, even for the public good, unless there exists a very great necessity therefor. In the case of Wilkinson vs. Leland (2 Pet. [U.S.], 657), the Supreme Court of the United States said: "That government can scarcely be deemed free where the rights of property are left solely defendant on the legislative body, without restraint. The fundamental maxims of free government seem to require that the rights of personal liberty and private property should be held sacred. At least no court of justice in this country would be warranted in assuming that the power to violate and disregard them a power so repugnant to the common principles of justice and civil liberty lurked in any general grant of legislature authority, or ought to be implied from any general expression of the people. The people ought no to be presumed to part with rights so vital to their security and well-being without very strong and direct expression of such intention." (Lewis on Eminent Domain, sec. 603; Lecoul vs. Police Jury 20 La. Ann., 308; Jefferson vs. Jazem, 7 La. Ann., 182.) Blackstone, in his Commentaries on the English Law said that the right to own and possess land a place to live separate and apart from others to retain it as a home for the family in a way not to be molested by others is one of the most sacred rights that men are heirs to. That right has been written into the organic law of every civilized nation. The Acts of Congress of July 1, 1902, and of August 29, 1916, which provide that "no law shall be enacted in the Philippine Islands which shall deprive any person of his property without due process of law," are but a restatement of the timehonored protection of the absolute right of the individual to his property. Neither did said Acts of Congress add anything to the law already existing in the Philippine Islands. The Spaniard fully recognized the principle and adequately protected the inhabitants of the Philippine Islands against the encroachment upon the private property of the individual. Article 349 of the Civil Code provides that: "No one may be deprived of his property unless it be by competent authority, for some purpose of proven public utility, and after payment of the proper compensation Unless this requisite (proven

public utility and payment) has been complied with, it shall be the duty of the courts to protect the owner of such property in its possession or to restore its possession to him , as the case may be." The exercise of the right of eminent domain, whether directly by the State, or by its authorized agents, is necessarily in derogation of private rights, and the rule in that case is that the authority must be strictly construed. No species of property is held by individuals with greater tenacity, and none is guarded by the constitution and laws more sedulously, than the right to the freehold of inhabitants. When the legislature interferes with that right, and, for greater public purposes, appropriates the land of an individual without his consent, the plain meaning of the law should not be enlarged by doubtly interpretation. (Bensely vs. Mountainlake Water Co., 13 Cal., 306 and cases cited [73 Am. Dec., 576].) The statutory power of taking property from the owner without his consent is one of the most delicate exercise of government authority. It is to be watched with jealous scrutiny. Important as the power may be to the government, the inviolable sanctity which all free constitutions attach to the right of property of the citizens, constrains the strict observance of the substantial provisions of the law which are prescribed as modes of the exercise of the power, and to protect it from abuse. Not only must the authority of municipal corporations to take property be expressly conferred and the use for which it is taken specified, but the power, with all constitutional limitation and directions for its exercise, must be strictly pursued. (Dillon on Municipal Corporations [5th Ed.], sec. 1040, and cases cited; Tenorio vs. Manila Railroad Co., 22 Phil., 411.) It can scarcely be contended that a municipality would be permitted to take property for some public use unless some public necessity existed therefor. The right to take private property for public use originates in the necessity, and the taking must be limited by such necessity. The appellant contends that inasmuch as the legislature has given it general authority to take private property for public use, that the legislature has, therefore, settled the question of the necessity in every case and that the courts are closed to the owners of the property upon that question. Can it be imagined, when the legislature adopted section 2429 of Act No. 2711, that it thereby declared that it was necessary to appropriate the property of Juan de la Cruz, whose property, perhaps, was not within the city limits at the time the law was adopted? The legislature, then, not having declared the necessity, can it be contemplated that it intended that a municipality should be the sole judge of the necessity in every case, and that the courts, in the face of the provision that "if upon trial they shall find that a right exists," cannot in that trial inquire into and hear proof upon the necessity for the appropriation in a particular case? The Charter of the city of Manila authorizes the taking of private property for public use. Suppose the owner of the property denies and successfully proves that the taking of his property serves no public use: Would the courts not be justified in inquiring into that question and in finally denying the petition if no public purpose was proved? Can it be denied that the courts have a right to inquire into that question? If the courts can ask questions and decide, upon an issue properly presented, whether the use is public or not, is not that tantamount to permitting the courts to inquire into the necessity of the appropriation? If there is no public use, then there is no necessity, and if there is no necessity, it is difficult to understand how a public use can necessarily exist. If the courts can inquire into the question whether a public use exists or not, then it seems that it must follow that they can examine into the question of the necessity. The very foundation of the right to exercise eminent domain is a genuine necessity, and that necessity must be of a public character. The ascertainment of the necessity must precede or accompany, and not follow, the taking of the land. (Morrison vs. Indianapolis, etc. Ry. Co., 166 Ind., 511; Stearns vs. Barre, 73 Vt., 281; Wheeling, etc. R. R. Co. vs. Toledo, Ry. etc. Co., 72 Ohio St., 368.)

The general power to exercise the right of eminent domain must not be confused with the right to exercise it in a particular case. The power of the legislature to confer, upon municipal corporations and other entities within the State, general authority to exercise the right of eminent domain cannot be questioned by the courts, but that general authority of municipalities or entities must not be confused with the right to exercise it in particular instances. The moment the municipal corporation or entity attempts to exercise the authority conferred, it must comply with the conditions accompanying the authority. The necessity for conferring the authority upon a municipal corporation to exercise the right of eminent domain is admittedly within the power of the legislature. But whether or not the municipal corporation or entity is exercising the right in a particular case under the conditions imposed by the general authority, is a question which the courts have the right to inquire into. The conflict in the authorities upon the question whether the necessity for the exercise of the right of eminent domain is purely legislative and not judicial, arises generally in the wisdom and propriety of the legislature in authorizing the exercise of the right of eminent domain instead of in the question of the right to exercise it in a particular case. (Creston Waterworks Co. vs. McGrath, 89 Iowa, 502.) By the weight of authorities, the courts have the power of restricting the exercise of eminent domain to the actual reasonable necessities of the case and for the purposes designated by the law. (Fairchild vs. City of St. Paul. 48 Minn., 540.) And, moreover, the record does not show conclusively that the plaintiff has definitely decided that their exists a necessity for the appropriation of the particular land described in the complaint. Exhibits 4, 5, 7, and E clearly indicate that the municipal board believed at one time that other land might be used for the proposed improvement, thereby avoiding the necessity of distributing the quiet resting place of the dead. Aside from insisting that there exists no necessity for the alleged improvements, the defendants further contend that the street in question should not be opened through the cemetery. One of the defendants alleges that said cemetery is public property. If that allegations is true, then, of course, the city of Manila cannot appropriate it for public use. The city of Manila can only expropriate private property. It is a well known fact that cemeteries may be public or private. The former is a cemetery used by the general community, or neighborhood, or church, while the latter is used only by a family, or a small portion of the community or neighborhood. (11 C. J., 50.) Where a cemetery is open to public, it is a public use and no part of the ground can be taken for other public uses under a general authority. And this immunity extends to the unimproved and unoccupied parts which are held in good faith for future use. (Lewis on Eminent Domain, sec. 434, and cases cited.) The cemetery in question seems to have been established under governmental authority. The Spanish Governor-General, in an order creating the same, used the following language: The cemetery and general hospital for indigent Chinese having been founded and maintained by the spontaneous and fraternal contribution of their protector, merchants and industrials, benefactors of mankind, in consideration of their services to the Government of the Islands its internal administration, government and regime must necessarily be adjusted to the taste and traditional practices of those born and educated in China in order that the sentiments which animated the founders may be perpetually effectuated.

It is alleged, and not denied, that the cemetery in question may be used by the general community of Chinese, which fact, in the general acceptation of the definition of a public cemetery, would make the cemetery in question public property. If that is true, then, of course, the petition of the plaintiff must be denied, for the reason that the city of Manila has no authority or right under the law to expropriate public property. But, whether or not the cemetery is public or private property, its appropriation for the uses of a public street, especially during the lifetime of those specially interested in its maintenance as a cemetery, should be a question of great concern, and its appropriation should not be made for such purposes until it is fully established that the greatest necessity exists therefor. While we do not contend that the dead must not give place to the living, and while it is a matter of public knowledge that in the process of time sepulchres may become the seat of cities and cemeteries traversed by streets and daily trod by the feet of millions of men, yet, nevertheless such sacrifices and such uses of the places of the dead should not be made unless and until it is fully established that there exists an eminent necessity therefor. While cemeteries and sepulchres and the places of the burial of the dead are still within the memory and command of the active care of the living; while they are still devoted to pious uses and sacred regard, it is difficult to believe that even the legislature would adopt a law expressly providing that such places, under such circumstances, should be violated. In such an appropriation, what, we may ask, would be the measure of damages at law, for the wounded sensibilities of the living, in having the graves of kindred and loved ones blotted out and desecrated by a common highway or street for public travel? The impossibility of measuring the damage and inadequacy of a remedy at law is too apparent to admit of argument. To disturb the mortal remains of those endeared to us in life sometimes becomes the sad duty of the living; but, except in cases of necessity, or for laudable purposes, the sanctity of the grave, the last resting place of our friends, should be maintained, and the preventative aid of the courts should be invoked for that object. (Railroad Company vs. Cemetery Co., 116 Tenn., 400; Evergreen Cemetery Associationvs. The City of New Haven, 43 Conn., 234; Anderson vs. Acheson, 132 Iowa, 744; Beatty vs. Kurtz, 2 Peters, 566.) In the present case, even granting that a necessity exists for the opening of the street in question, the record contains no proof of the necessity of opening the same through the cemetery. The record shows that adjoining and adjacent lands have been offered to the city free of charge, which will answer every purpose of the plaintiff. For all of the foregoing, we are fully persuaded that the judgment of the lower court should be and is hereby affirmed, with costs against the appellant. So ordered.

G.R. No. L-12792

February 28, 1961

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. LA ORDEN DE PP. BENEDICTINOS DE FILIPINAS, defendant-appellee.

Office of the Solicitor General for plaintiff-appellant. Ledesma, Puno, Guytingco, Antonio and Associates for defendant-appellee. DIZON, J.: To ease and solve the daily traffic congestion on Legarda Street, the Government drew plans to extend Azcarraga street from its junction with Mendiola street, up to the Sta. Mesa Rotonda, Sampaloc, Manila. To carry out this plan it offered to buy a portion of approximately 6,000 square meters of a bigger parcel belonging to La Orden de PP. Benedictinos de Filipinas, a domestic religious corporation that owns the San Beda College, a private educational institution situated on Mendiola street. Not having been able to reach an agreement on the matter with the owner, the Government instituted the present expropriation proceedings. On May 27, 1957 the trial court, upon application of the Government hereinafter referred to as appellant issued an order fixing the provisional value of the property in question at P270,000.00 and authorizing appellant to take immediate possession thereof upon depositing said amount. The deposit having been made with the City Treasurer of Manila, the trial court issued the corresponding order directing the Sheriff of Manila to place appellant in possession of the property aforesaid. On June 8, 1957, as directed by the Rules of Court, the herein appellee, in lieu of an answer, filed a motion to dismiss the complaint based on the following grounds: I. That the property sought to be expropriated is already dedicated to public use and therefore is not subject to expropriation. II. That there is no necessity for the proposed expropriation. III. That the proposed Azcarraga Extension could pass through a different site which would entail less expense to the Government and which would not necessitate the expropriation of a property dedicated to education. IV. That the present action filed by the plaintiff against the defendant is discriminatory. V. That the herein plaintiff does not count with sufficient funds to push through its project of constructing the proposed Azcarraga Extension and to allow the plaintiff to expropriate defendant's property at this time would be only to needlessly deprive the latter of the use of its property.". The government filed a written opposition to the motion to dismiss (Record on Appeal, pp. 30-37) while appellee filed a reply thereto (Id., pp. 38-48). On July 29, 1957, without receiving evidence upon the questions of fact arising from the complaint, the motion to dismiss and the opposition thereto filed, the trial court issued the appealed order dismissing the case. The appealed order shows that the trial court limited itself to deciding the point of whether or not the expropriation of the property in question is necessary (Rec. on Ap., p. 50) and, having arrived at the conclusion that such expropriation was not of extreme necessity, dismissed the proceedings. It is to be observed that paragraph IV of the complaint expressly alleges that appellant needs, among other properties, the portion of appellee's property in question for the purpose of constructing the Azcarraga street extension, and that paragraph VII of the same complaint expressly alleges that, in accordance with Section 64(b) of the Revised Administrative Code, the President of the

Philippines had authorized the acquisition, thru condemnation proceedings, of the aforesaid parcel of land belonging to appellee, as evidenced by the third indorsement dated May 15, 1957 of the Executive Secretary, Office of the President of the Philippines, a copy of which was attached to the complaint as Annex "C" and made an integral part thereof. In denial of these allegations appellee's motion to dismiss alleged that "there is no necessity for the proposed expropriation". Thus, the question of fact decisive of the whole case arose. It is the rule in this jurisdiction that private property may be expropriated for public use and upon payment of just compensation; that condemnation of private property is justified only if it is for the public good and there is a genuine necessity therefor of a public character. Consequently, the courts have the power to inquire into the legality of the exercise of the right of eminent domain and to determine whether or not there is a genuine necessity therefor (City of Manila vs. Chinese Community, 40 Phil. 349; Manila Railroad Company vs. Hacienda Benito, Inc., 37 O.G. 1957). Upon the other hand, it does not need extended argument to show that whether or not the proposed opening of the Azcarraga extension is a necessity in order to relieve the daily congestion of traffic on Legarda St., is a question of fact dependent not only upon the facts of which the trial court very liberally took judicial notice but also up on other factors that do not appear of record and must, therefore, be established by means of evidence. We are, therefore, of the opinion that the parties should have been given an opportunity to present their respective evidence upon these factors and others that might be of direct or indirect help in determining the vital question of fact involved, namely, the need to open the extension of Azcarraga street to ease and solve the traffic congestion on Legarda street. WHEREFORE, the appealed order of dismissal is set aside and the present case is remanded to the trial court for further proceedings in accordance with this decision. Without costs.

G.R. No. L-21064 February 18, 1970 J.M. TUASON and CO., INC., petitioner-appellee, vs. THE LAND TENURE ADMINISTRATION, THE SOLICITOR GENERAL and THE AUDITOR GENERAL,respondents-appellants. Araneta, Mendoza and Papa for petitioner-appellee. Office of the Solicitor General and M. B. Pablo for respondents appellants.

FERNANDO, J.: In this special civil action for prohibition to nullify a legislative act directing the expropriation of the Tatalon Estate, Quezon City,1 this Court is called upon to inquire further into how far the power of Congress under the constitution to authorize upon payment of just compensation the expropriation of lands to be subdivided into small lots and conveyed at cost to individuals2 may extend, the more so as this is the first time the judiciary is confronted with such a challenge addressed to the validity of a

statute specifically made applicable to a particular piece of land, owned by petitioner J. M. Tuason & Co. In the leading case of Guido v. Rural Progress,3 decided in 1949. this Court in passing upon the scope of the power of the President conferred by statute "to acquire private lands or any interest therein, through purchase or expropriation, and to subdivide the same into home lots or small farms for resale at reasonable prices and under such conditions as he may fix to their bona fide tenants or occupants"4had occasion to delineate the contours of the above constitutional provision, reconciling the undoubtedly broad grant of constitutional authority to Congress with the right of property that might be adversely affected by its exercise. The prevailing opinion in the later case Republic v. Baylosis5 tilted the balance in favor of property. In deciding this suit, filed with the Court of First Instance of Quezon City, the lower court, as was understandable, bowed to what it considered the compulsion such an opinion carries and being unable to perceive any relevant ground for distinction, declared the challenged statute invalid. The respondents, the Land Tenure Administration, the Solicitor General and the Auditor General in this prohibition proceeding, appealed. We are possessed undoubtedly of greater discretion on the matter. Nor is it to be lost sight of, as abovementioned, that this is the first controversy where the expropriation of a particular property authorized by Congress under the above constitutional provision is assailed as beyond its power. The opportunity is thus here present of making more definite the boundaries of such congressional competence. As will hereafter be explained with some measure of fullness, we cannot affix the stamp of approval to the judgment of the lower court; we reach a different conclusion. There is to our mind no sufficient showing of the unconstitutionality of the challenged act. We reverse. On August 3, 1959, Republic Act No. 2616 took effect without executive approval. It is therein provided: "The expropriation of the Tatalon Estate in Quezon City jointly owned by the J. M. Tuason and Company, Inc., Gregorio Araneta and Company, Inc., and Florencio Deudor, et al., is hereby authorized."6 As noted in the appealed decision:
The lands involved in this action, to which Republic Act No. 2616 refer and which constitute a certain portion of the Sta. Mesa Heights Subdivision, have a total area of about 109 hectares and are covered by Transfer Certificates of Title Nos. 42774 and 49235 of the Registry of Deeds of Rizal (Quezon City) registered in the name of petitioner.7

Thereafter, on November 15, 1960, respondent Land Tenure Administration was directed by the then Executive Secretary to institute the proceeding for the expropriation of the Tatalon Estate. Not losing any time, petitioner J.M. Tuason & Co., Inc. filed before the lower court on November 17, 1960 a special action for prohibition with preliminary injunction against respondents praying that the above act be declared unconstitutional, seeking in the meanwhile a preliminary injunction to restrain respondents from instituting such expropriation proceeding, thereafter to be made permanent after trial. The next day, on November 18, 1960, the lower court granted the prayer for the preliminary injunction upon the filing of a P20,000.00 bond. After trial, the lower court promulgated its decision on January 10, 1963 holding that Republic Act No. 2616 as amended is unconstitutional and granting the writ of prohibition prayed for. Hence this appeal by respondents, one we find meritorious. With the problem thus laid bare and with an exposition of the constitutional principles that compel a result different from that arrived at by the lower court, we cannot accept its holding that the statute thus assailed should be annulled. 1. Respondents would interpose two procedural bars sufficient in their opinion to preclude the lower court from passing on the question of validity.8 The first is the allegation that in effect this special

proceeding for prohibition is "actually a suit against the State, which is not allowed without its consent."9 The second would require, on the assumption that the suit could proceed, that the Executive Secretary, as the real party in interest, ought to have been impleaded. Neither objection suffices to preclude the lower court from passing upon the question of validity of the statute in question. As was held by this Court in the leading case of Angara v. Electoral Commission, 10 speaking through Justice Laurel, the power of judicial review is granted, if not expressly, at least by clear implication from the relevant provisions of the Constitution. 11 This power may be exercised when the party adversely affected by either a legislative or executive act, or a municipal ordinance for that matter, files the appropriate suit to test its validity. The special civil action of prohibition has been relied upon precisely to restrain the enforcement of what is alleged to be an unconstitutional statute. 12 As it is a fundamental postulate that the Constitution as the supreme law is binding on all governmental agencies, failure to observe the limitations found therein furnishes a sufficient ground for a declaration of the nullity of the governmental measure challenged. The argument then that the government is the adverse party and that therefore must consent to its being sued certainly is far from persuasive. Moreover, it is equally well-settled that for the purpose of thus obtaining a judicial declaration of nullity, it is enough if the respondents or defendants named be the government officials who would give operation and effect to official action allegedly tainted with unconstitutionality. As it cannot be denied that in 1959 the then Land Tenure Administration as well as the Solicitor General were called upon to enforce the statute now assailed, it would appear clear that the existence on the Executive Secretary being made a party lacks support in law. It would be then to set aside and disregard doctrines of unimpeachable authority if the plea of respondents on these procedural points raised were to meet an affirmative response. That we are not disposed to do. 2. Thus we reach the merits. It would appear, as noted at the outset, that for the purpose of deciding the question of validity squarely raised, a further inquiry into the scope of the constitutional power of Congress to authorize the expropriation of lands to be subdivided into small lots and conveyed at cost to individuals 13 is indicated, if for no other purpose than to attain a greater degree of clarity. The question is one then of constitutional construction. It is well to recall fundamentals. The primary task is one of ascertaining and thereafter assuring the realization of the purpose of the framers and of the people in the adoption of the Constitution. 14 We look to the language of the document itself in our search for its meaning. We do not of course stop there, but that is where we begin. It is to be assumed that the words in which constitutional provisions are couched express the objective sought to be attained. They are to be given their ordinary meaning except where technical terms are employed in which case the significance thus attached to them prevails. As the Constitution is not primarily a lawyer's document, it being essential for the rule of law to obtain that it should ever be present in the people's consciousness, its language as much as possible should be understood in the sense they have in common use. What it says according to the text of the provision to be construed compels acceptance and negates the power of the courts to alter it, based on the postulate that the framers and the people mean what they say. Thus there are cases where the need for construction is reduced to a minimum. This is one of them. It does not admit of doubt that the congressional power thus conferred is far from limited. It is left to the legislative will to determine what lands may be expropriated so that they could be subdivided for resale to those in need of them. Nor can it be doubted either that as to when such authority may be exercised is purely for Congress to decide. Its discretion on the matter is not to be interfered with. The language employed is not swathed in obscurity. The recognition of the

broad congressional competence is undeniable. The judiciary in the discharge of its task to enforce constitutional commands and prohibitions is denied the prerogative of curtailing its well-nigh allembracing sweep. Reference to the historical basis of this provision as reflected in the proceedings of the Constitutional Convention, two of the extrinsic aids to construction along with the contemporaneous understanding and the consideration of the consequences that flow from the interpretation under consideration, yields additional light on the matter. The opinion of Justice Tuason, in the Guido case did precisely that. It cited the speech of delegate Miguel Cuaderno, who, in speaking of large estates and trusts in perpetuity, stated: "There has been an impairment of public tranquility, and to be sure a continuous impairment of it, because of the existence of these conflicts. In our folklore the oppression and exploitation of the tenants are vividly referred to; their sufferings at the hand of the landlords are emotionally pictured in our drama; and even in the native movies and talkies of today, this theme of economic slavery has been touched upon. In official documents these same conflicts are narrated and exhaustively explained as a threat to social order and stability." 15 He invoked likewise what happened to the family of our national hero Jose Rizal: "But we should go to Rizal for inspiration and illumination in this problem of the conflicts between landlords and tenants. The national hero and his family were persecuted because of these same conflicts in Calamba, and Rizal himself met a martyr's death because of his exposal of the cause of the tenant class, because he would not close his eyes to oppression and persecution with his own people as victims." 16 Delegate Cuaderno closed with this appeal: "If we are to be true to our trust, if it is our purpose in drafting our constitution to insure domestic tranquility and to provide for the well-being of our people, we cannot, we must not fail to prohibit the ownership of large estates, to make it the duty of the government to break up existing large estates, and to provide for their acquisition by purchase or through expropriation and sale to their occupants, as has been provided in the Constitutions of Mexico and Jugoslavia." 17 The above address was delivered during the early days of the convention on August 21, 1934. 18 Subsequently, the day before the above constitutional provision was voted on January 29, 1935 he reiterated what was said by him in the above address. Thus: "Mr. President, this will be my last speech in the Convention. And I just want to remind the Convention of the first speech that I delivered the first speech I delivered before this Assembly. I believe, Mr. President, that one of the best provisions that this draft of the Constitution contains is this provision that will prevent the repetition of the history of misery, of trials and tribulations of the poor tenants throughout the length and breadth of the Philippine Islands." 19 This is not to say that such an appeal to history as disclosed by what could be accepted as the pronouncement that did influence the delegates to vote for such a grant of power could be utilized to restrict the scope thereof, considering the language employed. For what could be expropriated are "lands," not "landed estates." It is well to recall what Justice Laurel would impress on us, "historical discussion while valuable is not necessarily decisive." 20It is easy to understand why. The social and economic conditions are not static. They change with the times. To identify the text of a written constitution with the circumstances that inspired its inclusion may render it incapable of being responsive to future needs. Precisely, it is assumed to be one of the virtues of a written constitution that it suffices to govern the life of the people not only at the time of its framing but far into the indefinite future. It is not to be considered as so lacking in flexibility and suppleness that it may be a bar to measures, novel and unorthodox, as they may appear to some, but nonetheless imperatively called for. Otherwise it might expose itself to the risk of inability to survive in the face of complexities that time may bring in its wake.

It would thus be devoid of the character of permanency, which is the distinguishing mark of a constitution. Such was the conclusion deliberately arrived at after extensive discussion in the Constitutional Convention that the Constitution as adopted in 1935 would be good not only for the Commonwealth but for the Republic, with all the vicissitudes that time and circumstance would bring. Our people in signifying their adherence to the Constitution at the plebiscite thereafter held were of a similar persuasion. The continuing life of a constitution was stressed by one of the chief architects of the Constitution, Manuel A. Roxas, later to be the first President of the Republic. For him it is "the essence of such an instrument." 21 It was his view that the constitution to be adopted by the Constitutional Convention of 1934 would "have an indefinite life, will be permanent, subject of course, to revisions, amendments and other changes that may be adopted constitutionally." 22 That would be an assurance that constitutional guarantees "will be maintained, property rights will be safeguarded and individual rights maintained immaculate and sanctified. ..." 23 Another prominent delegate, Gregorio Perfecto, later a member of this Tribunal, aptly noted that the transitory character is essentially incompatible with the nature of laws, and necessarily so of a constitution, which is the supreme law of a people and therefore must be impressed with such attribute of permanency, much more than ordinary statutes passed under its authority. 24 It could thus be said of our Constitution as of the United States Constitution, to borrow from Chief Justice Marshall's pronouncement in M'Culloch v. Maryland 25 that it is "intended to endure for ages to come and consequently, to be adapted to the various crisis of human affairs." It cannot be looked upon as other than, in the language of another American jurist, Chief Justice Stone, "a continuing instrument of government." 26 Its framers were not visionaries, toying with speculations or theories, but men of affairs, at home in statecraft, laying down the foundations of a government which can make effective and operative all the powers conferred or assumed, with the corresponding restrictions to secure individual rights and, anticipating, subject to the limitations of human foresight, the problems that events to come in the distant days ahead will bring. Thus a constitution, to quote from Justice Cardozo, "state or ought to state not rules for the passing hour, but principles for an expanding future." 27 To that primordial intent, all else is subordinated. Our Constitution, any constitution, is not to be construed narrowly or pedantically, for the prescriptions therein contained, to paraphrase Justice Holmes, are not mathematical formulas having their essence in their form, but are organic living institutions, the significance of which is vital nor formal. There must be an awareness, as with Justice Brandeis, not only of what has been, but of what may be. The words employed by it are not to be construed to yield fixed and rigid answers but as impressed with the necessary attributes of flexibility and accommodation to enable them to meet adequately whatever problems the future has in store. It is not, in brief, a printed finality but a dynamic process. 3. The conclusion is difficult to resist that the text of the constitutional provision in question, its historical background as noted in pronouncements in the Constitutional Convention and the inexonerable need for the Constitution to have the capacity for growth and ever be adaptable to changing social and economic conditions all argue against its restrictive construction. Such an approach was reflected succinctly in the dissenting opinion of Justice J.B.L. Reyes, concurred in by the present Chief Justice, in the Baylosis case. We find it persuasive. His dissenting opinion opens thus: "I am constrained to dissent from the opinion of the majority. The reasons set forth by it against the validity of the proposed expropriation strike me as arguments against the expropriation policies adopted by the government rather than reasons against the existence and application of the condemnation power in the present case." 28 Then he stated: "The propriety of exercising the power of eminent domain under Article XIII, section 4 of our Constitution

can not be determined on a purely quantitative or area basis. Not only does the constitutional provision speak of lands instead of landed estates, but I see no cogent reason why the government, in its quest for social justice and peace, should exclusively devote attention to conflicts of large proportions, involving a considerable number of individuals, and eschew small controversies and wait until they grow into a major problem before taking remedial action." 29 As to the role of the courts in the appraisal of the congressional implementation of such a power, he had this to say: "The Constitution considered the small individual land tenure to be so important to the maintenance of peace and order and to the promotion of progress and the general welfare that it not only provided for the expropriation and subdivision of lands but also opened the way for the limitation of private landholdings (Art. XIII, section 3). It is not for this Court to judge the worth of these and other social and economic policies expressed by the Constitution; our duty is to conform to such policies and not to block their realization." 30 The above dissent, as well as that penned by the then Chief Justice Paras with whom the then Justice Pablo was in agreement, with Justice Alex Reyes writing a concurring opinion, resulted in that the main opinion of Justice Montemayor, while prevailing, failed to elicit the necessary majority vote of six. If for that reason alone re-examination would not appear to be inappropriate. Moreover, it could not be considered as controlling the present suit, in view of the fact that the exercise of the congressional authority to expropriate land was not direct as in this case but carried out in pursuance of the statutory authority conferred on the President under Commonwealth Act No. 539. The absence of any controlling force of such prevailing opinion can likewise be predicated on facts which would differentiate the present situation from that found in the Baylosis case. Thus Justice Montemayor noted: "The evidence shows that both Sinclair and Cirilo P. Baylosis at one time were willing to sell to some of the tenants and occupants herein involved under certain conditions and provided that they buy in groups, presumably to avoid subdivisions and the problem of dealing with many individual buyers, but the tenants failed to buy. Naturally, they may not now compel Sinclair and Cirilo P. Baylosis to sell to them through the Government by means of expropriation. Besides, the bulk of the lands that Sinclair and Cirilo P. Baylosis had formerly offered to them for sale which offer they failed to take advantage of, has now been sold to others, the other co-defendants herein, in small lots." 31 Likewise, it was noted by him: "There is another point that merits consideration. The defendants claim and correctly that many of the tenants and occupants now insisting on expropriation have lands of their own." 32 The more fundamental reason though why we find ourselves unable to yield deference to such opinion of Justice Montemayor, well-written and tightly-reasoned as it is, is its undue stress on property rights. It thus appears then that it failed to take into account the greater awareness exhibited by the framers of our Constitution of the social forces at work when they drafted the fundamental law. To be more specific, they were seriously concerned with the grave problems of inequality of wealth, with its highly divisive tendency, resulting in the generous scope accorded the police power and eminent domain prerogatives of the state, even if the exercise thereof would cover terrain previously thought of as beyond state control, to promote social justice and the general welfare. This is not to say of course that property rights are disregarded. This is merely to emphasize that the philosophy of our Constitution embodying as it does what Justice Laurel referred to as its "nationalistic and socialist traits discoverable upon even a sudden dip into a variety of [its] provisions" although not extending as far as the "destruction or annihilation" of the rights to property, 33 negates the postulate which at one time reigned supreme in American constitutional law as to their well-nigh inviolable character. This is not so under our Constitution, which rejects the doctrine of laissez faire with its abhorrence for the least interference with the autonomy supposed to

be enjoyed by the property owner. Laissez faire, as Justice Malcolm pointed out as far back as 1919, did not take too firm a foothold in our jurisprudence. 34 Our Constitution is much more explicit. There is no room for it for Laissez faire. So Justice Laurel affirmed not only in the above opinion but in another concurring opinion quoted with approval in at least two of our subsequent decisions. 35 We had occasion to reiterate such a view in the ACCFA case, decided barely two months ago. 36 This particular grant of authority to Congress authorizing the expropriation of land is a clear manifestation of such a policy that finds expression in our fundamental law. So is the social justice principle enshrined in the Constitution of which it is an expression, as so clearly pointed out in the respective dissenting opinions of Justice J.B.L. Reyes and Chief Justice Paras in the Baylosis case. Why it should be thus is so plausibly set forth in the ACCFA decision, the opinion being penned by Justice Makalintal. We quote: "The growing complexities of modern society, however, have rendered this traditional classification of the functions of government quite unrealistic, not to say absolute. The areas which used to be left to private enterprise and initiative and which the government was 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 to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times. Here as almost everywhere else the tendency is undoubtedly towards a greater socialization of economic forces. Here of course this development was envisioned, indeed adopted as a national policy, by the Constitution itself in its declaration of principle concerning the promotion of social justice." It would thus appear that the prevailing opinion in the Baylosis case is far from compelling. To the extent that the conclusion reached by us in this suit proceeds from a different reading of the constitutional provision in question, it must be deemed as being possessed of less than decisive weight. 4. There need be no fear that such constitutional grant of power to expropriate lands is without limit. As in the case of the more general provision on eminent domain, there is the explicit requirement of the payment of just compensation. 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. There must be a consideration then of all the facts which make it commercially valuable. The question is what would be obtained for it on the market from parties who want to buy and would give full value. Testimonies as to real estate transactions in the vicinity are admissible. It must be shown though that the property as to use must be of similar character to the one sought to be condemned. The transaction must likewise be coeval as to time. To the market value must be added the consequential damages, if any, minus the consequential benefits. The assessed value of real property while constituting prima facie evidence of its value in case of condemnation proceedings is not conclusive. 37 Then, too, it is a prerequisite for the valid exercise of such a congressional power that the taking be for the public use. To quote from the Guido decision: "It has been truly said that the assertion of the right on the part of the legislature to take the property of one citizen and transfer it to another, even for a full compensation, when the public interest is not promoted thereby, is claiming a despotic power, and one inconsistent with every just principle and fundamental maxim of a free government." 38 It is on that account that we granted prohibition to restrain respondent Rural Progress Administration from proceeding with the expropriation of petitioner's land, two adjoining lots, part commercial with a combined area of slightly more than two hectares. As was stressed by

Justice Tuason in his opinion: "No fixed line of demarcation between what taking is for public use and what is not can be made; each case has to be judged according to its peculiar circumstances. It suffices to say for the purpose of this decision that the case under consideration is far wanting in those elements which make for public convenience or public use." 39 Such is not the situation before us now. Nor are we disposed to dispute the legislative appraisal of the matter. 5. The failure to meet the exacting standard of due process would likewise constitute a valid objection to the exercise of this congressional power. That was so intimated in the above leading Guido case. There was an earlier pronouncement to that effect in a decision rendered long before the adoption of the Constitution under the previous organic law then in force, while the Philippines was still an unincorporated territory of the United States.40 It is obvious then that a landowner is covered by the mantle of protection due process affords. It is a mandate of reason. It frowns on arbitrariness, it is the anti-thesis 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 embody 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.41 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, . ... ." 42 It is easily understandable then why the expropriation of lots less than one hectare in City of Manila v. Arellano Law College, 43 Lee Tay v. Choco 44 and Republic vs. Samia 45 and of lots less than two hectares in Commonwealth v. De Borja 46 and Republic v. Prieto 47 was not given the sanction of approval by this Court, the failure to meet the due process requirement being quite evident. 6. It is primarily the equal protection guaranty though that petitioner's case is made to rest. The Constitution requires that no person be denied "the equal protection of the laws." 48 A juridical being is included within its terms. The assumption underlying such a guaranty is that a legal norm, whether embodied in a rule, principle, or standard, constitutes a defense against anarchy at one extreme and tyranny at the other. Thereby, people living together in a community with its myriad and complex problems can minimize the friction and reduce the conflicts, to assure, at the very least, a peaceful ordering of existence. The ideal situation is for the law's benefits to be available to all, that none be placed outside the sphere of its coverage. Only thus could chance and favor be excluded and the affairs of men governed by that serene and impartial uniformity, which is of the very essence of the idea of law. The actual, given things as they are and likely to continue to be, cannot approximate the ideal. Nor is the law susceptible to the reproach that it does not take into account the realities of the situation. The constitutional guaranty then is not to be given a meaning that disregards what is, what does in fact exist. 49 To assure that the general welfare be promoted, which is the end of law, a regulatory measure may cut into the rights to liberty and property. Those adversely affected may under such circumstances invoke the equal protection clause only if they can show that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. . 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. Favoritism and undue

preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumstances, which if not identical are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest. It is precisely because the challenged statute applies only to petitioner that he could assert a denial of equal protection. As set forth in its brief: "Republic Act No. 2616 is directed solely against appellee and for this reason violates the equal protection clause of the Constitution. Unlike other laws which confer authority to expropriate landed estates in general, it singles out the Tatalon Estate. It cannot be said, therefore, that it deals equally with other lands in Quezon City or elsewhere." 50 With due recognition then of the Power of Congress to designate the particular property to be taken and how much thereof may be condemned in the exercise of the power of expropriation, it is still a judicial question whether in the exercise of such competence, the party adversely affected is the victim of partiality and prejudice. That the equal protection clause will not allow. The judiciary can look into the facts then, no conclusiveness being attached to a determination of such character when reliance is had either to the due process clause which is a barrier against arbitrariness and oppressiveness and the equal protection guaranty which is an obstacle to invidious discrimination. We start of course with the presumption of validity, the doubts being resolved in favor of the challenged enactment. 51 As this is the first statute of its kind assailed, we should not stop our inquiry there. The occasion that called for such legislation, if known, goes far in meeting any serious constitutional objection raised. We turn to the Explanatory Note of the bill, 52 which was enacted into the challenged statute. It started with the declaration that it provides for the "expropriation of the Tatalon Estate, Quezon City, and for the sale at cost of the lots therein to their present bona fide occupants, authorizing therefor the appropriation of ten million pesos." Then it continued: "The Tatalon Estate has an area of more than ninety six hectares and the lots therein are at present occupied by no less than one thousand five hundred heads of families, most of whom are veterans of World War II. It is the earnest desire of this group of patriotic and loyal citizens to purchase the lots at a minimum cost." Why there was such a need for expropriation was next taken up: "The population of Quezon City has considerably increased. This increase in population is posing a serious housing problem to city residents. This bill will not only solve the problem but will also implement the land-for-the-landless program of the present Administration." What other facts are there which would remove the alleged infirmity of the statute on equal protection grounds? The brief for respondents invited our attention to the social problem which this legislation was intended to remedy. Thus: "There is a vital point which should have great weight in the decision of this case. The petitioner led the occupants of Tatalon Estate to believe that they were dealing with the representatives of the real owners, the Veterans Subdivision, in the purchase of their lots. The occupants believed in good faith that they were dealing with the representatives of the owners of the lots. This belief was bolstered by the fact that the petitioners herein even entered into a compromise agreement on March 16, 1953 with the Deudors, agreeing to give the latter millions of pesos in settlement of their claim over the Tatalon Estate. The occupants, therefore, purchased their respective portions from the Veterans Subdivision in good faith. The petitioner allowed the Veterans Subdivision to construct roads in the Tatalon Estate; it allowed said firm to establish an office in the Tatalon Estate and to advertise the sale of the lots inside the Tatalon Estate. Petitioner admits having full knowledge of the activities of the Veterans Subdivision and yet did not lift a finger to stop said acts. The occupants paid good money for their lots and spent fortunes to build their homes. It was after the place has been improved with the building of the roads and the erection of substantial residential homes that petitioner stepped into the picture, claiming for the first time that it is the owner of the Tatalon Estate. Some of the occupants had erected their houses as early as 1947 and 1948. ..." 53

The cutting edge of the above assertions could have been blunted by the brief for petitioner. This is all it did say on the matter though: "Appellants alleged that appellee 'led the occupants of Tatalon Estate to believe that they were dealing with the representatives of the real owners, the Veterans Subdivision, in the purchase of their lots' ... . There is absolutely no evidence on record to establish this ludicrous allegation." 54 Only the alleged duplicity of petitioner was denied, leaving unanswered the rather persuasive recital of conditions that could rightly motivate Congress to act as it did. Clearly, there is no sufficient refutation of the seriousness of the problem thus underscored by respondents, the solution of which is the aim of the statute now under attack. This is not to deny that whenever Congress points to a particular piece of property to be expropriated, it is faced with a more serious scrutiny as to its power to act in the premises. It would require though a clear and palpable showing of its having singled out a party to bear the brunt of governmental authority that may be legitimately exerted, induced, it would appear by a feeling of disapproval or ill-will to make out a case of this guaranty having been disregarded. If such were the case, then in the language of Justice Laurel, it "will be the time to make the [judicial] hammer fall and heavily. But not until then." 55 The most careful study of the matter before us however yields the conclusion that petitioner was unable to sustain the burden of demonstrating a denial of equal protection. Moreover, there is nothing to prevent Congress in view of the public funds at its disposal to follow a system of priorities. It could thus determine what lands would first be the subject of expropriation. This it did under the challenged legislative act. As already noted, Congress was moved to act in view of what it considered a serious social and economic problem. The solution which for it was the most acceptable was the authorization of the expropriation of the Tatalon Estate. So it provided under the statute in question. It was confronted with a situation that called for correction, and the legislation that was the result of its deliberation sought to apply the necessary palliative. That it stopped short of possibly attaining the cure of other analogous ills certainly does not stigmatize its effort as a denial of equal protection. We have given our sanction to the principle underlying the exercise of police power and taxation, but certainly not excluding eminent domain, that "the legislature is not required by the Constitution to adhere to the policy of "all or none". 56 Thus, to reiterate, the invocation by petitioner of equal protection clause is not attended with success. 7. The other points raised may be briefly disposed of. Much is made of what the lower court considered to be the inaccuracy apparent on the face of the challenged statute as to the ownership of the Tatalon Estate. It could very well be that Congress ought to have taken greater pains to avoid such imprecision. At any rate, the lower court, unduly alarmed, would consider it a deprivation of property without due process of law. 57 Such a fear is unwarranted. In the course of the expropriation proceedings, there undoubtedly would be a judicial determination as to the party entitled to the just compensation. As of now then, such a question would appear at the very least to be premature. Reference is likewise made as to the effect of the authorized expropriation on those purchasers of lots located in the Tatalon Estate. Again, on the occasion of the expropriation, whatever contractual rights might he possessed by vendors and vendees could be asserted and accorded the appropriate constitutional protection. 8. What appears undeniable is that in the light of the broad grant of congressional power so apparent from the text of the constitutional provision, the historical background as made clear during the deliberation for the Constitutional Convention, and the cardinal postulate underlying constitutional construction that its provisions are not to be interpreted to preclude their being responsive to future needs, the fundamental law being intended to govern the life of a nation as it unfolds through the ages, the challenged statute can survive the test of validity. If it were otherwise, then the judiciary may lend itself susceptible to the charge that in its appraisal of governmental measures with social and economic implications, its decisions are characterized by the narrow, unyielding insistence on the primacy of property rights, contrary to what the Constitution ordains. In

no other sphere of judicial activity are judges called upon to transcend personal predilections and private notions of policy, lest legislation intended to bring to fruition the hope of a better life for the great masses of our people, as embodied in the social justice principle of which this constitutional provision under scrutiny is a manifestation, be unjustifiably stricken down. The appealed decision cannot stand. WHEREFORE, the decision of the lower court of January 10, 1963 holding that Republic Act No. 2616 as amended by Republic Act No. 3453 is unconstitutional is reversed. The writ of prohibition suit is denied, and the preliminary injunction issued by the lower court set aside. With costs against petitioner.

G.R. No. 72126 January 29, 1988 MUNICIPALITY OF MEYCAUAYAN, BULACAN, HON. ADRIANO D. DAEZ, MUNICIPAL MAYOR, MEYCAUAYAN, BULACAN, petitioners, vs. INTERMEDIATE APPELLATE COURT and PHILIPPINE PIPES & MERCHANDIZING CORPORATION,respondents.

GUTIERREZ, JR., J.: This is a petition for review on certiorari of the resolution dated April 24,1985 by the former Intermediate Appellate Court, now Court of Appeals, setting aside its earlier decision dated January 10, 1985 and dismissing the special civil action for expropriation filed by the petitioner. In 1975, respondent Philippine Pipes and Merchandising Corporation filed with the Office of the Municipal Mayor of Meycauayan, Bulacan, an application for a permit to fence a parcel of land with a width of 26.8 meters and a length of 184.37 meters covered by Transfer Certificates of Title Nos. 215165 and 37879. The fencing of said property was allegedly to enable the storage of the respondent's heavy equipment and various finished products such as large diameter steel pipes, pontoon pipes for ports, wharves, and harbors, bridge components, pre-stressed girders and piles, large diameter concrete pipes, and parts for low cost housing. In the same year, the Municipal Council of Meycauayan, headed by then Mayor Celso R. Legaspi, passed Resolution No. 258, Series of 1975, manifesting the intention to expropriate the respondent's parcel of land covered by Transfer Certificate of Title No. 37879. An opposition to the resolution was filed by the respondent with the Office of the Provincial Governor, which, in turn, created a special committee of four members to investigate the matter. On March 10, 1976, the Special Committee recommended that the Provincial Board of Bulacan disapprove or annul the resolution in question because there was no genuine necessity for the Municipality of Meycauayan to expropriate the respondent's property for use as a public road. On the basis of this report, the Provincial Board of Bulacan passed Resolution No. 238, Series of 1976, disapproving and annulling Resolution No. 258, Series of 1975, of the Municipal Council of

Meycauayan. The respondent, then, reiterated to the Office of the Mayor its petition for the approval of the permit to fence the aforesaid parcels of land. On October 21, 1983, however, the Municipal Council of Meycauayan, now headed by Mayor Adriano D. Daez, passed Resolution No. 21, Series of 1983, for the purpose of expropriating anew the respondent's land. The Provincial Board of Bulacan approved the aforesaid resolution on January 25, 1984. Thereafter, the petitioner, on February 14, 1984, filed with the Regional Trial Court of Malolos, Bulacan, Branch VI, a special civil action for expropriation. Upon deposit of the amount of P24,025.00, which is the market value of the land, with the Philippine National Bank, the trial court on March 1, 1984 issued a writ of possession in favor of the petitioner. On August 27, 1984, the trial court issued an order declaring the taking of the property as lawful and appointing the Provincial Assessor of Bulacan as court commissioner who shall hold the hearing to ascertain the just compensation for the property. The respondent went to the Intermediate Appellate Court on petition for review. On January 10, 1985, the appellate court affirmed the trial court's decision. However, upon motion for reconsideration by the respondent, the decision was re-examined and reversed. The appellate court held that there is no genuine necessity to expropriate the land for use as a public road as there were several other roads for the same purpose and another more appropriate lot for the proposed public road. The court, taking into consideration the location and size of the land, also opined that the land is more Ideal for use as storage area for respondent's heavy equipment and finished products. After its motion for reconsideration was denied, the petitioner went to this Court on petition for review on certiorari on October 25, 1985, with the following arguments: Petitioners most respectfully submit that respondent Court has decided a question of substance not in accord with law or with applicable decisions of this Honorable Supreme Court; that the judgment is based on a misapprehension of facts and the conclusion is a finding grounded entirely on speculation, surmises, and conjectures, because: a. It concluded, that by dismissing the complaint for expropriation the existence of legal and factual circumstance of grave abuse of discretion amounting to lack of jurisdiction committed by the respondent Judge without any shred of evidence at all contrary to the law on evidence; b. It concluded, in its decision that respondent Philippine Pipes and Merchandising Corporation has no need of the property sought to be condemned on the use to which it is devoted as a private road but allegedly for storage contrary to the allegations of respondent Philippine Pipes and Merchandising Corporation itself; c. It anchored its decision on factual situations obtaining a long, long time ago without regard to the relatively present situation now obtaining. (Rollo, pp. 8-9) In refuting the petitioner's arguments, the private respondent contends that this Court may only resolve questions of law and not questions of fact such as those which the petitioner puts in issue in

this case. The respondent further argues that this Court may not also interfere with an action of the Court of Appeals which involves the exercise of discretion. We agree with the respondent. The jurisdiction of this Court in cases brought to us from the Court of Appeals is limited to the review of errors of law (Rizal Cement Co., Inc. v. Villareal, 135 SCRA 15, 24), factual issues not being proper in certiorari proceedings (See Ygay et al. v. Hon. Escareal et al., 135 SCRA 78, 82). This Court reviews and rectifies the findings of fact of the Court of Appeals only under certain established exceptions such as: (1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd and impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and (5) when the court, in making its finding, went beyond the issues of the case and the same is contrary to the admissions of both the appellant and the appellee (Moran, Jr. v. Court of Appeals, 133 SCRA 88). None of the exceptions warranting non-application of the rule is present in this case. On the contrary, we find that the appellate court's decision is supported by substantial evidence. The petitioner's purpose in expropriating the respondent's property is to convert the same into a public road which would provide a connecting link between Malhacan Road and Bulac Road in Valenzuela, Bulacan and thereby ease the traffic in the area of vehicles coming from MacArthur Highway. The records, however, reveals that there are other connecting links between the aforementioned roads. The petitioner itself admits that there are four such cross roads in existence. The respondent court stated that with the proposed road, there would be seven. Appreciating the evidence presented before it, with particular emphasis on the Special Committee's report dated March 10, 1976, the Court of Appeals declared: xxx xxx xxx FACTS ESTABLISHED ON OCULAR INSPECTION In the ocular inspection, the following facts came into the limelight: (1) The property in question of the Philippine Pipes and Merchandazing Corporation intended to be expropriated by the Municipality of Meycauayan is embraced under Transfer Certificate of Title No. 37879 and is a private road of the company used in the conduct and operation of its business, with the inhabitation in nearby premises tolerated to pass the same. It extends from Bulac Road to the south, to Malhacan Road on the north, with a width of about 6 to 7 meters, more or less. (2) Adjoining this private road on the eastern side, is a vacant property also belonging to the Philippine Pipes and Merchandising Corporation and extending also from Bulac Road to Malhacan Road, with a high wall along the property line on the east side thereof serving as a fence.

(3) Opposite the private road, after crossing Bulac Road, is the gate of the factory of the Philippine Pipes and Merchandising Corporation. (4) From the private road of the firm on the eastern direction about 30 to 40 meters distance are subdivision roads of an existing subdivision with a width of 6 to 7 meters, more or less, running parallel to the said private road of the firm and likewise extending from Bulac Road to Malhacan Road. Whether said subdivision roads had already been donated to the municipality is not known. (5) On the western side of the private road is a vacant lot with an area of l6,071 square meters offered for sale by its owner extending also from Bulac Road to Malhacan Road. (6) Bulac road, a municipal road with a width of about 6 to 7 meters and all the nearby subdivision roads are obviously very poorly developed and maintained, and are in dire need of repair. Like the Malhacan Road, Bulac road extends from the McArthur Highway with exit to North Diversion Road. xxx xxx xxx The Sketch Plan (Rollo, p. 26 or p. 97) clearly and conclusively shows that petitioner does not need this strip of land as a private road. The Sketch Plan clearly shows that petitioner's factory site is adjacent to Bulac Road which has a width of about seven meters, more or less. Petitioner can use Bulac Road in reaching McArthur Highway on the west or in reaching the Manila North Expressway on the east for the purpose of transporting its products. Petitioner does not need to go to Malhacan Road via this so-called private road before going to McArthur Highway or to the Manila North Expressway. Why should petitioner go first to Malhacan Road via this so called "private road" before going to McArthur Highway or to the Manila North Expressway when taking the Bulac Road in going to McArthur Highway or to the Manila North Expressway is more direct, nearer and more advantageous. Hence, it is beyond doubt that petitioner acquired this strip of land for the storage of its heavy equipments and various finished products and for growth and expansion and never to use it as a private road. This is the very reason why petitioner filed an application with the Office of the Municipal Mayor of Meycauayan, Bulacan to fence with hollow blocks this strip of land. Third, We will determine whether there is a genuine necessity to expropriate this strip of land for use as a public road. We hereby quote a relevant part of the Special Committee's Report dated March 10, 1976, which is as follows: OBSERVATION OF COMMITTEE From the foregoing facts, it appears obvious to this Special Committee that there is no genuine necessity for the Municipality of' Meycauayan to expropriate the aforesaid property of the Philippine Pipes and Merchandising Corporation for use as a public road. Considering that in the vicinity there are other available road and vacant lot offered for sale situated similarly as the lot in question and lying Idle, unlike the lot sought to be expropriated which was found by the Committee to be badly needed by the company as a site for its heavy equipment after it is fenced together with the

adjoining vacant lot, the justification to condemn the same does not appear to be very imperative and necessary and would only cause unjustified damage to the firm. The desire of the Municipality of Meycauayan to build a public road to decongest the volume of traffic can be fully and better attained by acquiring the other available roads in the vicinity maybe at lesser costs without causing harm to an establishment doing legitimate business therein. Or, the municipality may seek to expropriate a portion of the vacant lot also in the vicinity offered for sale for a wider public road to attain decongest (sic) of traffic because as observed by the Committee, the lot of the Corporation sought to be taken will only accommodate a one-way traffic lane and therefore, will not suffice to improve and decongest the flow of traffic and pedestrians in the Malhacan area. ... xxx xxx xxx It must be noted that this strip of land covered by Transfer Certificates of Titles Nos. 215165 and 37879 were acquired by petitioner from Dr. Villacorta. The lot for sale and lying Idle with an area of 16,071 square meter which is adjacent and on the western side of the aforesaid strip of land and extends likewise from Bulac Road to Malhacan Road belongs also to Dr. Villacorta. This lot for sale and lying Idle is most Ideal for use as a public road because it is more than three (3) times wider that the said strip of land. xxx xxx xxx xxx xxx xxx Since there is another lot ready for sale and lying Idle, adjacent and on the western side of the strip of land, and extending also from Malhacan Road to Bulac Road and most Ideal for a public road because it is very much wider than the lot sought to be expropriated, it seems that it is more just, fair, and reasonable if this lot is the one to be expropriated. (Rollo, pp. 22-26) The petitioner objects to the appellate court's findings contending that they were based on facts obtaining long before the present action to expropriate took place. We note, however, that there is no evidence on record which shows a change in the factual circumstances of the case. There is no showing that some of the six other available cross roads have been closed or that the private roads in the subdivision may not be used for municipal purposes. What is more likely is that these roads have already been turned over to the government. The petitioner alleges that surely the environmental progress during the span of seven years between the first and second attempts to expropriate has brought about a change in the facts of the case. This allegation does not merit consideration absent a showing of concrete evidence attesting to it. There is no question here as to the right of the State to take private property for public use upon payment of just compensation. What is questioned is the existence of a genuine necessity therefor. As early as City of Manila v. Chinese Community of Manila (40 Phil. 349) this Court held that the foundation of the right to exercise the power of eminent domain is genuine necessity and that necessity must be of a public character. Condemnation of private property is justified only if it is for the public good and there is a genuine necessity of a public character. Consequently, the courts have the power to inquire into the legality of the exercise of the right of eminent domain and to determine whether there is a genuine necessity therefor (Republic v. La Orden de PP. Benedictos de Filipinas, 1 SCRA 646; J.M. Tuason & Co., Inc. v. Land Tenure Administration, 31 SCRA 413).

In the recent case of De Knecht v. Bautista, (100 SCRA 660) this court further ruled that the government may not capriciously choose what private property should be taken. Citing the case of J.M. Tuason & Co., Inc. v. Land Tenure Administration (supra), the Court held: ... With due recognition then of the power of Congress to designate the particular property to be taken and how much thereof may be condemned in the exercise of the power of expropriation, it is still a judicial question whether in the exercise of such competence, the party adversely affected is the victim of partiality and prejudice. That the equal protection clause will not allow. (At p. 436) There is absolutely no showing in the petition why the more appropriate lot for the proposed road which was offered for sale has not been the subject of the petitioner's attempt to expropriate assuming there is a real need for another connecting road. WHEREFORE, the petition is hereby DISMISSED for lack of merit. The questioned resolution of the respondent court is AFFIRMED. SO ORDERED.

G.R. No. 44142 December 24, 1938 VICENTE NOBLE, plaintiff-appellee, vs. CITY OF MANILA, defendant-appellant. City Fiscal Felix for appellant. Eusebio Orense for appellee.

AVANCEA, C.J.: Under a contract entered into between Jose Syquia and the City of Manila on October 18, 1926, the former constructed on a piece of land of the latter on Tayuman Street, Tondo, Manila, a school building, containing twenty compartments, pursuant to the instructions, specifications and conditions imposed by the city. The contract contains the following two clauses: Mr. Syquia shall lease the building to the City, after the construction thereof, for a period of not more than three years, at a monthly rental of P600, payable within the first five days of every month following. The City shall buy the building from Mr. Syquia within three years from the occupancy thereof for P46,600.
lawphil.net

On April 13, 1927, this contract was amended in part by the following clauses: (c) That the contractor shall lease the building to the City of Manila for a period of not more than three (3) years and for a monthly rent of not more than P30 per room: Provided,

however, That the City of Manila, in turn, shall lease to the contractor for the same period of not more than three years, the land of the City on which the building is to be constructed, for the nominal price of one peso a month; and (d) That the City of Manila shall buy the school building within the said period of three (3) years according to the price stipulated in the contract: Provided, however, That, if at the end of three years, the City of Manila, for any reason, shall be unable to pay the stipulated sales price, the contract of lease of the land and of the building Annex shall be deemed extended for the same period, and so on successively. The terms and conditions of the contract of October 18, 1926 are kept alive and confirmed, as forming a part of this amended contract, except as it is incompatible therewith. On May 13th following, with the conformity of the city in consideration of the amount of P40,000, Syquia conveyed to Lutgarda Sandoval all his right, title and interest or participation in the building, as well as all his right, title or participation in the contract of lease thereof with the city under the stipulated conditions. On July 22, 1927, also with the conformity of the city, Lutgarda Sandoval, in consideration of the same sum of P40,000, transferred the same building to Vicente Noble, with all her right, interest or participation in the contract of lease thereof with the city under the same stipulated conditions. Under the terms of these transfers, all the rights of Syquia flowing from his contract with the city, were fully transferred, first, to Sandoval, and, thereafter, to Noble. After the construction of the building, the City of Manila occupied it in accordance with the contract, paying its monthly rental of P600. On March 21, 1933, the then mayor of the city, Tomas Earnshaw, proposed to Vicente Noble that, in order to comply with the rules of accounting then existing, the contract be amended in the sense that, the lease be made renewable every year, instead of every three years (Exhibit 1), and for this purpose it was agreed, by the document Exhibit J, that it be renewable from year to year until the leased building is purchased in accordance with the original contract of July 22, 1927. The City of Manila failed to pay the stipulated rent corresponding to the month of February, 1934, and following, whereupon Vicente Noble, on April 10, 1934, filed the complaint which gave rise to this case, wherein he asks that the city be ordered to purchase the building for the price of P46,600, with legal interest thereon from the filing of the complaint, and to pay the rentals at the rate of P600 a month, corresponding to the month of February, 1934 and following, until the purchase of the building is effected and the price thereof paid. In this answer, the defendant City of Manila after admitting some allegations of the complaint and denying others, prayed by way of cross-complaint that the lease of the building by the city be rescinded and set aside and that the same be expropriated. After the filing of the complaint and the answer, the court, upon petition of the defendant and by virtue of the cross-complaint, ordered, on June 11, 1934, that, upon the deposit of the amount of P46,000 by the defendant, the latter take immediate possession of the building for the purpose of the expropriation thereof, convoking and hearing the parties on the appointment of the commissioners to appraise the building. A reconsideration of this resolution was asked before it became final, as a result of which, the court, then presided over by another judge, reconsidered the order of June 11, 1934, setting the same aside and denying the petition for the appointment of commissioners on

appraisal. The reconsideration of this order was also sought, and it was agreed that the same be resolved when the case is decided on the merits. On April 25, 1935, the court rendered its decision declaring that the City of Manila has no right to expropriate the building and that it should comply with the terms of the contract of October 18, 1926, and to pay to the plaintiff, for the price of the building, the sum of P46,000, plus the rentals thereof, corresponding to the month of February, 1934 and following, until the final and absolute conveyance of the building is made, with legal interest on the rentals due an unpaid. According to the original contract of October 18, 1926 under the clauses above-quoted, the city had to buy the building within three years, or to lease it within the same period of time. The purchase constituted the principal consideration with respect to Syquia, the lease being merely secondary because it was to subsist only while the purchase has not been effected, but once this is effected, necessarily it has to cease. If the purchase is not made after the three years, the lease has to cease just the same, but then Syquia would be entitled to demand that the city comply with its obligation to buy the building. Consequently, it may be stated that the purchase of the building by the city was the principal consideration which prompted its construction. When that original contract was amended on April 13, 1927, as to the clauses also above-quoted, it was agreed that the period of the lease, instead of three years, be extended every three years in advance, if the city, within the first three years, is not in a position to pay the purchase price. The only express amendment in this second contract is the extension of the period of the lease and the elimination of the obligation of the city to have to buy the building within the first three years. The original contract is deemed amended only in these respects, leaving in force its other conditions except as they are incompatible with the amendment. In this sense we say that the period within which the city should buy the building, under the old contract, has been amended. But there is no inconsistency between the extension of the period of the lease and the obligation itself of the city to purchase the building, contracted by it when the original contract was entered into. We conclude that, despite the amendment of the original contract, the obligation of the city to purchase the building was kept alive, although not necessarily within the first three years of its occupancy. The defendant itself has acknowledged this obligation on March 21, 1933 in Exhibit J, wherein it was stated that the lease was renewable from year to year until the leased building is purchased pursuant to the original contract of July 22, 1927. The contract, therefore, in so far as it refers to the purchase of the building, as we have interpreted it, is in force, not having been revoked by the parties or by judicial decision. This being the case, the city being bound to buy the building at an agreed price, under a valid and subsisting contract, and the plaintiff being agreeable to its sale, the expropriation thereof, as sought by the defendant, is baseless. Expropriation lies only when it is made necessary by the opposition of the owner to the sale or by the lack of any agreement as to the price. There being in the present case a valid and subsisting contract, between the owner of the building and the city, for the purchase thereof at an agreed price, there is no reason for the expropriation. Expropriation, as a manifestation of the right of eminent domain of the state and as a limitation upon private ownership, is based upon the consideration that it should not be an obstacle to human progress and to the development of the general welfare of the community. In the circumstances of the present case, however, the expropriation would depart from its own purposes and turn out to be an instrument to repudiate compliance with obligations legally and validly contracted. It is said that the contract should be rescinded as unfair and against morals, not because it was so when it was entered into, but because after what has already been paid by way of rentals for the lease, if the sale is now made, the same would be excessively favorable to the plaintiff and

prejudicial to the defendant. But if this state of things is the result of too much delay in effecting the purchase, this is attributable to the defendant itself, for it was up to it entirely to make the purchase at any time since the contract was entered into. Moreover, the fact that a contract turns out to be more favorable to a party than to another does not of itself constitute a legal ground to set aside the contract. At any rate, the evidence shows that, at the price of P46,600 the sale would not give the plaintiff more than 12 per cent profit, more or less, on his invested capital, which cannot be considered as excessive. As the defendant has abandoned the lease, we concur in the conclusion of the court that it is bound, under its contract with the predecessors in interest of the plaintiff, to purchase the building for P46,600 and that it is not entitled to the expropriation proceedings. This conclusion resolves the other errors assigned on his appeal. Wherefore, we affirm the appealed judgment, with the costs to the appellant. So ordered.

U.S. Supreme Court


Contributors to Pennsylvania Hospital v. Philadelphia, 245 U.S. 20 (1917)
Contributors to Pennsylvania Hospital v. City of Philadelphia No. 349 Argued October 16, 1917 Decided November 5, 1917 245 U.S. 20 ERROR TO THE SUPREME COURT OF THE STATE OF PENNSYLVANIA Syllabus So vital a governmental power as the power, upon just compensation, to take private property for public use cannot be divested through contracts made by the state. Such contracts are not within the protection of the contract clause of the Constitution. Proceedings taken by a city to condemn land for a street through the grounds of a charitable corporation were resisted in reliance on an act by which, for valuable considerations, the legislature had prohibited such takings without the corporation's consent. The city undertook to condemn not only the land, but also the right under the contract. Held that the contract could not be successfully

opposed to the power of condemnation, and this quite apart from the attempt to condemn the contract right itself, since, if the contract exemption were otherwise valid, its defeat by such a method would be a mere evasion. Without departing from the settled rule that a writ of error will be dismissed if its total want of merit is shown conclusively by decisions of this Court extant at time of decision below, in this case, the course and resulting aspect of the proceedings below warrant a decree of affirmance. 254 Pa.St. 392 affirmed. chanroblesvirtualawlibrary Page 245 U. S. 21 The case is stated in the opinion. MR. CHIEF JUSTICE WHITE delivered the opinion of the Court. Whether contract obligations were impaired in violation of rights of the plaintiff in error protected by the Constitution of the United States as the result of the decision below is the sole question we are called upon to decide on this record. It thus arises: The plaintiff in error, a charitable institution, was organized under the laws of Pennsylvania, and, in 1841, it established on a tract of land in the City of Philadelphia a hospital for the care and cure of the insane. Solicitous lest the opening of streets, lanes, and alleys through its grounds might injuriously affect the performance of its work, in 1854, a committee of the managers of the hospital memorialized the legislature on that subject, and this resulted in the passage of a law specially forbidding the opening of any street or alley through the grounds in question without the consent of the hospital authorities. The act was conditioned upon the hospital's making certain payments and furnishing ground for a designated public street or streets, and these terms were accepted by the hospital and complied with. In 1913, the city, within the authority conferred upon it by the state, took the necessary preliminary steps to acquire by eminent domain land for the opening of a street through the hospital chanroblesvirtualawlibrary Page 245 U. S. 22 grounds, and to prevent the accomplishment of this result, the present suit was begun by the hospital to protect its right of property and its alleged contract under the Act of 1854. As the result of proceedings in the state court, the purpose of the city was so shaped as to cause it to seek to take under the right of eminent domain not only the land desired for the street, but the rights under the contract of 1854, and there was a judgment against the hospital and in favor of the city in the trial court which was affirmed by the supreme court by the judgment which is under review on this writ of error. 254 Pa. 392. The conclusions of the court were sustained in a per curiam opinion pointing out that there was no question involved of impairing the contract contained in the Act of 1854, since the express purpose of the city was to exert the power of eminent domain not only as to the land proposed to be taken, but as to the contract itself. The right to do both was upheld on the ground that the power of eminent domain was so inherently governmental in character and so essential for the public welfare that it was not susceptible of being abridged by agreement, and therefore the action of the city in exerting that power was not repugnant either to the state constitution or to the contract clause of the Constitution of the United States. It is apparent that the fundamental question, therefore, is did the Constitution of the United States prevent the exertion of the right of eminent domain to provide for the street in question because of the binding effect of the contract previously made excluding the right to open the street through the land without the consent of the hospital. We say this is the question, since, if the possibility were to be conceded that power existed to restrain by contract the further exercise by government of its right to

exert eminent domain, it would be unthinkable that the existence of such right of contract could be rendered chanroblesvirtualawlibrary Page 245 U. S. 23 unavailing by directing proceedings in eminent domain against the contract, for this would be a mere evasion of the assumed power. On the other hand, if there can be no right to restrain by contract the power of eminent domain, it must also of necessity follow that any contract by which it was sought to accomplish that result would be inefficacious for want of power. And these considerations bring us to weigh and decide the real and ultimate question -- that is, the right to take the property by eminent domain, which embraces within itself, as the part is contained in the whole, any supposed right of contract limiting or restraining that authority. We are of opinion that the conclusions of the court below, insofar as they dealt with the contract clause of the Constitution of the United States, were clearly not repugnant to such clause. There can be now, in view of the many decisions of this Court on the subject, no room for challenging the general proposition that the states cannot, by virtue of the contract clause, be held to have divested themselves by contract of the right to exert their governmental authority in matters which, from their very nature, so concern that authority that to restrain its exercise by contract would be a renunciation of power to legislate for the preservation of society or to secure the performance of essential governmental duties.Beer Co. v. Massachusetts, 97 U. S. 25; Stone v. Mississippi, 101 U. S. 814; Butchers' Union Co. v. Crescent City Co., 111 U. S. 746; Douglas v. Kentucky, 168 U. S. 488; Manigault v. Springs, 199 U. S. 473; Texas & New Orleans R. Co. v. Miller,221 U. S. 408. And it is unnecessary to analyze the decided cases for the purpose of fixing the criteria by which it is to be determined in a given case whether a power exerted is so governmental in character as not to be subject to be restrained by the contract clause, since it is equally true that the previous decisions of this Court leave no doubt that the right of government to exercise its chanroblesvirtualawlibrary Page 245 U. S. 24 power of eminent domain upon just compensation for a public purpose comes within this general doctrine. Charles River Bridge v. Warren Bridge, 11 Pet. 420; West River Bridge Co. v. Dix, 6 How. 507; New Orleans Gas Co. v. Louisiana Light Co., 115 U. S. 650; Long Island Water Supply Co. v. Brooklyn, 166 U. S. 685; Offield v. New York, New Haven & Hartford R. Co., 203 U. S. 372; Cincinnati v. Louisville & Nashville R. Co., 223 U. S. 390. The principle, then, upon which the contention under the Constitution rests having been, at the time the case was decided below, conclusively settled to be absolutely devoid of merit, it follows that a dismissal for want of jurisdiction might be directed. Equitable Life Assurance Society v. Brown, 187 U. S. 308, 187 U. S. 314; Consolidated Turnpike Co. v. Norfolk, etc., Ry. Co., 228 U. S. 596, 228 U. S. 600; Manhattan Life Insurance Co. v. Cohen, 234 U. S. 123, 234 U. S. 137. In view, however, of the course of the proceedings below and the aspect which the case took as resulting from those proceedings, without departing from the rule settled by the cases referred to, we think our decree may well be one not of dismissal, but of affirmance. Affirmed.

G.R. No. 71169 August 30, 1989 JOSE D. SANGALANG and LUTGARDA D. SANGALANG, petitioners, FELIX C. GASTON and DOLORES R. GASTON, JOSE V. BRIONES and ALICIA R. BRIONES, and BEL-AIR VILLAGE ASSOCIATION, INC.,intervenors-petitioners, vs. INTERMEDIATE APPELLATE COURT and AYALA CORPORATION, respondents.

G.R. No. 74376 August 30, 1989 BEL-AIR VILLAGE ASSOCIATION, INC., petitioner, vs. THE INTERMEDIATE APPELLATE COURT, ROSARIO DE JESUS TENORIO, and CECILIA GONZALEZ,respondents. G.R. No. 76394 August 30, 1989 BEL-AIR VILLAGE ASSOCIATION, INC., petitioner, vs. THE COURT OF APPEAL and EDUARDO and BUENA ROMUALDEZ respondents. G.R. No. 78182 August 30, 1989 BEL-AIR VILLAGE ASSOCIATION, INC., petitioner, vs. COURT OF APPEALS, DOLORES FILLEY and J. ROMERO & ASSOCIATES, respondents. G.R. No. 82281 August 30, 1989 BEL-AIR VILLAGE ASSOCIATION, INC., petitioner, vs. COURT OF APPEALS, VIOLETA MONCAL, and MAJAL DEVELOPMENT CORPORATION, respondents. RESOLUTION

SARMIENTO, J.: The incident before the Court refers to charges for contempt against Atty. J. Cezar Sangco, counsel for the petitioners Spouses Jose and Lutgarda Sangalang. (G.R. No. 71169.)
On February 2, 1989, the Court issued a Resolution, requiring, among other things, Atty. Sangco to show cause why he should not be punished for contempt "for using intemperate and accusatory language." 1 On March 2, 1989, Atty. Sangco filed an explanation.

The Court finds Atty. Sangco's remarks in his motion for reconsideration, reproduced as follows: ...
This Decision of this Court in the above-entitled case reads more like a Brief for Ayala ...
2

... [t]he Court not only put to serious question its own integrity and competence but also jeopardized its own campaign 3 against graft and corruption undeniably pervading the judiciary ...

...

The blatant disregard of controlling, documented and admitted facts not put in issue, such as those summarily ignored in this case; the extraordinary efforts exerted to justify such arbitrariness and the very strained and unwarranted 4 conclusions drawn therefrom, are unparalleled in the history of this Court ...

...
... [T]o ignore the fact that Jupiter Street was originally constructed for the exclusive benefit of the residents of Bel- Air Village, or rule that respondent Court's admission of said fact is "inaccurate," as Ayala's Counsel himself would like to do but did not even contend, is a manifestation of this Court's unusual partiality to Ayala and puts to serious question its 5 integrity on that account.

...
[i]t is submitted that this ruling is the most serious reflection on the Court's competence and integrity and exemplifies its manifest partiality towards Ayala. It is a blatant disregard of documented and incontrovertible and uncontroverted factual findings of the trial court fully supported by the records and the true significance of those facts which both the respondent court and this Court did not bother to read and consequently did not consider and discuss, least of all in the 6 manner it did with respect to those in which it arrived at conclusions favorable to Ayala. To totally disregard Ayala's written letter of application for special membership in BAVA which clearly state that such membership is necessary because it is a new development in their relationship with respect to its intention to give its commercial lot buyers an equal right to the use of Jupiter Street without giving any reason therefor, smacks of judicial 7 arrogance ...

...
... [A]re all these unusual exercise of such arbitrariness above suspicion? Will the current campaign of this Court 8 against graft and corruption in the judiciary be enhanced by such broad discretionary power of courts?

disparaging, intemperate, and uncalled for. His suggestions that the Court might have been guilty of graft and corruption in acting on these cases are not only unbecoming, but comes, as well, as an open assault upon the Court's honor and integrity. In rendering its judgment, the Court yielded to the records before it, and to the records alone, and not to outside influences, much less, the influence of any of the parties. Atty. Sangco, as a former judge of an inferior court, should know better that in any litigation, one party prevails, but his success will not justify indictments of bribery by the other party. He should be aware that because of his accusations, he has done an enormous disservice to the integrity of the highest tribunal and to the stability of the administration of justice in general. As a former judge, Atty. Sangco also has to be aware that we are not bound by the findings of the trial court (in which his clients prevailed). But if we did not agree with the findings of the court a quo, it does not follow that we had acted arbitrarily because, precisely, it is the office of an appeal to review the findings of the inferior court.
lwph1.t

To be sure, Atty. Sangco is entitled to his opinion, but not to a license to insult the Court with derogatory statements and recourses to argumenta ad hominem. In that event, it is the Court's duty "to act to preserve the honor and dignity ... and to safeguard the morals and ethics of the legal profession." 9 We are not satisfied with his explanation that he was merely defending the interests of his clients. As we held in Laureta, a lawyer's "first duty is not to his client but to the administration of justice; to that end, his client's success is wholly subordinate; and his conduct ought to and must always be scrupulously observant of law and ethics." 10 And while a lawyer must advocate his client's cause in utmost earnest and with the maximum skill he can marshal, he is not at liberty to resort to arrogance, intimidation, and innuendo. That "[t]he questions propounded were not meant or intended to accuse but to ... challenge the thinking in the Decision, 11comes as an eleventh-hour effort to cleanse what is in fact and plainly, an unfounded

accusation. Certainly, it is the prerogative of an unsuccessful party to ask for reconsideration, but as we held in Laureta, litigants should not "'think that they will win a hearing by the sheer multiplication of words' ". 12 As we indicated (see Decision denying the motions for reconsideration in G.R. Nos. 71169, 74376, 76394, 78182, and 82281, and deciding G.R. No. 60727, dated August 25, 1989), the movants have raised no new arguments to warrant reconsideration and they can not veil that fact with inflammatory language. Atty. Sangco himself admits that "[a]s a judge I have learned to live with and accept with grace criticisms of my decisions".13 Apparently, he does not practice what he preaches. Of course, the Court is not unreceptive to comment and critique of its decisions, but provided they are fair and dignified. Atty. Sangco has transcended the limits of fair comment for which he deserves this Court's rebuke.

In our "show-cause" Resolution, we sought to hold Atty. Sangco in contempt, specifically, for resort to insulting language amounting to disrespect toward the Court within the meaning of Section 1, of Rule 71, of the Rules of Court. Clearly, however, his act also constitutes malpractice as the term is defined by Canon 11 of the Code of Professional Responsibility, as follows: CANON 11-A LAWYER SHALL OBSERVE AND MAINTAIN THE RESPECT DUE TO THE COURTS AND TO JUDICIAL OFFICERS AND SHOULD INSIST ON SIMILAR CONDUCT BY OTHERS. Rule 11.01... Rule 11.02... Rule 11.03-A lawyer shall abstain from scandalous, offensive or menacing language or behavior before the Courts. Rule 11.04-A lawyer should not attribute to a Judge motives not supported by the record or have no materiality to the case. Rule 11.05... Thus, aside from contempt, Atty. Sangco faces punishment for professional misconduct or malpractice. WHEREFORE Atty. J. Cezar Sangco is (1) SUSPENDED from the practice of law for three (3) months effective from receipt hereof, and (2) ORDERED to pay a fine of P 500.00 payable from receipt hereof. Let a copy of this Resolution be entered in his record. IT IS SO ORDERED.

G.R. No. 127820 July 20, 1998 MUNICIPALITY OF PARAAQUE, petitioner, vs. V.M. REALTY CORPORATION, respondent.

PANGANIBAN, J.: A local government unit (LGU), like the Municipality of Paraaque, cannot authorize an expropriation of private property through a mere resolution of its lawmaking body. The Local Government Code expressly and clearly requires an ordinance or a local law for the purpose. A resolution that merely expresses the sentiment or opinion of the Municipal Council will not suffice. On the other hand, the principle of res judicata does not bar subsequent proceedings for the expropriation of the same property when all the legal requirements for its valid exercise are complied with. Statement of the Case These principles are applied by this Court in resolving this petition for review on certiorari of the July 22, 1996 Decision 1 of the Court of Appeals 2 in CA GR CV No. 48048, which affirmed in toto 3 the Regional Trial Court's August 9, 1994 Resolution. 4 The trial court dismissed the expropriation suit as follows: The right of the plaintiff to exercise the power of eminent domain is not disputed. However, such right may be exercised only pursuant to an Ordinance (Sec. 19, R.A No. 7160). In the instant case, there is no such ordinance passed by the Municipal Council of Paraaque enabling the Municipality, thru its Chief Executive, to exercise the power of eminent domain. The complaint, therefore, states no cause of action. Assuming that plaintiff has a cause of action, the same is barred by a prior judgment. On September 29, 1987, the plaintiff filed a complaint for expropriation involving the same parcels of land which was docketed as Civil Case No. 17939 of this Court (page 26, record). Said case was dismissed with prejudice on May 18, 1988 (page 39, record). The order of dismissal was not appealed, hence, the same became final. The plaintiff can not be allowed to pursue the present action without violating the principle of [r]es [j]udicata. While defendant in Civil Case No. 17939 was Limpan Investment Corporation, the doctrine of res judicata still applies because the judgment in said case (C.C. No. 17939) is conclusive between the parties and their successors-in-interest (Vda. de Buncio vs. Estate of the late Anita de Leon). The herein defendant is the successor-in-interest of Limpan Investment Corporation as shown by the "Deed of Assignment Exchange" executed on June 13, 1990. WHEREFORE, defendant's motion for reconsideration is hereby granted. The order dated February 4, 1994 is vacated and set aside. This case is hereby dismissed. No pronouncement as to costs.
SO ORDERED. 5

Factual Antecedents Pursuant to Sangguniang Bayan Resolution No. 93-95, Series of 1993, 6 the Municipality of Paraaque filed on September 20, 1993, a Complaint for expropriation 7 against Private Respondent V.M. Realty Corporation over two parcels of land (Lots 2-A-2 and 2-B-1 of Subdivision Plan Psd17917), with a combined area of about 10,000 square meters, located at Wakas, San Dionisio, Paraaque, Metro Manila, and covered by Torrens Certificate of Title No. 48700. Allegedly, the

complaint was filed "for the purpose of alleviating the living conditions of the underprivileged by providing homes for the homeless through a socialized housing project." 8 Parenthetically, it was also for this stated purpose that petitioner, pursuant to its Sangguniang Bayan Resolution No. 577, Series of 1991, 9 previously made an offer to enter into a negotiated sale of the property with private respondent, which the latter did not accept. 10 Finding the Complaint sufficient in form and substance, the Regional Trial Court of Makati, Branch 134, issued an Order dated January 10, 1994, 11 giving it due course. Acting on petitioner's motion, said court issued an Order dated February 4, 1994, 12 authorizing petitioner to take possession of the subject property upon deposit with its clerk of court of an amount equivalent to 15 percent of its fair market value based on its current tax declaration. On February 21, 1994, private respondent filed its Answer containing affirmative defenses and a counterclaim, 13alleging in the main that (a) the complaint failed to state a cause of action because it was filed pursuant to a resolution and not to an ordinance as required by RA 7160 (the Local Government Code); and (b) the cause of action, if any, was barred by a prior judgment or res judicata. On private respondent's motion, its Answer was treated as a motion to dismiss. 14 On March 24, 1991, 15 petitioner filed its opposition, stressing that the trial court's Order dated February 4, 1994 was in accord with Section 19 of RA 7160, and that the principle of res judicata was not applicable. Thereafter, the trial court issued its August 9, 1994 Resolution 16 nullifying its February 4, 1994 Order and dismissing the case. Petitioner's motions for reconsideration and transfer of venue were denied by the trial court in a Resolution dated December 2, 1994. 17 Petitioner then appealed to Respondent Court, raising the following issues: 1. Whether or not the Resolution of the Paraaque Municipal Council No. 93-95, Series of 1993 is a substantial compliance of the statutory requirement of Section 19, R.A. 7180 [sic] in the exercise of the power of eminent domain by the plaintiff-appellant. 2. Whether or not the complaint in this case states no cause of action. 3. Whether or not the strict adherence to the literal observance to the rule of procedure resulted in technicality standing in the way of substantial justice.
4. Whether or not the principle of res judicata is applicable to the present case. 18

As previously mentioned, the Court of Appeals affirmed in toto the trial court's Decision. Respondent Court, in its assailed Resolution promulgated on January 8, 1997, 19 denied petitioner's Motion for Reconsideration for lack of merit. Hence, this appeal. 20 The Issues Before this Court, petitioner posits two issues, viz.: 1. A resolution duly approved by the municipal council has the same force and effect of an ordinance and will not deprive an expropriation case of a valid cause of action.

2. The principle of res judicata as a ground for dismissal of case is not applicable when public interest is primarily involved. 21

The Court's Ruling The petition is not meritorious. First Issue: Resolution Different from an Ordinance Petitioner contends that a resolution approved by the municipal council for the purpose of initiating an expropriation case "substantially complies with the requirements of the law" 22 because the terms "ordinance" and "resolution" are synonymous for "the purpose of bestowing authority [on] the local government unit through its chief executive to initiate the expropriation proceedings in court in the exercise of the power of eminent domain."23 Petitioner seeks to bolster this contention by citing Article 36, Rule VI of the Rules and Regulations Implementing the Local Government Code, which provides. "If the LGU fails to acquire a private property for public use, purpose, or welfare through purchase, the LGU may expropriate said property through a resolution of theSanggunian authorizing its chief executive to initiate expropriation proceedings." 24 (Emphasis supplied.) The Court disagrees. The power of eminent domain is lodged in the legislative branch of government, which may delegate the exercise thereof to LGUs, other public entities and public utilities. 25 An LGU may therefore exercise the power to expropriate private property only when authorized by Congress and subject to the latter's control and restraints, imposed "through the law conferring the power or in other legislations." 26 In this case, Section 19 of RA 7160, which delegates to LGUs the power of eminent domain, also lays down the parameters for its exercise. It provides as follows: 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 pertinent laws: Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided,finally, That, the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property. (Emphasis supplied) Thus, the following essential requisites must concur before an LGU can exercise the power of eminent domain: 1. An ordinance is enacted by the local legislative council authorizing the local chief executive, in behalf of the LGU, to exercise the power of eminent domain or pursue expropriation proceedings over a particular private property.

2. The power of eminent domain is exercised for public use, purpose or welfare, or for the benefit of the poor and the landless. 3. There is payment of just compensation, as required under Section 9, Article III of the Constitution, and other pertinent laws. 4. A valid and definite offer has been previously made to the owner of the property sought to be expropriated, but said offer was not accepted. 27 In the case at bar, the local chief executive sought to exercise the power of eminent domain pursuant to a resolution of the municipal council. Thus, there was no compliance with the first requisite that the mayor be authorized through an ordinance. Petitioner cites Camarines Sur vs. Court of Appeals 28 to show that a resolution may suffice to support the exercise of eminent domain by an LGU. 29 This case, however, is not in point because the applicable law at that time was BP 337, 30 the previous Local Government Code, which had provided that a mere resolution would enable an LGU to exercise eminent domain. In contrast, RA 7160, 31 the present Local Government Code which was already in force when the Complaint for expropriation was filed, explicitly required an ordinance for this purpose. We are not convinced by petitioner's insistence that the terms "resolution" and "ordinance" are synonymous. A municipal ordinance is different from a resolution. An ordinance is a law, but a resolution is merely a declaration of the sentiment or opinion of a lawmaking body on a specific matter. 32 An ordinance possesses a general and permanent character, but a resolution is temporary in nature. Additionally, the two are enacted differently a third reading is necessary for an ordinance, but not for a resolution, unless decided otherwise by a majority of all the Sanggunian members. 33 If Congress intended to allow LGUs to exercise eminent domain through a mere resolution, it would have simply adopted the language of the previous Local Government Code. But Congress did not. In a clear divergence from the previous Local Government Code, Section 19 of RA 7160 categorically requires that the local chief executive act pursuant to an ordinance. Indeed, "[l]egislative intent is determined principally from the language of a statute. Where the language of a statute is clear and unambiguous, the law is applied according to its express terms, and interpretation would be resorted to only where a literal interpretation would be resorted to only where a literal interpretation would be either impossible or absurd or would lead to an injustice." 34 In the instant case, there is no reason to depart from this rule, since the law requiring an ordinance is not at all impossible, absurd, or unjust. Moreover, the power of eminent domain necessarily involves a derogation of a fundamental or private right of the people. 35 Accordingly, the manifest change in the legislative language from "resolution" under BP 337 to "ordinance" under RA 7160 demands a strict construction. "No species of property is held by individuals with greater tenacity, and is guarded by the Constitution and laws more sedulously, than the right to the freehold of inhabitants. When the legislature interferes with that right and, for greater public purposes, appropriates the land of an individual without his consent, the plain meaning of the law should not be enlarged by doubtful interpretation." 36 Petitioner relies on Article 36, Rule VI of the Implementing Rules, which requires only a resolution to authorize an LGU to exercise eminent domain. This is clearly misplaced, because Section 19 of RA 7160, the law itself, surely prevails over said rule which merely seeks to implement it. 37 It is axiomatic that the clear letter of the law is controlling and cannot be amended by a mere administrative rule issued for its implementation. Besides, what the discrepancy seems to indicate is a mere oversight in the wording of the implementing rules, since Article 32, Rule VI thereof, also

requires that, in exercising the power of eminent domain, the chief executive of the LGU act pursuant to an ordinance. In this ruling, the Court does not diminish the policy embodied in Section 2, Article X of the Constitution, which provides that "territorial and political subdivisions shall enjoy local autonomy." It merely upholds the law as worded in RA 7160. We stress that an LGU is created by law and all its powers and rights are sourced therefrom. It has therefore no power to amend or act beyond the authority given and the limitations imposed on it by law. Strictly speaking, the power of eminent domain delegated to an LGU is in reality not eminent but "inferior" domain, since it must conform to the limits imposed by the delegation, and thus partakes only of a share in eminent domain. 38Indeed, "the national legislature is still the principal of the local government units, which cannot defy its will or modify or violate it." 39 Complaint Does Not State a Cause of Action In its Brief filed before Respondent Court, petitioner argues that its Sangguniang Bayan passed an ordinance on October 11, 1994 which reiterated its Resolution No. 93-35, Series of 1993, and ratified all the acts of its mayor regarding the subject expropriation. 40 This argument is bereft of merit. In the first place, petitioner merely alleged the existence of such an ordinance, but it did not present any certified true copy thereof. In the second place, petitioner did not raise this point before this Court. In fact, it was mentioned by private respondent, and only in passing. 41 In any event, this allegation does not cure the inherent defect of petitioner's Complaint for expropriation filed on September 23, 1993. It is hornbook doctrine that
. . . in a motion to dismiss based on the ground that the complaint fails to state a cause of action, the question submitted before the court for determination is the sufficiency of the allegations in the complaint itself. Whether those allegations are true or not is beside the point, for their truth is hypothetically admitted by the motion. The issue rather is: admitting them to be true, may the court render a valid judgment in accordance with the prayer of the complaint? 42

The fact that there is no cause of action is evident from the face of the Complaint for expropriation which was based on a mere resolution. The absence of an ordinance authorizing the same is equivalent to lack of cause of action. Consequently, the Court of Appeals committed no reversible error in affirming the trial court's Decision which dismissed the expropriation suit. Second Issue: Eminent Domain Not Barred by Res Judicata As correctly found by the Court of Appeals 43 and the trial court, 44 all the requisites for the application of res judicata are present in this case. There is a previous final judgment on the merits in a prior expropriation case involving identical interests, subject matter and cause of action, which has been rendered by a court having jurisdiction over it. Be that as it may, the Court holds that the principle of res judicata, which finds application in generally all cases and proceedings, 45 cannot bar the right of the State or its agent to expropriate private property. The very nature of eminent domain, as an inherent power of the State, dictates that the right to exercise the power be absolute and unfettered even by a prior judgment or res judicata.

The scope of eminent domain is plenary and, like police power, can "reach every form of property which the State might need for public use." 46 "All separate interests of individuals in property are held of the government under this tacit agreement or implied reservation. Notwithstanding the grant to individuals, the eminent domain, the highest and most exact idea of property, remains in the government, or in the aggregate body of the people in their sovereign capacity; and they have the right to resume the possession of the property whenever the public interest requires it." 47 Thus, the State or its authorized agent cannot be forever barred from exercising said right by reason alone of previous non-compliance with any legal requirement. While the principle of res judicata does not denigrate the right of the State to exercise eminent domain, it does apply to specific issues decided in a previous case. For example, a final judgment dismissing an expropriation suit on the ground that there was no prior offer precludes another suit raising the same issue; it cannot, however, bar the State or its agent from thereafter complying with this requirement, as prescribed by law, and subsequently exercising its power of eminent domain over the same property. 48 By the same token, our ruling that petitioner cannot exercise its delegated power of eminent domain through a mere resolution will not bar it from reinstituting similar proceedings, once the said legal requirement and, for that matter, all others are properly complied with. Parenthetically and by parity of reasoning, the same is also true of the principle of "law of the case." In Republic vs. De Knecht, 49 the Court ruled that the power of the State or its agent to exercise eminent domain is not diminished by the mere fact that a prior final judgment over the property to be expropriated has become the law of the case as to the parties. The State or its authorized agent may still subsequently exercise its right to expropriate the same property, once all legal requirements are complied with. To rule otherwise will not only improperly diminish the power of eminent domain, but also clearly defeat social justice. WHEREFORE, the petition is hereby DENIED without prejudice to petitioner's proper exercise of its power of eminent domain over subject property. Costs against petitioner. SO ORDERED.

G.R. No. 152230. August 9, 2005 JESUS IS LORD CHRISTIAN SCHOOL FOUNDATION, INC., Petitioners, vs. MUNICIPALITY (now CITY) OF PASIG, METRO MANILA, Respondent. DECISION CALLEJO, SR., J.: Before us is a petition for review of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 59050, and its Resolution dated February 18, 2002, denying the motion for reconsideration thereof. The assailed decision affirmed the order of the Regional Trial Court (RTC) of Pasig, Branch 160, declaring the respondent Municipality (now City) of Pasig as having the right to expropriate and take possession of the subject property. The Antecedents

The Municipality of Pasig needed an access road from E. R. Santos Street, a municipal road near the Pasig Public Market, to Barangay Sto. Tomas Bukid, Pasig, where 60 to 70 houses, mostly made of light materials, were located. The road had to be at least three meters in width, as required by the Fire Code, so that fire trucks could pass through in case of conflagration.2 Likewise, the residents in the area needed the road for water and electrical outlets.3 The municipality then decided to acquire 51 square meters out of the 1,791-square meter property of Lorenzo Ching Cuanco, Victor Ching Cuanco and Ernesto Ching Cuanco Kho covered by Transfer Certificate of Title (TCT) No. PT-66585,4 which is abutting E. R. Santos Street. On April 19, 1993, the Sangguniang Bayan of Pasig approved an Ordinance5 authorizing the municipal mayor to initiate expropriation proceedings to acquire the said property and appropriate the fund therefor. The ordinance stated that the property owners were notified of the municipalitys intent to purchase the property for public use as an access road but they rejected the offer. On July 21, 1993, the municipality filed a complaint, amended on August 6, 1993, against the Ching Cuancos for the expropriation of the property under Section 19 of Republic Act (R.A.) No. 7160, otherwise known as the Local Government Code. The plaintiff alleged therein that it notified the defendants, by letter, of its intention to construct an access road on a portion of the property but they refused to sell the same portion. The plaintiff appended to the complaint a photocopy of the letter addressed to defendant Lorenzo Ching Cuanco.6 The plaintiff deposited with the RTC 15% of the market value of the property based on the latest tax declaration covering the property. On plaintiffs motion, the RTC issued a writ of possession over the property sought to be expropriated. On November 26, 1993, the plaintiff caused the annotation of a notice of lis pendens at the dorsal portion of TCT No. PT-92579 under the name of the Jesus Is Lord Christian School Foundation, Incorporated (JILCSFI) which had purchased the property.7 Thereafter, the plaintiff constructed therein a cemented road with a width of three meters; the road was called Damayan Street. In their answer,8 the defendants claimed that, as early as February 1993, they had sold the said property to JILCSFI as evidenced by a deed of sale9 bearing the signature of defendant Ernesto Ching Cuanco Kho and his wife. When apprised about the complaint, JILCSFI filed a motion for leave to intervene as defendant-inintervention, which motion the RTC granted on August 26, 1994.10 In its answer-in-intervention, JILCSFI averred, by way of special and affirmative defenses, that the plaintiffs exercise of eminent domain was only for a particular class and not for the benefit of the poor and the landless. It alleged that the property sought to be expropriated is not the best portion for the road and the least burdensome to it. The intervenor filed a crossclaim against its codefendants for reimbursement in case the subject property is expropriated.11 In its amended answer, JILCSFI also averred that it has been denied the use and enjoyment of its property because the road was constructed in the middle portion and that the plaintiff was not the real party-in-interest. The intervenor, likewise, interposed counterclaims against the plaintiff for moral damages and attorneys fees.12 During trial, Rolando Togonon, the plaintiffs messenger, testified on direct examination that on February 23, 1993, he served a letter of Engr. Jose Reyes, the Technical Assistant to the Mayor on Infrastructure, to Lorenzo Ching Cuanco at his store at No. 18 Alkalde Jose Street, Kapasigan, Pasig. A lady received the same and brought it inside the store. When she returned the letter to him, it already bore the signature of Luz Bernarte. He identified a photocopy of the letter as similar to the one he served at the store. On cross-examination, he admitted that he never met Luz Bernarte. 13

Edgardo del Rosario, a resident of Sto. Tomas Bukid since 1982 declared that he would pass through a wooden bridge to go to E. R. Santos Street. At times, the bridge would be slippery and many had met accidents while walking along the bridge. Because of this, they requested Mayor Vicente Eusebio to construct a road therein. He attested that after the construction of the cemented access road, the residents had water and electricity.14 Augusto Paz of the City Engineers Office testified that, sometime in 1992, the plaintiff constructed a road perpendicular from E. R. Santos Street to Sto. Tomas Bukid; he was the Project Engineer for the said undertaking. Before the construction of the road, the lot was raw and they had to put filling materials so that vehicles could use it. According to him, the length of the road which they constructed was 70 meters long and 3 meters wide so that a fire truck could pass through. He averred that there is no other road through which a fire truck could pass to go to Sto. Tomas Bukid.15 Manuel Tembrevilla, the Fire Marshall, averred that he had seen the new road, that is, Damayan Street, and found that a fire truck could pass through it. He estimated the houses in the area to be around 300 to 400. Tembrevilla also stated that Damayan Street is the only road in the area.16 Finally, Bonifacio Maceda, Jr., Tax Mapper IV, testified that, according to their records, JILCSFI became the owner of the property only on January 13, 1994.17 The plaintiff offered in evidence a photocopy of the letter of Engr. Jose Reyes addressed to Lorenzo Ching Cuanco to prove that the plaintiff made a definite and valid offer to acquire the property to the co-owners. However, the RTC rejected the same letter for being a mere photocopy.18 For the defendant-intervenor, Normita del Rosario, owner of the property located across the subject property, testified that there are other roads leading to E. R. Santos Street. She asserted that only about ten houses of the urban poor are using the new road because the other residents are using an alternative right-of-way. She averred that she did not actually occupy her property; but there were times that she visited it.19 Danilo Caballero averred that he had been a resident of Sto. Tomas Bukid for seven years. From his house, he could use three streets to go to E. R. Santos Street, namely, Catalina Street, Damayan Street and Bagong Taon Street. On cross-examination, he admitted that no vehicle could enter Sto. Tomas Bukid except through the newly constructed Damayan Street.20 Eduardo Villanueva, Chairman of the Board of Trustees and President of JILCSFI, testified that the parcel of land was purchased for purposes of constructing a school building and a church as worship center. He averred that the realization of these projects was delayed due to the passing of the ordinance for expropriation.21 The intervenor adduced documentary evidence that on February 27, 1993, Lorenzo Ching Cuanco and the co-owners agreed to sell their property covered by TCT No. PT-66585 for P1,719,000.00.22 It paid a down payment of P1,000,000.00 for the property. After payment of the total purchase price, the Ching Cuancos executed a Deed of Absolute Sale23 over the property on December 13, 1993. On December 21, 1993, TCT No. PT-92579 was issued in the name of JILCSFI.24 It declared the property for taxation purposes under its name.25 On September 3, 1997, the RTC issued an Order in favor of the plaintiff, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing and in accordance with Section 4, Rule 67 of the Revised Rules of Court, the Court Resolves to DECLARE the plaintiff as having a lawful right to take the property in question for purposes for which the same is expropriated. The plaintiff and intervenor are hereby directed to submit at least two (2) names of their recommended commissioners for the determination of just compensation within ten (10) days from receipt hereof. SO ORDERED.26 The RTC held that, as gleaned from the declaration in Ordinance No. 21, there was substantial compliance with the definite and valid offer requirement of Section 19 of R.A. No. 7160, and that the expropriated portion is the most convenient access to the interior of Sto. Tomas Bukid. Dissatisfied, JILCSFI elevated the case to the CA on the following assignment of errors: First Assignment of Error THE LOWER COURT SERIOUS[LY] ERRED WHEN IT RULED THAT PLAINTIFF-APPELLEE SUBSTANTIALLY COMPLIED WITH THE LAW WHEN IT EXPROPRIATED JILS PROPERTY TO BE USED AS A RIGHT OF WAY. Second Assignment of Error THE LOWER COURT ERRED IN DISREGARDING JILS EVIDENCE PROVING THAT THERE WAS NO PUBLIC NECESSITY TO WARRANT THE EXPROPRIATION OF THE SUBJECT PROPERTY.27 The Court of Appeals Decision In a Decision dated March 13, 2001, the CA affirmed the order of the RTC.28 The CA agreed with the trial court that the plaintiff substantially complied with Section 19 of R.A. No. 7160, particularly the requirement that a valid and definite offer must be made to the owner. The CA declared that the letter of Engr. Reyes, inviting Lorenzo Ching Cuanco to a conference to discuss with him the road project and the price of the lot, was a substantial compliance with the "valid and definite offer" requirement under said Section 19. In addition, the CA noted that there was also constructive notice to the defendants of the expropriation proceedings since a notice of lis pendenswas annotated at the dorsal portion of TCT No. PT-92579 on November 26, 1993.29 Finally, the CA upheld the public necessity for the subject property based on the findings of the trial court that the portion of the property sought to be expropriated appears to be, not only the most convenient access to the interior of Sto. Tomas Bukid, but also an easy path for vehicles entering the area, particularly fire trucks. Moreover, the CA took into consideration the provision of Article 33 of the Rules and Regulations Implementing the Local Government Code, which regards the "construction or extension of roads, streets, sidewalks" as public use, purpose or welfare.30 On April 6, 2001, JILCSFI filed a motion for reconsideration of the said decision alleging that the CA erred in relying on the photocopy of Engr. Reyes letter to Lorenzo Ching Cuanco because the same was not admitted in evidence by the trial court for being a mere photocopy. It also contended that the CA erred in concluding that constructive notice of the expropriation proceeding, in the form of annotation of the notice of lis pendens, could be considered as a substantial compliance with the

requirement under Section 19 of the Local Government Code for a valid and definite offer. JILCSFI also averred that no inspection was ever ordered by the trial court to be conducted on the property, and, if there was one, it had the right to be present thereat since an inspection is considered to be part of the trial of the case.31 The CA denied the motion for reconsideration for lack of merit. It held that it was not precluded from considering the photocopy32 of the letter, notwithstanding that the same was excluded by the trial court, since the fact of its existence was duly established by corroborative evidence. This corroborative evidence consisted of the testimony of the plaintiffs messenger that he personally served the letter to Lorenzo Ching Cuanco, and Municipal Ordinance No. 21 which expressly stated that the property owners were already notified of the expropriation proceeding. The CA noted that JILCSFI failed to adduce controverting evidence, thus the presumption of regularity was not overcome.33 The Present Petition In this petition, petitioner JILCSFI raises the following issues: (1) whether the respondent complied with the requirement, under Section 19 of the Local Government Code, of a valid and definite offer to acquire the property prior to the filing of the complaint; (2) whether its property which is already intended to be used for public purposes may still be expropriated by the respondent; and (3) whether the requisites for an easement for right-of-way under Articles 649 to 657 of the New Civil Code may be dispensed with. The petitioner stresses that the law explicitly requires that a valid and definite offer be made to the owner of the property and that such offer was not accepted. It argues that, in this case, there was no evidence to show that such offer has been made either to the previous owner or the petitioner, the present owner. The petitioner contends that the photocopy of the letter of Engr. Reyes, notifying Lorenzo Ching Cuanco of the respondents intention to construct a road on its property, cannot be considered because the trial court did not admit it in evidence. And assuming that such letter is admissible in evidence, it would not prove that the offer has been made to the previous owner because mere notice of intent to purchase is not equivalent to an offer to purchase. The petitioner further argues that the offer should be made to the proper party, that is, to the owner of the property. It noted that the records in this case show that as of February 1993, it was already the owner of the property. Assuming, therefore, that there was an offer to purchase the property, the same should have been addressed to the petitioner, as present owner.34 The petitioner maintains that the power of eminent domain must be strictly construed since its exercise is necessarily in derogation of the right to property ownership. All the requirements of the enabling law must, therefore, be strictly complied with. Compliance with such requirements cannot be presumed but must be proved by the local government exercising the power. The petitioner adds that the local government should, likewise, comply with the requirements for an easement of right-ofway; hence, the road must be established at a point least prejudicial to the owner of the property. Finally, the petitioner argues that, if the property is already devoted to or intended to be devoted to another public use, its expropriation should not be allowed.35 For its part, the respondent avers that the CA already squarely resolved the issues raised in this petition, and the petitioner failed to show valid and compelling reason to reverse the CAs findings. Moreover, it is not the function of the Supreme Court to weigh the evidence on factual issues all over again.36 The respondent contends that the Ching Cuancos were deemed to have admitted that an offer to purchase has been made and that they refused to accept such offer considering their failure to specifically deny such allegation in the complaint. In light of such admission, the exclusion of the photocopy of the letter of Engr. Reyes, therefore, is no longer significant.37

The Ruling of the Court The petition is meritorious. At the outset, it must be stressed that only questions of law may be raised by the parties and passed upon by the Supreme Court in petitions for review on certiorari.38 Findings of fact of the CA, affirming those of the trial court, are final and conclusive and may not be reviewed on appeal.39 Nonetheless, where it is shown that the conclusion is a finding grounded on speculations, surmises or conjectures or where the judgment is based on misapprehension of facts, the Supreme Court may reexamine the evidence on record.40 Eminent Domain: Nature and Scope The right of eminent domain is usually understood to be an ultimate right of the sovereign power to appropriate any property within its territorial sovereignty for a public purpose. The nature and scope of such power has been comprehensively described as follows: It is an indispensable attribute of sovereignty; a power grounded in the primary duty of government to serve the common need and advance the general welfare. Thus, the right of eminent domain appertains to every independent government without the necessity for constitutional recognition. The provisions found in modern constitutions of civilized countries relating to the taking of property for the public use do not by implication grant the power to the government, but limit the power which would, otherwise, be without limit. Thus, our own Constitution provides that "[p]rivate property shall not be taken for public use without just compensation." Furthermore, the due process and equal protection clauses act as additional safeguards against the arbitrary exercise of this governmental power.41 Strict Construction and Burden of Proof The exercise of the right of eminent domain, whether directly by the State or by its authorized agents, is necessarily in derogation of private rights.42 It is one of the harshest proceedings known to the law. Consequently, when the sovereign delegates the power to a political unit or agency, a strict construction will be given against the agency asserting the power.43 The authority to condemn is to be strictly construed in favor of the owner and against the condemnor.44 When the power is granted, the extent to which it may be exercised is limited to the express terms or clear implication of the statute in which the grant is contained.45 Corollarily, the respondent, which is the condemnor, has the burden of proving all the essentials necessary to show the right of condemnation.46 It has the burden of proof to establish that it has complied with all the requirements provided by law for the valid exercise of the power of eminent domain. The grant of the power of eminent domain to local government units is grounded on Section 19 of R.A. No. 7160 which reads: 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 pertinent laws; Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the

owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided, finally, That the amount to be paid for the expropriated property shall be determined by the proper court based on the fair market value at the time of the taking of the property. The Court declared that the following requisites for the valid exercise of the power of eminent domain by a local government unit must be complied with: 1. An ordinance is enacted by the local legislative council authorizing the local chief executive, in behalf of the local government unit, to exercise the power of eminent domain or pursue expropriation proceedings over a particular private property. 2. The power of eminent domain is exercised for public use, purpose or welfare, or for the benefit of the poor and the landless. 3. There is payment of just compensation, as required under Section 9, Article III of the Constitution, and other pertinent laws. 4. A valid and definite offer has been previously made to the owner of the property sought to be expropriated, but said offer was not accepted.47 Valid and Definite Offer Article 35 of the Rules and Regulations Implementing the Local Government Code provides: ARTICLE 35. Offer to Buy and Contract of Sale. (a) The offer to buy private property for public use or purpose shall be in writing. It shall specify the property sought to be acquired, the reasons for its acquisition, and the price offered. (b) If the owner or owners accept the offer in its entirety, a contract of sale shall be executed and payment forthwith made. (c) If the owner or owners are willing to sell their property but at a price higher than that offered to them, the local chief executive shall call them to a conference for the purpose of reaching an agreement on the selling price. The chairman of the appropriation or finance committee of the sanggunian, or in his absence, any member of thesanggunian duly chosen as its representative, shall participate in the conference. When an agreement is reached by the parties, a contract of sale shall be drawn and executed. (d) The contract of sale shall be supported by the following documents: (1) Resolution of the sanggunian authorizing the local chief executive to enter into a contract of sale. The resolution shall specify the terms and conditions to be embodied in the contract; (2) Ordinance appropriating the amount specified in the contract; and (3) Certification of the local treasurer as to availability of funds together with a statement that such fund shall not be disbursed or spent for any purpose other than to pay for the purchase of the property involved.

The respondent was burdened to prove the mandatory requirement of a valid and definite offer to the owner of the property before filing its complaint and the rejection thereof by the latter.48 It is incumbent upon the condemnor to exhaust all reasonable efforts to obtain the land it desires by agreement.49 Failure to prove compliance with the mandatory requirement will result in the dismissal of the complaint.50 An offer is a unilateral proposition which one party makes to the other for the celebration of a contract.51 It creates a power of acceptance permitting the offeree, by accepting the offer, to transform the offerors promise into a contractual obligation.52 Corollarily, the offer must be complete, indicating with sufficient clearness the kind of contract intended and definitely stating the essential conditions of the proposed contract.53 An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract.54 The purpose of the requirement of a valid and definite offer to be first made to the owner is to encourage settlements and voluntary acquisition of property needed for public purposes in order to avoid the expense and delay of a court action.55 The law is designed to give to the owner the opportunity to sell his land without the expense and inconvenience of a protracted and expensive litigation. This is a substantial right which should be protected in every instance.56 It encourages acquisition without litigation and spares not only the landowner but also the condemnor, the expenses and delays of litigation. It permits the landowner to receive full compensation, and the entity acquiring the property, immediate use and enjoyment of the property. A reasonable offer in good faith, not merely perfunctory or pro forma offer, to acquire the property for a reasonable price must be made to the owner or his privy.57 A single bona fide offer that is rejected by the owner will suffice. The expropriating authority is burdened to make known its definite and valid offer to all the owners of the property. However, it has a right to rely on what appears in the certificate of title covering the land to be expropriated. Hence, it is required to make its offer only to the registered owners of the property. After all, it is well-settled that persons dealing with property covered by a Torrens certificate of title are not required to go beyond what appears on its face.58 In the present case, the respondent failed to prove that before it filed its complaint, it made a written definite and valid offer to acquire the property for public use as an access road. The only evidence adduced by the respondent to prove its compliance with Section 19 of the Local Government Code is the photocopy of the letter purportedly bearing the signature of Engr. Jose Reyes, to only one of the co-owners, Lorenzo Ching Cuanco. The letter reads: MR. LORENZO CHING CUANCO 18 Alcalde Jose Street Capasigan, Pasig Metro Manila Dear Mr. Cuanco: This refers to your parcel of land located along E. Santos Street, Barangay Palatiw, Pasig, Metro Manila embraced in and covered by TCT No. 66585, a portion of which with an area of fifty-one (51) square meters is needed by the Municipal Government of Pasig for conversion into a road-right of way for the benefit of several residents living in the vicinity of your property. Attached herewith is the sketch plan for your information.

In this connection, may we respectfully request your presence in our office to discuss this project and the price that may be mutually agreed upon by you and the Municipality of Pasig. Thank you. Very truly yours, (Sgd.) ENGR. JOSE L. REYES Technical Asst. to the Mayor on Infrastructure59 It bears stressing, however, that the respondent offered the letter only to prove its desire or intent to acquire the property for a right-of-way.60 The document was not offered to prove that the respondent made a definite and valid offer to acquire the property. Moreover, the RTC rejected the document because the respondent failed to adduce in evidence the original copy thereof.61 The respondent, likewise, failed to adduce evidence that copies of the letter were sent to and received by all the coowners of the property, namely, Lorenzo Ching Cuanco, Victor Ching Cuanco and Ernesto Kho. The respondent sought to prove, through the testimony of its messenger, Rolando Togonon, that Lorenzo Ching Cuanco received the original of the said letter. But Togonon testified that he merely gave the letter to a lady, whom he failed to identify. He stated that the lady went inside the store of Lorenzo Ching Cuanco, and later gave the letter back to him bearing the signature purportedly of one Luz Bernarte. However, Togonon admitted, on cross-examination, that he did not see Bernarte affixing her signature on the letter. Togonon also declared that he did not know and had never met Lorenzo Ching Cuanco and Bernarte: Q And after you received this letter from that lady, what did you do afterwards? A I brought it with me, that letter, and then I went to Caruncho. Q So, [M]r. Witness, you are telling this Honorable Court that this letter intended to Mr. Lorenzo was served at Pasig Trading which was situated at No. 18 Alkalde Jose Street on February 23, 1993? A Yes, Maam. ATTY. TAN: That is all for the witness, Your Honor. COURT: Do you have any cross-examination? ATTY. JOLO: Just a few cross, Your Honor, please. With the kind permission of the Honorable Court.

COURT: Proceed. CROSS-EXAMINATION BY ATTY. JOLO: Q Mr. Witness, do you know Mr. Lorenzo Ching [Cuanco] A I do not know him. Q As a matter of fact, you have not seen him even once, isnt not (sic)? A Yes, Sir. Q This Luz Bernarte, do you know her? A I do not know her. Q As a matter of fact, you did not see Mrs. Bernarte even once? A That is correct. Q And as a matter of fact, [M]r. Witness, you did not see Mrs. Luz Bernarte affixing her signature on the bottom portion of this demand letter, marked as Exh. "C-2"? A Yes, Sir.62 Even if the letter was, indeed, received by the co-owners, the letter is not a valid and definite offer to purchase a specific portion of the property for a price certain. It is merely an invitation for only one of the co-owners, Lorenzo Ching Cuanco, to a conference to discuss the project and the price that may be mutually acceptable to both parties. There is no legal and factual basis to the CAs ruling that the annotation of a notice of lis pendens at the dorsal portion of petitioners TCT No. PT-92579 is a substantial compliance with the requisite offer. A notice of lis pendens is a notice to the whole world of the pendency of an action involving the title to or possession of real property and a warning that those who acquire an interest in the property do so at their own risk and that they gamble on the result of the litigation over it.63 Moreover, the lis pendens was annotated at the dorsal portion of the title only on November 26, 1993, long after the complaint had been filed in the RTC against the Ching Cuancos. Neither is the declaration in one of the whereas clauses of the ordinance that "the property owners were already notified by the municipality of the intent to purchase the same for public use as a municipal road," a substantial compliance with the requirement of a valid and definite offer under Section 19 of R.A. No. 7160. Presumably, theSangguniang Bayan relied on the erroneous premise that the letter of Engr. Reyes reached the co-owners of the property. In the absence of competent evidence that, indeed, the respondent made a definite and valid offer to all the co-owners of the property, aside from the letter of Engr. Reyes, the declaration in the ordinance is not a compliance with Section 19 of R.A. No. 7160.

The respondent contends, however, that the Ching Cuancos, impliedly admitted the allegation in its complaint that an offer to purchase the property was made to them and that they refused to accept the offer by their failure to specifically deny such allegation in their answer. This contention is wrong. As gleaned from their answer to the complaint, the Ching Cuancos specifically denied such allegation for want of sufficient knowledge to form a belief as to its correctness. Under Section 10,64 Rule 8 of the Rules of Court, such form of denial, although not specific, is sufficient. Public Necessity We reject the contention of the petitioner that its property can no longer be expropriated by the respondent because it is intended for the construction of a place for religious worship and a school for its members. As aptly explained by this Court in Manosca v. Court of Appeals,65 thus: It has been explained as early as Sea v. Manila Railroad Co., that: A historical research discloses the meaning of the term "public use" to be one of constant growth. As society advances, its demands upon the individual increases and each demand is a new use to which the resources of the individual may be devoted. for "whatever is beneficially employed for the community is a public use." Chief Justice Enrique M. Fernando states: 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 so any more. 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 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 requirements of public use. Chief Justice Fernando, writing the ponencia in J.M. Tuason & Co. vs. Land Tenure Administration, has viewed the Constitution a dynamic instrument and one that "is not to be construed narrowly or pedantically so as to enable itto meet adequately whatever problems the future has in store." Fr. Joaquin Bernas, a noted constitutionalist himself, has aptly observed that what, in fact, has ultimately emerged is a concept of public use which is just as broad as "public welfare." Petitioners ask: But "(w)hat is the so-called unusual interest that the expropriation of (Felix Manalos) birthplace become so vital as to be a public use appropriate for the exercise of the power of eminent domain" when only members of the Iglesia ni Cristo would benefit? This attempt to give some religious perspective to the case deserves little consideration, for what should be significant is the principal objective of, not the casual consequences that might follow from, the exercise of the power. The purpose in setting up the marker is essentially to recognize the distinctive contribution of the late Felix Manalo to the culture of the Philippines, rather than to commemorate his founding and leadership of the Iglesia ni Cristo. The practical reality that greater benefit may be derived by members of the Iglesia ni Cristo than by most others could well be true but such a peculiar advantage still remains to be merely incidental and secondary in nature. Indeed, that only a few would actually benefit from the expropriation of property, does not necessarily diminish the essence and character of public use.

The petitioner asserts that the respondent must comply with the requirements for the establishment of an easement of right-of-way, more specifically, the road must be constructed at the point least prejudicial to the servient state, and that there must be no adequate outlet to a public highway. The petitioner asserts that the portion of the lot sought to be expropriated is located at the middle portion of the petitioners entire parcel of land, thereby splitting the lot into two halves, and making it impossible for the petitioner to put up its school building and worship center. The subject property is expropriated for the purpose of constructing a road. The respondent is not mandated to comply with the essential requisites for an easement of right-of-way under the New Civil Code. Case law has it that in the absence of legislative restriction, the grantee of the power of eminent domain may determine the location and route of the land to be taken66 unless such determination is capricious and wantonly injurious.67Expropriation is justified so long as it is for the public good and there is genuine necessity of public character.68Government may not capriciously choose what private property should be taken.69 The respondent has demonstrated the necessity for constructing a road from E. R. Santos Street to Sto. Tomas Bukid. The witnesses, who were residents of Sto. Tomas Bukid, testified that although there were other ways through which one can enter the vicinity, no vehicle, however, especially fire trucks, could enter the area except through the newly constructed Damayan Street. This is more than sufficient to establish that there is a genuine necessity for the construction of a road in the area. After all, absolute necessity is not required, only reasonable and practical necessity will suffice.70 Nonetheless, the respondent failed to show the necessity for constructing the road particularly in the petitioners property and not elsewhere.71 We note that the whereas clause of the ordinance states that the 51-square meter lot is the shortest and most suitable access road to connect Sto. Tomas Bukid to E. R. Santos Street. The respondents complaint also alleged that the said portion of the petitioners lot has been surveyed as the best possible ingress and egress. However, the respondent failed to adduce a preponderance of evidence to prove its claims. On this point, the trial court made the following findings: The contention of the defendants that there is an existing alley that can serve the purpose of the expropriator is not accurate. An inspection of the vicinity reveals that the alley being referred to by the defendants actually passes thru Bagong Taon St. but only about one-half (1/2) of its entire length is passable by vehicle and the other half is merely a foot-path. It would be more inconvenient to widen the alley considering that its sides are occupied by permanent structures and its length from the municipal road to the area sought to be served by the expropriation is considerably longer than the proposed access road. The area to be served by the access road is composed of compact wooden houses and literally a slum area. As a result of the expropriation of the 51-square meter portion of the property of the intervenor, a 3-meter wide road open to the public is created. This portion of the property of the intervenor is the most convenient access to the interior of Sto. Tomas Bukid since it is not only a short cut to the interior of the Sto. Tomas Bukid but also an easy path for vehicles entering the area, not to mention the 3-meter wide road requirement of the Fire Code.72 However, as correctly pointed out by the petitioner, there is no showing in the record that an ocular inspection was conducted during the trial. If, at all, the trial court conducted an ocular inspection of the subject property during the trial, the petitioner was not notified thereof. The petitioner was, therefore, deprived of its right to due process. It bears stressing that an ocular inspection is part of the trial as evidence is thereby received and the parties are entitled to be present at any stage of the trial.73 Consequently, where, as in this case, the petitioner was not notified of any ocular inspection of the property, any factual finding of the court based on the said inspection has no probative weight.

The findings of the trial court based on the conduct of the ocular inspection must, therefore, be rejected. IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision and Resolution of the Court of Appeals are REVERSED AND SET ASIDE. The RTC is ordered to dismiss the complaint of the respondent without prejudice to the refiling thereof. SO ORDERED.

G.R. No. 135087

March 14, 2000

HEIRS OF ALBERTO SUGUITAN, petitioner, vs. CITY OF MANDALUYONG, respondent. DECISION GONZAGA-REYES, J.: In this petition for review on certiorari under Rule 45, petitioners1 pray for the reversal of the Order dated July 28, 1998 issued by Branch 155 of the Regional Trial Court of Pasig in SCA No. 875 entitled "City of Mandaluyong v. Alberto S. Suguitan, the dispositive portion of which reads as follows: WHEREFORE, in view of the foregoing, the instant Motion to Dismiss is hereby DENIED and an ORDER OF CONDEMNATION is hereby issued declaring that the plaintiff, City of Mandaluyong, has a lawful right to take the subject parcel of land together with existing improvements thereon more specifically covered by Transfer Certificate Of Title No. 56264 of the Registry of Deeds for Metro Manila District II for the public use or purpose as stated in the Complaint, upon payment of just compensation. Accordingly, in order to ascertain the just compensation, the parties are hereby directed to submit to the Court within fifteen (15) days from notice hereof, a list of independent appraisers from which the Court will select three (3) to be appointed as Commissioners, pursuant to Section 5, Rule 67, Rules of Court. SO ORDERED.2 It is undisputed by the parties that on October 13, 1994, the Sangguniang Panlungsod of Mandaluyong City issued Resolution No. 396, S-19943 authorizing then Mayor Benjamin B. Abalos to institute expropriation proceedings over the property of Alberto Suguitan located at Boni Avenue and Sto. Rosario streets in Mandaluyong City with an area of 414 square meters and more particularly described under Transfer Certificate of Title No. 56264 of the Registry of Deeds of Metro Manila District II. The intended purpose of the expropriation was the expansion of the Mandaluyong Medical Center. Mayor Benjamin Abalos wrote Alberto Suguitan a letter dated January 20, 1995 offering to buy his property, but Suguitan refused to sell.4 Consequently, on March 13, 1995, the city of Mandaluyong

filed a complaint5 for expropriation with the Regional Trial Court of Pasig. The case was docketed as SCA No. 875. Suguitan filed a motion to dismiss6 the complaint based on the following grounds (1) the power of eminent domain is not being exercised in accordance with law; (2) there is no public necessity to warrant expropriation of subject property; (3) the City of Mandaluyong seeks to expropriate the said property without payment of just compensation; (4) the City of Mandaluyong has no budget and appropriation for the payment of the property being expropriated; and (5) expropriation of Suguitan's property is but a ploy of Mayor Benjamin Abalos to acquire the same for his personal use. Respondent filed its comment and opposition to the motion. On October 24, 1995, the trial court denied Suguitan's motion to dismiss.7 On November 14, 1995, acting upon a motion filed by the respondent, the trial court issued an order allowing the City of Mandaluyong to take immediate possession of Suguitan's property upon the deposit of P621,000 representing 15% of the fair market value of the subject property based upon the current tax declaration of such property. On December 15, 1995, the City of Mandaluyong assumed possession of the subject property by virtue of a writ of possession issued by the trial court on December 14, 1995.8 On July 28, 1998, the court granted the assailed order of expropriation. Petitioners assert that the city of Mandaluyong may only exercise its delegated power of eminent domain by means of an ordinance as required by section 19 of Republic Act (RA) No. 7160,9 and not by means of a mere resolution.10 Respondent contends, however, that it validly and legally exercised its power of eminent domain; that pursuant to article 36, Rule VI of the Implementing Rules and Regulations (IRR) of RA 7160, a resolution is a sufficient antecedent for the filing of expropriation proceedings with the Regional Trial Court. Respondent's position, which was upheld by the trial court, was explained, thus: 11 . . . in the exercise of the respondent City of Mandaluyong's power of eminent domain, a "resolution" empowering the City Mayor to initiate such expropriation proceedings and thereafter when the court has already determine[d] with certainty the amount of just compensation to be paid for the property expropriated, then follows an Ordinance of the Sanggunian Panlungosd appropriating funds for the payment of the expropriated property. Admittedly, title to the property expropriated shall pass from the owner to the expropriator only upon full payment of the just compensation. 12 Petitioners refute respondent's contention that only a resolution is necessary upon the initiation of expropriation proceedings and that an ordinance is required only in order to appropriate the funds for the payment of just compensation, explaining that the resolution mentioned in article 36 of the IRR is for purposes of granting administrative authority to the local chief executive to file the expropriation case in court and to represent the local government unit in such case, but does not dispense with the necessity of an ordinance for the exercise of the power of eminent domain under section 19 of the Code. 13 The petition is imbued with merit. Eminent domain is the right or power of a sovereign state to appropriate private property to particular uses to promote public welfare. 14 It is an indispensable attribute of sovereignty; a power grounded in the primary duty of government to serve the common need and advance the general welfare. 15 Thus, the right of eminent domain appertains to every independent government without the necessity for constitutional recognition. 16 The provisions found in modern constitutions of civilized countries relating to the taking of property for the public use do not by implication grant the power to the government, but limit a power which would otherwise be without limit. 17 Thus, our own

Constitution provides that "[p]rivate property shall not be taken for public use without just compensation."18 Furthermore, the due process and equal protection clauses 19 act as additional safeguards against the arbitrary exercise of this governmental power. Since the exercise of the power of eminent domain affects an individual's right to private property, a constitutionally-protected right necessary for the preservation and enhancement of personal dignity and intimately connected with the rights to life and liberty, 20 the need for its circumspect operation cannot be overemphasized. In City of Manila vs. Chinese Community of Manila we said: 21 The exercise of the right of eminent domain, whether directly by the State, or by its authorized agents, is necessarily in derogation of private rights, and the rule in that case is that the authority must be strictly construed. No species of property is held by individuals with greater tenacity, and none is guarded by the constitution and the laws more sedulously, than the right to the freehold of inhabitants. When the legislature interferes with that right, and, for greater public purposes, appropriates the land of an individual without his consent, the plain meaning of the law should not be enlarged by doubt[ful] interpretation. (Bensley vs. Mountainlake Water Co., 13 Gal., 306 and cases cited [73 Am. Dec., 576].) The statutory power of taking property from the owner without his consent is one of the most delicate exercise of governmental authority. It is to be watched with jealous scrutiny. Important as the power may be to the government, the inviolable sanctity which all free constitutions attach to the right of property of the citizens, constrains the strict observance of the substantial provisions of the law which are prescribed as modes of the exercise of the power, and to protect it from abuse. . . . (Dillon on Municipal Corporations [5th Ed.], sec. 1040, and cases cited; Tenorio vs. Manila Railroad Co., 22 Phil., 411.) The power of eminent domain is essentially legislative in nature. It is firmly settled, however, that such power may be validly delegated to local government units, other public entities and public utilities, although the scope of this delegated legislative power is necessarily narrower than that of the delegating authority and may only be exercised in strict compliance with the terms of the delegating law. 22 The basis for the exercise of the power of eminent domain by local government units is section 19 of RA 7160 which provides that: A local government unit may, through its chief executive and acting pursuant to an ordinance, exercise the power of eminent domain for public use, purpose, or welfare for the benefits of the poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and pertinent laws;Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted; Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated;Provided, finally, That the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property. Despite the existence of this legislative grant in favor of local governments, it is still the duty of the courts to determine whether the power of eminent domain is being exercised in accordance with the delegating law. 23 In fact, the courts have adopted a more censorious attitude in resolving questions

involving the proper exercise of this delegated power by local bodies, as compared to instances when it is directly exercised by the national legislature. 24 The courts have the obligation to determine whether the following requisites have been complied with by the local government unit concerned: 1. An ordinance is enacted by the local legislative council authorizing the local chief executive, in behalf of the local government unit, to exercise the power of eminent domain or pursue expropriation proceedings over a particular private property. 2. The power of eminent domain is exercised for public use, purpose or welfare, or for the benefit of the poor and the landless. 3. There is payment of just compensation, as required under Section 9, Article III of the Constitution, and other pertinent laws. 4. A valid and definite offer has been previously made to the owner of the property sought to be expropriated, but said offer was not accepted. 25 In the present case, the City of Mandaluyong seeks to exercise the power of eminent domain over petitioners' property by means of a resolution, in contravention of the first requisite. The law in this case is clear and free from ambiguity. Section 19 of the Code requires an ordinance, not a resolution, for the exercise of the power of eminent domain. We reiterate our ruling in Municipality of Paraaque v. V.M. Realty Corporation 26 regarding the distinction between an ordinance and a resolution. In that 1998 case we held that: We are not convinced by petitioner's insistence that the terms "resolution" and "ordinance" are synonymous. A municipal ordinance is different from a resolution. An ordinance is a law, but a resolution is merely a declaration of the sentiment or opinion of a lawmaking body on a specific matter. An ordinance possesses a general and permanent character, but a resolution is temporary in nature. Additionally, the two are enacted differently a third reading is necessary for an ordinance, but not for a resolution, unless decided otherwise by a majority of all the Sanggunian members. We cannot uphold respondent's contention that an ordinance is needed only to appropriate funds after the court has determined the amount of just compensation. An examination of the applicable law will show that an ordinance is necessary to authorize the filing of a complaint with the proper court since, beginning at this point, the power of eminent domain is already being exercised. Rule 67 of the 1997 Revised Rules of Court reveals that expropriation proceedings are comprised of two stages: (1) the first is concerned with the determination of the authority of the plaintiff to exercise the power of eminent domain and the propriety of its exercise in the context of the facts involved in the suit; it ends with an order, if not in a dismissal of the action, of condemnation declaring that the plaintiff has a lawful right to take the property sought to be condemned, for the public use or purpose described in the complaint, upon the payment of just compensation to be determined as of the date of the filing of the complaint;

(2) the second phase is concerned with the determination by the court of the just compensation for the property sought to be taken; this is done by the court with the assistance of not more than three (3) commissioners. 27 Clearly, although the determination and award of just compensation to the defendant is indispensable to the transfer of ownership in favor of the plaintiff, it is but the last stage of the expropriation proceedings, which cannot be arrived at without an initial finding by the court that the plaintiff has a lawful right to take the property sought to be expropriated, for the public use or purpose described in the complaint. An order of condemnation or dismissal at this stage would be final, resolving the question of whether or not the plaintiff has properly and legally exercised its power of eminent domain. Also, it is noted that as soon as the complaint is filed the plaintiff shall already have the right to enter upon the possession of the real property involved upon depositing with the court at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated. 28 Therefore, an ordinance promulgated by the local legislative body authorizing its local chief executive to exercise the power of eminent domain is necessary prior to the filing by the latter of the complaint with the proper court, and not only after the court has determined the amount of just compensation to which the defendant is entitled. Neither is respondent's position improved by its reliance upon Article 36 (a), Rule VI of the IRR which provides that: If the LGU fails to acquire a private property for public use, purpose, or welfare through purchase, LGU may expropriate said property through a resolution of the sanggunian authorizing its chief executive to initiate expropriation proceedings. The Court has already discussed this inconsistency between the Code and the IRR, which is more apparent than real, in Municipality of Paraaque vs. V.M. Realty Corporation, 29 which we quote hereunder: Petitioner relies on Article 36, Rule VI of the Implementing Rules, which requires only a resolution to authorize an LGU to exercise eminent domain. This is clearly misplaced, because Section 19 of RA 7160, the law itself, surely prevails over said rule which merely seeks to implement it. It is axiomatic that the clear letter of the law is controlling and cannot be amended by a mere administrative rule issued for its implementation. Besides, what the discrepancy seems to indicate is a mere oversight in the wording of the implementing rules, since Article 32, Rule VI thereof, also requires that, in exercising the power of eminent domain, the chief executive of the LGU must act pursuant to an ordinance. Therefore, while we remain conscious of the constitutional policy of promoting local autonomy, we cannot grant judicial sanction to a local government unit's exercise of its delegated power of eminent domain in contravention of the very law giving it such power. It should be noted, however, that our ruling in this case will not preclude the City of Mandaluyong from enacting the necessary ordinance and thereafter reinstituting expropriation proceedings, for so long as it has complied with all other legal requirements.30 WHEREFORE, the petition is hereby GRANTED. The July 28, 1998 decision of Branch 155 of the Regional Trial Court of Pasig in SCA No. 875 is hereby REVERSED and SET ASIDE. SO ORDERED.

G.R. No. 127820 July 20, 1998 MUNICIPALITY OF PARAAQUE, petitioner, vs. V.M. REALTY CORPORATION, respondent.

PANGANIBAN, J.: A local government unit (LGU), like the Municipality of Paraaque, cannot authorize an expropriation of private property through a mere resolution of its lawmaking body. The Local Government Code expressly and clearly requires an ordinance or a local law for the purpose. A resolution that merely expresses the sentiment or opinion of the Municipal Council will not suffice. On the other hand, the principle of res judicata does not bar subsequent proceedings for the expropriation of the same property when all the legal requirements for its valid exercise are complied with. Statement of the Case These principles are applied by this Court in resolving this petition for review on certiorari of the July 22, 1996 Decision 1 of the Court of Appeals 2 in CA GR CV No. 48048, which affirmed in toto 3 the Regional Trial Court's August 9, 1994 Resolution. 4 The trial court dismissed the expropriation suit as follows: The right of the plaintiff to exercise the power of eminent domain is not disputed. However, such right may be exercised only pursuant to an Ordinance (Sec. 19, R.A No. 7160). In the instant case, there is no such ordinance passed by the Municipal Council of Paraaque enabling the Municipality, thru its Chief Executive, to exercise the power of eminent domain. The complaint, therefore, states no cause of action. Assuming that plaintiff has a cause of action, the same is barred by a prior judgment. On September 29, 1987, the plaintiff filed a complaint for expropriation involving the same parcels of land which was docketed as Civil Case No. 17939 of this Court (page 26, record). Said case was dismissed with prejudice on May 18, 1988 (page 39, record). The order of dismissal was not appealed, hence, the same became final. The plaintiff can not be allowed to pursue the present action without violating the principle of [r]es [j]udicata. While defendant in Civil Case No. 17939 was Limpan Investment Corporation, the doctrine of res judicata still applies because the judgment in said case (C.C. No. 17939) is conclusive between the parties and their successors-in-interest (Vda. de Buncio vs. Estate of the late Anita de Leon). The herein defendant is the successor-in-interest of Limpan Investment Corporation as shown by the "Deed of Assignment Exchange" executed on June 13, 1990. WHEREFORE, defendant's motion for reconsideration is hereby granted. The order dated February 4, 1994 is vacated and set aside. This case is hereby dismissed. No pronouncement as to costs.
SO ORDERED. 5

Factual Antecedents Pursuant to Sangguniang Bayan Resolution No. 93-95, Series of 1993, 6 the Municipality of Paraaque filed on September 20, 1993, a Complaint for expropriation 7 against Private Respondent V.M. Realty Corporation over two parcels of land (Lots 2-A-2 and 2-B-1 of Subdivision Plan Psd17917), with a combined area of about 10,000 square meters, located at Wakas, San Dionisio, Paraaque, Metro Manila, and covered by Torrens Certificate of Title No. 48700. Allegedly, the complaint was filed "for the purpose of alleviating the living conditions of the underprivileged by providing homes for the homeless through a socialized housing project." 8 Parenthetically, it was also for this stated purpose that petitioner, pursuant to its Sangguniang Bayan Resolution No. 577, Series of 1991, 9 previously made an offer to enter into a negotiated sale of the property with private respondent, which the latter did not accept. 10 Finding the Complaint sufficient in form and substance, the Regional Trial Court of Makati, Branch 134, issued an Order dated January 10, 1994, 11 giving it due course. Acting on petitioner's motion, said court issued an Order dated February 4, 1994, 12 authorizing petitioner to take possession of the subject property upon deposit with its clerk of court of an amount equivalent to 15 percent of its fair market value based on its current tax declaration. On February 21, 1994, private respondent filed its Answer containing affirmative defenses and a counterclaim, 13alleging in the main that (a) the complaint failed to state a cause of action because it was filed pursuant to a resolution and not to an ordinance as required by RA 7160 (the Local Government Code); and (b) the cause of action, if any, was barred by a prior judgment or res judicata. On private respondent's motion, its Answer was treated as a motion to dismiss. 14 On March 24, 1991, 15 petitioner filed its opposition, stressing that the trial court's Order dated February 4, 1994 was in accord with Section 19 of RA 7160, and that the principle of res judicata was not applicable. Thereafter, the trial court issued its August 9, 1994 Resolution 16 nullifying its February 4, 1994 Order and dismissing the case. Petitioner's motions for reconsideration and transfer of venue were denied by the trial court in a Resolution dated December 2, 1994. 17 Petitioner then appealed to Respondent Court, raising the following issues: 1. Whether or not the Resolution of the Paraaque Municipal Council No. 93-95, Series of 1993 is a substantial compliance of the statutory requirement of Section 19, R.A. 7180 [sic] in the exercise of the power of eminent domain by the plaintiff-appellant. 2. Whether or not the complaint in this case states no cause of action. 3. Whether or not the strict adherence to the literal observance to the rule of procedure resulted in technicality standing in the way of substantial justice.
4. Whether or not the principle of res judicata is applicable to the present case. 18

As previously mentioned, the Court of Appeals affirmed in toto the trial court's Decision. Respondent Court, in its assailed Resolution promulgated on January 8, 1997, 19 denied petitioner's Motion for Reconsideration for lack of merit. Hence, this appeal. 20

The Issues Before this Court, petitioner posits two issues, viz.: 1. A resolution duly approved by the municipal council has the same force and effect of an ordinance and will not deprive an expropriation case of a valid cause of action.
2. The principle of res judicata as a ground for dismissal of case is not applicable when public interest is primarily involved. 21

The Court's Ruling The petition is not meritorious. First Issue: Resolution Different from an Ordinance Petitioner contends that a resolution approved by the municipal council for the purpose of initiating an expropriation case "substantially complies with the requirements of the law" 22 because the terms "ordinance" and "resolution" are synonymous for "the purpose of bestowing authority [on] the local government unit through its chief executive to initiate the expropriation proceedings in court in the exercise of the power of eminent domain."23 Petitioner seeks to bolster this contention by citing Article 36, Rule VI of the Rules and Regulations Implementing the Local Government Code, which provides. "If the LGU fails to acquire a private property for public use, purpose, or welfare through purchase, the LGU may expropriate said property through a resolution of theSanggunian authorizing its chief executive to initiate expropriation proceedings." 24 (Emphasis supplied.) The Court disagrees. The power of eminent domain is lodged in the legislative branch of government, which may delegate the exercise thereof to LGUs, other public entities and public utilities. 25 An LGU may therefore exercise the power to expropriate private property only when authorized by Congress and subject to the latter's control and restraints, imposed "through the law conferring the power or in other legislations." 26 In this case, Section 19 of RA 7160, which delegates to LGUs the power of eminent domain, also lays down the parameters for its exercise. It provides as follows: 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 pertinent laws: Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided,finally, That, the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property. (Emphasis supplied)

Thus, the following essential requisites must concur before an LGU can exercise the power of eminent domain: 1. An ordinance is enacted by the local legislative council authorizing the local chief executive, in behalf of the LGU, to exercise the power of eminent domain or pursue expropriation proceedings over a particular private property. 2. The power of eminent domain is exercised for public use, purpose or welfare, or for the benefit of the poor and the landless. 3. There is payment of just compensation, as required under Section 9, Article III of the Constitution, and other pertinent laws. 4. A valid and definite offer has been previously made to the owner of the property sought to be expropriated, but said offer was not accepted. 27 In the case at bar, the local chief executive sought to exercise the power of eminent domain pursuant to a resolution of the municipal council. Thus, there was no compliance with the first requisite that the mayor be authorized through an ordinance. Petitioner cites Camarines Sur vs. Court of Appeals 28 to show that a resolution may suffice to support the exercise of eminent domain by an LGU. 29 This case, however, is not in point because the applicable law at that time was BP 337, 30 the previous Local Government Code, which had provided that a mere resolution would enable an LGU to exercise eminent domain. In contrast, RA 7160, 31 the present Local Government Code which was already in force when the Complaint for expropriation was filed, explicitly required an ordinance for this purpose. We are not convinced by petitioner's insistence that the terms "resolution" and "ordinance" are synonymous. A municipal ordinance is different from a resolution. An ordinance is a law, but a resolution is merely a declaration of the sentiment or opinion of a lawmaking body on a specific matter. 32 An ordinance possesses a general and permanent character, but a resolution is temporary in nature. Additionally, the two are enacted differently a third reading is necessary for an ordinance, but not for a resolution, unless decided otherwise by a majority of all the Sanggunian members. 33 If Congress intended to allow LGUs to exercise eminent domain through a mere resolution, it would have simply adopted the language of the previous Local Government Code. But Congress did not. In a clear divergence from the previous Local Government Code, Section 19 of RA 7160 categorically requires that the local chief executive act pursuant to an ordinance. Indeed, "[l]egislative intent is determined principally from the language of a statute. Where the language of a statute is clear and unambiguous, the law is applied according to its express terms, and interpretation would be resorted to only where a literal interpretation would be resorted to only where a literal interpretation would be either impossible or absurd or would lead to an injustice." 34 In the instant case, there is no reason to depart from this rule, since the law requiring an ordinance is not at all impossible, absurd, or unjust. Moreover, the power of eminent domain necessarily involves a derogation of a fundamental or private right of the people. 35 Accordingly, the manifest change in the legislative language from "resolution" under BP 337 to "ordinance" under RA 7160 demands a strict construction. "No species of property is held by individuals with greater tenacity, and is guarded by the Constitution and laws more sedulously, than the right to the freehold of inhabitants. When the legislature interferes with that right and, for greater public purposes, appropriates the land of an individual without his consent, the plain meaning of the law should not be enlarged by doubtful interpretation." 36

Petitioner relies on Article 36, Rule VI of the Implementing Rules, which requires only a resolution to authorize an LGU to exercise eminent domain. This is clearly misplaced, because Section 19 of RA 7160, the law itself, surely prevails over said rule which merely seeks to implement it. 37 It is axiomatic that the clear letter of the law is controlling and cannot be amended by a mere administrative rule issued for its implementation. Besides, what the discrepancy seems to indicate is a mere oversight in the wording of the implementing rules, since Article 32, Rule VI thereof, also requires that, in exercising the power of eminent domain, the chief executive of the LGU act pursuant to an ordinance. In this ruling, the Court does not diminish the policy embodied in Section 2, Article X of the Constitution, which provides that "territorial and political subdivisions shall enjoy local autonomy." It merely upholds the law as worded in RA 7160. We stress that an LGU is created by law and all its powers and rights are sourced therefrom. It has therefore no power to amend or act beyond the authority given and the limitations imposed on it by law. Strictly speaking, the power of eminent domain delegated to an LGU is in reality not eminent but "inferior" domain, since it must conform to the limits imposed by the delegation, and thus partakes only of a share in eminent domain. 38Indeed, "the national legislature is still the principal of the local government units, which cannot defy its will or modify or violate it." 39 Complaint Does Not State a Cause of Action In its Brief filed before Respondent Court, petitioner argues that its Sangguniang Bayan passed an ordinance on October 11, 1994 which reiterated its Resolution No. 93-35, Series of 1993, and ratified all the acts of its mayor regarding the subject expropriation. 40 This argument is bereft of merit. In the first place, petitioner merely alleged the existence of such an ordinance, but it did not present any certified true copy thereof. In the second place, petitioner did not raise this point before this Court. In fact, it was mentioned by private respondent, and only in passing. 41 In any event, this allegation does not cure the inherent defect of petitioner's Complaint for expropriation filed on September 23, 1993. It is hornbook doctrine that
. . . in a motion to dismiss based on the ground that the complaint fails to state a cause of action, the question submitted before the court for determination is the sufficiency of the allegations in the complaint itself. Whether those allegations are true or not is beside the point, for their truth is hypothetically admitted by the motion. The issue rather is: admitting them to be true, may the court render a valid judgment in accordance with the prayer of the complaint? 42

The fact that there is no cause of action is evident from the face of the Complaint for expropriation which was based on a mere resolution. The absence of an ordinance authorizing the same is equivalent to lack of cause of action. Consequently, the Court of Appeals committed no reversible error in affirming the trial court's Decision which dismissed the expropriation suit. Second Issue: Eminent Domain Not Barred by Res Judicata As correctly found by the Court of Appeals 43 and the trial court, 44 all the requisites for the application of res judicata are present in this case. There is a previous final judgment on the merits in a prior

expropriation case involving identical interests, subject matter and cause of action, which has been rendered by a court having jurisdiction over it. Be that as it may, the Court holds that the principle of res judicata, which finds application in generally all cases and proceedings, 45 cannot bar the right of the State or its agent to expropriate private property. The very nature of eminent domain, as an inherent power of the State, dictates that the right to exercise the power be absolute and unfettered even by a prior judgment or res judicata. The scope of eminent domain is plenary and, like police power, can "reach every form of property which the State might need for public use." 46 "All separate interests of individuals in property are held of the government under this tacit agreement or implied reservation. Notwithstanding the grant to individuals, the eminent domain, the highest and most exact idea of property, remains in the government, or in the aggregate body of the people in their sovereign capacity; and they have the right to resume the possession of the property whenever the public interest requires it." 47 Thus, the State or its authorized agent cannot be forever barred from exercising said right by reason alone of previous non-compliance with any legal requirement. While the principle of res judicata does not denigrate the right of the State to exercise eminent domain, it does apply to specific issues decided in a previous case. For example, a final judgment dismissing an expropriation suit on the ground that there was no prior offer precludes another suit raising the same issue; it cannot, however, bar the State or its agent from thereafter complying with this requirement, as prescribed by law, and subsequently exercising its power of eminent domain over the same property. 48 By the same token, our ruling that petitioner cannot exercise its delegated power of eminent domain through a mere resolution will not bar it from reinstituting similar proceedings, once the said legal requirement and, for that matter, all others are properly complied with. Parenthetically and by parity of reasoning, the same is also true of the principle of "law of the case." In Republic vs. De Knecht, 49 the Court ruled that the power of the State or its agent to exercise eminent domain is not diminished by the mere fact that a prior final judgment over the property to be expropriated has become the law of the case as to the parties. The State or its authorized agent may still subsequently exercise its right to expropriate the same property, once all legal requirements are complied with. To rule otherwise will not only improperly diminish the power of eminent domain, but also clearly defeat social justice. WHEREFORE, the petition is hereby DENIED without prejudice to petitioner's proper exercise of its power of eminent domain over subject property. Costs against petitioner. SO ORDERED.

G.R. No. 132431

February 13, 2004

ESTATE OR HEIRS OF THE LATE EX-JUSTICE JOSE B. L. REYES represented by their Administratrix and Attorney-In-Fact, Adoracion D. Reyes, and the ESTATE OR HEIRS OF THE LATE DR. EDMUNDO A. REYES, represented by MARIA TERESA P. REYES and CARLOS P. REYES, petitioners vs. CITY OF MANILA, respondent. G.R. No. 137146 February 13, 2004

ESTATE OF HEIRS OF THE LATE EX-JUSTICE JOSE B.L. REYES and ESTATE OR HEIRS OF THE LATE DR. EDMUNDO REYES, petitioners

vs. COURT OF APPEALS, DR. ROSARIO ABIOG, ANGELINA MAGLONSO and SAMPAGUITA BISIG NG MAGKAKAPITBAHAY, INC. and the CITY OF MANILA, respondents. DECISION CORONA, J.: Before us are the following consolidated petitions filed by petitioners Heirs of Jose B.L. Reyes and Edmundo Reyes: (1) a petition for review1 of the decision2 of the Court of Appeals dated January 27, 1998 which ordered the condemnation of petitioners properties and reversed the order3 of the Regional Trial Court (RTC) of Manila, Branch 9, dated October 3, 1995 dismissing the complaint of respondent City of Manila (City) for expropriation, and (2) a petition for certiorari4 alleging that the Court of Appeals committed grave abuse of discretion in rendering a resolution5 dated August 19, 1998 which issued a temporary restraining order against the Municipal Trial Court (MTC) of Manila, Branch 10, not to "(disturb) the occupancy of Dr. Rosario Abiog, one of the members of SBMI, until the Supreme Court has decided the Petition for Review on Certiorari" and a resolution6 dated December 16, 1998 enjoining petitioners "from disturbing the physical possession of all the properties subject of the expropriation proceedings." The undisputed facts follow. The records show that Jose B. L. Reyes and petitioners Heirs of Edmundo Reyes are the proindiviso co-owners in equal proportion of 11 parcels of land with a total area of 13,940 square meters situated at Sta. Cruz District, Manila and covered by Transfer Certificate of Title No. 24359 issued by the Register of Deeds of Manila. These parcels of land are being occupied and leased by different tenants, among whom are respondents Abiog, Maglonso and members of respondent Sampaguita Bisig ng Magkakapitbahay, Incorporated (SBMI). Petitioners leased to respondent Abiog Lot 2-E, Block 3007 of the consolidated subdivision plan (LRC) Psd- 328345, with an area of 191 square meters7 and to respondent Maglonso, Lot 2-R, Block 2996 of the same consolidation plan, with an area of 112 square meters.8 On November 9, 1993 and May 26, 1994, respectively, Jose B.L. Reyes and petitioners Heirs of Edmundo Reyes filed ejectment complaints against respondents Rosario Abiog and Angelina Maglonso, among others. Upon his death, Jose B.L. Reyes was substituted by his heirs. Petitioners obtained favorable judgments against said respondents. In Civil Case No. 142851-CV, the Metropolitan Trial Court (MTC) of Manila, Branch 10, rendered a decision dated May 9, 1994 against respondent Abiog. In Civil Case No. 144205-CV, the MTC of Manila, Branch 3, issued judgment dated May 4, 1995 against respondent Maglonso. Respondents Abiog and Maglonso appealed the MTC decisions but the same were denied9 by the RTC of Manila, Branch 28, and the RTC of Manila, Branch 38, respectively. Their appeals to the Court of Appeals were likewise denied.10 As no appeals were further taken, the judgments of eviction against respondents Abiog and Maglonso became final and executory in 1998. Meanwhile, during the pendency of the two ejectment cases against respondents Abiog and Maglonso, respondent City filed on April 25, 1995 a complaint for eminent domain (expropriation)11 of the properties of petitioners at the RTC of Manila, Branch 9. The properties sought to be acquired by the City included parcels of land occupied by respondents Abiog, Maglonso and members of respondent SBMI.

The complaint was based on Ordinance No. 7818 enacted on November 29, 1993 authorizing the City Mayor of Manila to expropriate certain parcels of land with an aggregate area of 9,930 square meters, more or less, owned by Jose B.L. Reyes and Edmundo Reyes situated along the streets of Rizal Avenue, Tecson, M. Natividad, Sampaguita, Oroquieta, M. Hizon, Felix Huertes, Bulacan, Sulu, Aurora Boulevard, Pedro Guevarra and Kalimbas in the third district of Manila. These parcels of land are more particularly described in the pertinent Cadastral Plan as Lot 3, Block 2995, Lot 2, Block 2996; Lot 2, Block 2999; Lot 5, Block 2999, and Lot 2, Block 3007. According to the ordinance, the said properties were to be distributed to the intended beneficiaries, who were "the occupants of the said parcels of land who (had) been occupying the said lands as lessees or any term thereof for a period of at least 10 years."12 The complaint alleged that, on March 10, 1995, respondent City thru City Legal Officer Angel Aguirre, Jr. sent the petitioners a written offer to purchase the subject properties for P10,285,293.38 but the same was rejected. Respondent City prayed that an order be issued fixing the provisional value of the property in the amount ofP9,684,380 based on the current tax declaration of the real properties and that it be authorized to enter and take possession thereof upon the deposit with the trial court of the amount of P1,452,657 or 15% of the aforesaid value. On May 15, 1995, respondent SBMI, a registered non-stock corporation composed of the residents of the subject properties (including as well as representing herein respondents Abiog and Maglonso), filed a motion for intervention and admission of their attached complaint with prayer for injunction. Respondent SBMI alleged that it had a legal interest over the subject matter of the litigation as its members were the lawful beneficiaries of the subject matter of the case. It prayed for the issuance of a temporary restraining order to enjoin the petitioners from ousting the occupants of the subject properties. The trial court denied the motion for intervention in an order dated June 2, 1995 on the ground that "the movants interest (was) indirect, contingent, remote, conjectual (sic), consequential (sic) and collateral. At the very least, it (was), if it (existed) at all, purely inchoate, or in sheer expectancy of a right that may or may not be granted."13 On the day SBMIs motion for intervention was denied, petitioners filed a motion to dismiss the complaint for eminent domain for lack of merit. Among the grounds alleged were the following: xxx that the amount allegedly deposited by the plaintiff is based on an erroneous computation since Sec. 19 of the Local Government Code of 1991 provides that in order for the plaintiff to take possession of the property, the deposit should be at least 15% of the fair market value of the property based on the current tax declaration of the property to be expropriated which is P19,619,520.00, 15% of which is P2,942,928.00; that since the subject property is allegedly being expropriated for socialized housing, the guidelines for their equitable valuation shall be set by the Department of Finance on the basis of the market value reflected in the zonal valuation conformably to Sec. 13 of R.A. No. 7279; that under Department Order No. 33-93 adopted by the Department of Finance, through the Bureau of Internal Revenue, on 26 April 1992, the zonal valuation of the subject property is conservatively estimated at approximately P76M; that the plaintiff has no savings or unappropriated funds to pay for the just compensation; that instead of expropriating the subject property which enjoys the least priority in the acquisition by the City of Manila for socialized housing under Sec. 9(t) of R.A. 7279, the money to be paid should be channeled to the development of 244 sites in Metro Manila designated as area for priority development; that the City Ordinance was not properly adopted since there was no public hearing and neither were the defendants notified; that the tenants occupying the subject property cannot be categorized as "underprivileged and homeless citizens" or those whose income falls within the poverty threshold to be qualified as beneficiaries of the intended socialized housing; and that the plaintiff failed to comply with Art. 34, Rule 6 of the Rules and Regulations Implementing the Local Government Code of 1991 which requires the local government unit to first establish the suitability of the property to be acquired for the use intended and then proceed to obtain from the proper authorities, like the National Housing Authority, the

necessary locational clearance and other requirements imposed under existing laws, rules and regulations.14 On June 6, 1995, the trial court allowed respondent City to take possession of the subject property upon deposit of the amount of P1,542,793, based on the P10,285,293.38 offer by respondent City to petitioners which the trial court fixed as the provisional amount of the subject properties. On June 14, 1995, respondent City filed an opposition to petitioners motion to dismiss. On October 3, 1995, the Citys complaint for eminent domain was dismissed.15 The trial court held that expropriation was inappropriate because herein petitioners were in fact willing to sell the subject properties under terms acceptable to the purchaser. Moreover, respondent City failed to show that its offer was rejected by petitioners. Respondent Citys motion for reconsideration was denied. On January 12, 1996, respondent City appealed the decision of the trial court to the Court of Appeals. Thereafter, several motions16 seeking the issuance of a temporary restraining order and preliminary injunction were filed by respondent City to prevent petitioners from ejecting the occupants of the subject premises. On March 21, 1996, the Court of Appeals issued a resolution17 denying the motions for lack of merit. Respondent Citys motion for reconsideration was likewise denied. Meanwhile, on January 27, 1997, in view of the finality of the judgment in the ejectment case against respondent Abiog, the MTC of Manila, Branch 10, issued a writ of execution. On January 31, 1997, respondent SBMI filed in the Court of Appeals a motion for leave to intervene with prayer for injunctive relief praying that the ejectment cases be suspended or that the execution thereof be enjoined in view of the pendency of the expropriation case filed by respondent City over the same parcels of land. As a follow-up, respondent Abiog filed in the appellate court, on August 25, 1997, a reiteratory motion for issuance of temporary restraining order and to stop the execution of the order dated June 27, 1997 of the Hon. Judge Tranquil P. Salvador, MTC of Manila, Branch 10. On August 26, 1997, the Court of Appeals issued a resolution18 finding prima facie basis to grant SBMIs motions. It issued a temporary restraining order to Judge Salvador, his employees and agents to maintain the status quo. After the hearing on the propriety of the issuance of a writ of preliminary injunction, respondent SBMI filed a reiteratory motion for injunctive relief on December 11, 1997. On January 27, 1998, the Court of Appeals rendered the assailed decision reversing the trial court judgment and upholding as valid respondent Citys exercise of its power of eminent domain over petitioners properties. The dispositive portion of the decision stated: WHEREFORE, the Orders appealed from are hereby REVERSED and SET ASIDE. The case is remanded to the lower court to determine specifically the amount of just compensation. SO ORDERED.19 According to the Court of Appeals: xxx there is no doubt as to the public purpose of the plaintiff-appellant in expropriating the property of the defendants-appellees. Ordinance No. 7818 expressly states that the subject parcels of land

are to be distributed to the landless poor residents therein who have been in possession of the said property for at least ten (10) years. xxx xxx xxx

xxx In the absence of any law which expressly provides for a period for filing an expropriation proceeding, the lower court erred in dismissing the complaint based on unsupported accusations and mere speculations, such as political motivation. The fact that the expropriation proceeding was not immediately instituted does not negate the existence of the public purpose for which the ordinance was enacted. Another reason for the lower courts dismissal was its finding that there was no proof that the offer of the plaintiff-appellant, through the City Legal Office, was not accepted. This conclusion by the lower court is belied by the letter of Adoracion D. Reyes, dated 17 March 1995, xxx. xxx xxx xxx

There can be no interpretation of the letter of the defendant-appellee other than that the valid and definite offer of the plaintiff-appellant to purchase the subject property was not accepted and, in the words of the defendant-appellee, was totally turned down. The lower court in denying the plaintiff-appellants motion for reconsideration of the order of dismissal held that the defendants-appellees were actually willing to sell, in fact, some of the tenants have already purchased the land that they occupy. However, we agree with the plaintiff-appellant that the contracts entered into by the defendants-appellees with some of the tenants do not affect the offer it made. The plaintiff-appellant was not a party in those transactions and as pointed out, its concern is the majority of those who have no means to provide themselves with decent homes to live on.20 From the aforementioned decision of the Court of Appeals, petitioners filed on March 19, 1998 the present petition for review21 before this Court. Alleging that respondent City cannot expropriate the subject parcels of land, petitioners assigned the following as errors of the Court of Appeals: The Court Appeals committed grave abuse and irreversible errors in holding that respondent City of Manila may expropriate petitioners parcels of land considering that: I. Respondent did not comply with Secs. 9 and 10 of P.D. (sic) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992 and Sec. 34 of the Local Government Code of 1991 (sic)." II. Ordinance No. 7818 enacted by the City of Manila is violative of the equal protection clause. III. There was no valid and definite offer by the respondent City of Manila to purchase subject parcels of land. IV. Assuming there was a valid offer, the amount deposited for the payment of just compensation was insufficient. V. Petitioners are not unwilling to sell the subject parcels of land.

VI. There was no pronouncement as to just compensation. 22 What followed were incidents leading to the filing of the petition for certiorari against the resolutions of the Court of Appeals which essentially sought to enjoin the petitioners from enforcing the final judgments against respondents Abiog, Maglonso and SBMI (hereinafter, respondent occupants) in the ejectment cases. On August 17, 1998, respondents Abiog and Maglonso filed in the Court of Appeals an urgent motion for protective order. Meanwhile, on September 8, 1998, petitioners were able to secure from the MTC of Manila, Branch 3, a writ of execution of the final judgment in the other ejectment case against respondent Maglonso. On October 19, 1998, respondent SBMI filed in the CA a similar motion for protective order. In essence, the respondents motions for "protective order" sought to stop the execution of the final and executory judgments in the ejectment cases against them. On August 19, 1998, the Court of Appeals promulgated the first assailed resolution,23 the dispositive portion of which read: Considering that this case has been elevated to the Supreme Court, the Municipal Trial Court of Manila, Branch 10 and Sheriff Jess Areola or any other sheriff of the City of Manila, are hereby TEMPORARILY RESTRAINED from disturbing the occupancy of Dr. Rosario Abiog, one of the members of the SBMI until the Supreme Court has decided the Petition for Review on Certiorari. On September 4, 1998, petitioners filed a motion to set aside as ineffective and/or null and void the said August 19, 1998 resolution. But the Court of Appeals denied the same in a resolution dated December 16, 1998,24 the dispositive portion of which read: WHEREFORE, the Estate or heirs of J.B.L. Reyes and all persons acting in their behalf are hereby ENJOINED from disturbing the physical possession of all the properties (sic) subject of the expropriation proceedings. SO ORDERED. In enjoining the petitioners from evicting respondent occupants and in effect suspending the execution of the MTC judgments, the appellate court held that: We do not agree with the contention of the defendants-appellees that we no longer have any jurisdiction to issue the subject resolution. In spite of having rendered the decision on 27 January 1998, the appellate Court still has the inherent power and discretion to amend whatever order or decision it had made before in order to render substantial justice. xxx xxx xxx

There is no doubt that the members of SBMI have a personality to intervene before this Court. The plaintiff-appellant itself, in their Comment to the defendants-appellees motion to set aside this Courts 19 August 1998 resolution, recognized Dr. Rosario Abiog, as one of the intended beneficiaries of the expropriation case. The plaintiff-appellant also enumerated the ejectment cases pending before the lower courts when it filed a motion for the issuance of temporary restraining order and/or writ of preliminary injunction upon appeal to this Court. Moreover, the plaintiff-appellant also

furnished this Court with a copy of the THIRD PARTY CLAIM it filed before the City Sheriff Office and Sheriff Dante Lot to enjoin them from implementing and executing the Demolition Order issued by the Metropolitan Trial Court of Manila (Branch 3) against Angelina Maglonso. In their motion to set aside the 19 August 1998 resolution, the defendants-appellees, quoting the Order of the lower court denying the motion for intervention stated that: The petition of the plaintiff to expropriate the property does not ipso facto create any fiat that would give rise to the claim of the movant of "legal interest" in the property. The petition could well be denied leaving any assertion of interest on the part of the movant absolutely untenable. If the petition, on the other hand, is granted, that would be the time for the movant to intervene, to show that they are the intended beneficiaries, and if the plaintiff would distribute the property to other persons, the remedy is to compel the plaintiff to deliver the lot to them. Having established that they are the intended beneficiaries, the intervenors then have the right to seek protection from this Court. On 27 January 1998, we held that the plaintiff-appellant validly exercised its power of eminent domain and consequently may expropriate the subject property upon payment of just compensation. The record before us shows that on 6 June 1995, the lower court allowed the plaintiff-appellant to take possession of the subject property upon filing of P1,542,793.00 deposit. The property to be expropriated includes the same properties subject of the ejectment cases against the intervenors. There is nothing in the record that would show that the order of possession was ever set aside or the deposit returned to the plaintiff-appellant. Based on the foregoing considerations, we find that the intervenors are entitled to the injunction that they prayed for. To allow the demolition of the premises of the intervenors would defeat the very purpose of expropriation which is to distribute the subject property to the intended beneficiaries who are the occupants of the said parcels of land who have been occupying the said lands as lessees or any term thereof for a period of at least ten (10) years. In the case of Lourdes Guardacasa Vda. De Legaspi vs. Hon. Herminion A. Avendano, et al., the Supreme Court ordered the suspension of the enforcement and implementation of the writ of execution and order of demolition issued in the ejectment case until after the final termination of the action for quieting of title because it is more equitable and just and less productive of confusion and disturbance of physical possession with all its concomitant inconvenience and expenses. As held in Wilmon Auto Supply Corp., et al. vs. Hon. Court of Appeals, et al., the exception to the rule in the case of Vda. De Legaspi case, execution of the decision in the ejectment case would also have meant demolition of the premises, which is the situation in the case at bar.25 Claiming that the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction, petitioners filed the subject petition for certiorari26 with the following assignments of error: I PUBLIC RESPONDENT COURT OF APPEALS HAS NO JURISDICTION IN ISSUING THE "PROTECTIVE ORDER" ENJOINING THE EXECUTION OF THE FINAL AND EXECUTORY

JUDGMENTS IN THE EJECTMENT CASES AGAINST PRIVATE RESPONDENTS BECAUSE THE POWER TO ISSUE SUCH ORDER HAS BEEN LODGED WITH THE HONORABLE COURT IN VIEW OF THE PENDENCY OF G.R. NO. 132431. II ASSUMING ARGUENDO THAT PUBLIC RESPONDENT COURT OF APPEALS COULD ISSUE SUCH ORDER, IT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING THE PROTECTIVE ORDER IN FAVOR OF PRIVATE RESPONDENTS BECAUSE IT HAS LONG BEEN SETTLED THAT THEIR INTERESTS IN THE PROPERTIES SUBJECT OF THE EXPROPRIATION CASE ARE NOT SUFFICIENT FOR THEM TO BE DECLARED AS INTERVENORS. III THE SO-CALLED PROTECTIVE ORDER IS AN INJUNCTIVE RELIEF IN DISGUISE. IV PRIVATE RESPONDENTS ACT OF SEEKING THE PROTECTIVE ORDER FROM THE COURT OF APPEALS, DESPITE THE FINALITY OF THE ORDER BY THE TRIAL COURT DISALLOWING INTERVENTION, CONSTITUTES FORUM SHOPPING. V The assailed resolutions of the Court of Appeals should be set aside, following the ruling in Filstream International, Inc. vs. CA, Judge Tongco and the City of Manila (G.R. No. 125218, January 23, 1998) and Filstream International, Inc. vs. CA, Malit et al. (G.R. No. 128077, January 23, 1998).27 In G.R. No 132431, petitioners allege: (1) that Ordinance 7818 is unconstitutional for violating the equal protection clause of the 1987 Constitution and for abridging the "contracts" between petitioners and prospective buyers of the subject parcels of land; (2) that, in expropriating the subject properties, respondent Citys act of expropriation is illegal because it did not comply with Sections 9 and 10 of Republic Act No. 7279 (The Urban Development and Housing Act of 1992); (3) that, prior to the filing of the eminent domain complaint, respondent City did not make a valid and definite offer to purchase the subject properties, and (4) that, assuming the offer as valid, the amount offered was insufficient.28 On the other hand, in insisting that its offer was valid and that the amount it deposited was sufficient, respondent City reiterates the reasons cited by the Court of Appeals. According to respondent City, there is nothing in the Local Government Code of 1991 which requires the offer to be made before enacting an enabling ordinance. The actual exercise of the power of eminent domain begins only upon the filing of the complaint for eminent domain with the RTC by the Chief Executive and not when an ordinance pursuant thereto has been enacted. It is therefore safe to say that the offer to purchase can be made before the actual filing of the complaint, whether that is before or after the ordinance is enacted. On the sufficiency of the amount deposited, respondent City alleges that the determination of the provisional value of the property was judicially determined by the trial court at P10,285,293.38 in its order dated June 6, 1995. On the basis of this order, respondent City filed its compliance dated June 13, 1995 manifesting the deposit of the additional amount of P1,452,793 (15% of P10,285,293.38).

Respondent City also claims that all along petitioners were not willing to sell the subject parcels of land as proved by the tenor of the letter of petitioners agent, Adoracion Reyes, who wrote respondent City that "it is the consensus of the heirs xxx to turn down as we are totally turning down your offer to purchase the parcels of land subject matter of the aforesaid ordinance, or your offer is not acceptable to us in every respect." In G.R. No. 137146 (the petition for certiorari questioning the resolutions of the Court of Appeals which issued a temporary restraining order and ordered the parties to maintain the status quo), petitioners assail the resolutions of the Court of Appeals which in effect enjoined the MTC of Manila, Branches 9 and 10, from enforcing the final judgments in the ejectment cases while the appeal from the decision involving the same parcels of land in the expropriation case remains pending before this Court. Petitioners maintain that, first, only this Court and not the Court of Appeals has jurisdiction to enjoin the execution of the judgments in the ejectment cases considering that the expropriating case is now being reviewed by this Court; second, the orders are void as they protect an alleged right that does not belong to respondent City but to a non-party in the expropriation case; third, said orders deprive petitioners of their property without due process of law because they amount to a second temporary restraining order which is expressly prohibited by Section 5, Rule 58 of the Rules of Court29; last, petitioners brand respondent occupants act of seeking the assailed "protective order," despite the finality of the trial court order disallowing intervention, as forum-shopping. To justify the propriety of their intervention and the legality of the assailed resolutions, respondent occupants aver the following: first, Section 9(1)30 of BP 129 (The Judiciary Reorganization Act of 1980) is broad enough to include "protective orders." If the Court of Appeals has the power to annul judgments of the RTC, with more reason does it have the power to annul judgments of the MTC. second, as the undisputed rightful beneficiaries of the expropriation, they have the right to intervene. third, their right to intervene has never been barred with finality. Due to the dismissal of the complaint for expropriation, their motion for reconsideration of the trial court order denying their motion to intervene was never ruled upon as it became moot and academic. The trial courts silence does not mean a denial of the intervention and injunction that respondent occupants prayed for. fourth, it is more appropriate in the interest of equity and justice to preserve the status quo pending resolution by this Court of petitioners appeal in the expropriation case because they are anyway the beneficiaries of the subject properties. The expropriation case should be considered as a supervening event that necessitated a modification, suspension or abandonment of the MTC decisions. fifth, respondents are not guilty of forum-shopping for the reason that the Court of Appeals never made a ruling or decision on respondents motion to intervene. Moreover, the causes of action in the two cases were different and distinct from each other. In the motion to intervene, respondent occupants sought to be recognized and included as parties to the expropriation case. On the other hand, in the motion for protective order, respondents sought to enjoin the execution of the decisions in the ejectment cases against them. Before proceeding to the discussion of the issues, it would be best to first recapitulate the confusing maze of facts of this case. It is not disputed that the petitioners acquired a favorable judgment of eviction against herein respondents Abiog and Maglonso. In 1998, the said judgments became final and executory.

Consequently, writs of execution were issued. During the pendency of the complaints for unlawful detainer, respondent City filed a case for the expropriation of the same properties involved in the ejectment cases. From thereon, numerous motions to intervene and motions for injunction were filed in the expropriation case by respondents. The trial court allowed respondent City to take possession of the property; it denied the motions for intervention and injunction, and, after allowing respondent City to oppose the motion to dismiss, dismissed the complaint for expropriation. On appeal, the Court of Appeals reversed the trial court and found that respondent City properly exercised its right to expropriate the subject properties. Petitioners appealed the CA decision to this Court. Thereafter, on motion of respondent occupants, the Court of Appeals issued protective orders that required the parties to maintain thestatus quo (prohibiting any ejectment) pending this Courts resolution of the appeal. Petitioner is now before us questioning the legality of the CAs expropriation order and the propriety of its act enjoining the execution of the final judgments in the ejectment cases. With these given facts, it is imperative to first resolve the issue of whether the respondent City may legally expropriate the subject properties, considering that a negative finding will necessarily moot the issue of the propriety of the "protective orders" of the Court of Appeals. Whether respondent City deprived petitioners of their property without due process of law depends on whether the City complied with the legal requirements for expropriation. Before respondent City can exercise its power of eminent domain, the same must be sanctioned and must not violate any law. Being a mere creation of the legislature, a local government unit can only exercise powers granted to it by the legislature. Such is the nature of the constitutional power of control of Congress over local government units, the latter being mere creations of the former.31 When it expropriated the subject properties, respondent City relied on its powers granted by Section 19 of the Local Government Code of 199132 and RA 409 (The Revised Charter of the City of Manila). The latter specifically gives respondent City the power to expropriate private property in the pursuit of its urban land reform and housing program.33 Respondent City, however, is also mandated to follow the conditions and standards prescribed by RA 7279 (the Urban Development and Housing Act of 1992), the law governing the expropriation of property for urban land reform and housing. Sections 9 and 10 of RA 7279 specifically provide that: Sec. 9. Priorities in the acquisition of Land Lands for socialized housing shall be acquired in the following order: (a) Those owned by the Government or any of its sub-divisions, instrumentalities, or agencies, including government-owned or controlled corporations and their subsidiaries; (b) Alienable lands of the public domain; (c) Unregistered or abandoned and idle lands; (d) Those within the declared Areas of Priority Development, Zonal Improvement sites, and Slum Improvement and Resettlement Program sites which have not yet been acquired; (e) Bagong Lipunan Improvement sites and Services or BLISS sites which have not yet been acquired; and (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. 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: Provided, finally, that abandoned property, as herein defined, shall be reverted and escheated to the State in a proceeding analogous to the procedure laid down in Rule 91 of the Rules of Court. [italics supplied] In Filstream vs. Court of Appeals,34 we held that the above-quoted provisions are limitations to the exercise of the power of eminent domain, specially with respect to the order of priority in acquiring private lands and in resorting to expropriation proceedings as a means to acquire the same. Private lands rank last in the order of priority for purposes of socialized housing. In the same vein, expropriation proceedings are to be resorted to only after the other modes of acquisition have been exhausted. Compliance with these conditions is mandatory because these are the only safeguards of oftentimes helpless owners of private property against violation of due process when their property is forcibly taken from them for public use. We find that herein respondent City failed to prove strict compliance with the requirements of Sections 9 and 10 of RA 7279. Respondent City neither alleged in its complaint nor proved during the proceedings before the trial court that it complied with said requirements. Even in the Court of Appeals, respondent City in its pleadings failed to show its compliance with the law. The Court of Appeals was likewise silent on this specific jurisdictional issue. This is a clear violation of the right to due process of the petitioners. We also take note of the fact that Filstream is substantially similar in facts and issues to the case at bar. In that case, Filstream acquired a favorable judgment of eviction against the occupants of its properties in Tondo, Manila. But prior thereto, on the strength of Ordinance 7818 (the same ordinance used by herein respondent City as basis to file the complaint for eminent domain), respondent City initiated a complaint for expropriation of Filstreams properties in Tondo, Manila, for the benefit of the residents thereof. Filstream filed a motion to dismiss and the City opposed the same. The trial court denied the motion. When the judgment in the ejectment case became final, Filstream was able to obtain a writ of execution and demolition. It thereafter filed a motion to dismiss the expropriation complaint but the trial court denied the same and ordered the condemnation of the subject properties. On appeal, the Court of Appeals denied Filstreams petition on a technical ground. Thus, the case was elevated to this Court for review of the power of the City to expropriate the Filstreams properties. Meanwhile, the occupants and respondent City filed in separate branches of the RTC of Manila several petitions for certiorari with prayer for injunction to prevent the execution of the judgments in the ejectment cases. After the consolidation of the petitions for certiorari, the designated branch of RTC Manila dismissed the cases on the ground of forum-shopping. The dismissal was appealed to the Court of Appeals which reversed the trial courts dismissal and granted respondents prayer for injunction. Filstream appealed the same to this Court, which appeal was consolidated with the earlier petition for review of the decision of the Court of Appeals in the main expropriation case.

Due to the substantial resemblance of the facts and issues of the case at bar to those in Filstream, we find no reason to depart from our ruling in said case. To quote: The propriety of the issuance of the restraining order and the writ of preliminary injunction is but a mere incident to the actual controversy which is rooted in the assertion of the conflicting rights of the parties in this case over the disputed premises. In order to determine whether private respondents are entitled to the injunctive reliefs granted by respondent CA, we deemed it proper to extract the source of discord. xxx xxx xxx

Proceeding from the parameters laid out in the above disquisitions, we now pose the crucial question: Did the city of Manila comply with the abovementioned conditions when it expropriated petitioner Filstreams properties? We have carefully scrutinized the records of this case and found nothing that would indicate the respondent City of Manila complied with Sec. 9 and Sec. 10 of R.A. 7279. Petitioners Filstreams properties were expropriated and ordered condemned in favor of the City of Manila sans any showing that resort to the acquisition of other lands listed under Sec. 9 of RA 7279 have proved futile. Evidently, there was a violation of petitioner Filstreams right to due process which must accordingly be rectified. Indeed, it must be emphasized that the State has a paramount interest in exercising its power of eminent domain for the general good considering that the right of the State to expropriate private property as long as it is for public use always takes precedence over the interest of private property owners. However we must not lose sight of the fact that the individual rights affected by the exercise of such right are also entitled to protection, bearing in mind that the exercise of this superior right cannot override the guarantee of due process extended by the law to owners of the property to be expropriated. In this regard, vigilance over compliance with the due process requirements is in order.35 Due to the fatal infirmity in the Citys exercise of the power of eminent domain, its complaint for expropriation must necessarily fail. Considering that the consolidated cases before us can be completely resolved by the application of our Filstream ruling, it is needless to discuss the constitutionality of Ordinance 7818. We herein apply the general precept that constitutional issues will not be passed upon if the case can be decided on other grounds.36 In view of the dismissal of the complaint for expropriation and the favorable adjudication of petitioners appeal from the decision of the Court of Appeals on the expropriation of the subject properties, the petition for certiorariquestioning the validity of the Court of Appeals resolutions (allowing respondent occupants to intervene and granting their motion to enjoin the execution of the executory judgments in the ejectment cases) becomes moot and academic. WHEREFORE, the petitions are hereby GRANTED. In G.R. No. 132431, the decision of the Court of Appeals dated January 27, 1998 is hereby REVERSED and SET ASIDE. In G.R. No. 137146, the resolutions of the Court of Appeals dated August 19, 1998 and December 16, 1998 are hereby REVERSED and SET ASIDE. SO ORDERED

G.R. No. 155746

October 13, 2004

DIOSDADO LAGCAO, DOROTEO LAGCAO and URSULA LAGCAO, petitioners, vs. JUDGE GENEROSA G. LABRA, Branch 23, Regional Trial Court, Cebu, and the CITY OF CEBU, respondent. DECISION CORONA, J.: Before us is a petition for review of the decision dated July 1, 2002 of the Regional Trial Court, Branch 23, Cebu City1 upholding the validity of the City of Cebus Ordinance No. 1843, as well as the lower courts order dated August 26, 2002 denying petitioners motion for reconsideration. In 1964, the Province of Cebu donated 210 lots to the City of Cebu. One of these lots was Lot 1029, situated in Capitol Hills, Cebu City, with an area of 4,048 square meters. In 1965, petitioners purchased Lot 1029 on installment basis. But then, in late 1965, the 210 lots, including Lot 1029, reverted to the Province of Cebu.2Consequently, the province tried to annul the sale of Lot 1029 by the City of Cebu to the petitioners. This prompted the latter to sue the province for specific performance and damages in the then Court of First Instance. On July 9, 1986, the court a quo ruled in favor of petitioners and ordered the Province of Cebu to execute the final deed of sale in favor of petitioners. On June 11, 1992, the Court of Appeals affirmed the decision of the trial court. Pursuant to the ruling of the appellate court, the Province of Cebu executed on June 17, 1994 a deed of absolute sale over Lot 1029 in favor of petitioners. Thereafter, Transfer Certificate of Title (TCT) No. 129306 was issued in the name of petitioners and Crispina Lagcao.3 After acquiring title, petitioners tried to take possession of the lot only to discover that it was already occupied by squatters. Thus, on June 15, 1997, petitioners instituted ejectment proceedings against the squatters. The Municipal Trial Court in Cities (MTCC), Branch 1, Cebu City, rendered a decision on April 1, 1998, ordering the squatters to vacate the lot. On appeal, the RTC affirmed the MTCCs decision and issued a writ of execution and order of demolition.
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However, when the demolition order was about to be implemented, Cebu City Mayor Alvin Garcia wrote two letters4to the MTCC, requesting the deferment of the demolition on the ground that the City was still looking for a relocation site for the squatters. Acting on the mayors request, the MTCC issued two orders suspending the demolition for a period of 120 days from February 22, 1999. Unfortunately for petitioners, during the suspension period, the Sangguniang Panlungsod (SP) of Cebu City passed a resolution which identified Lot 1029 as a socialized housing site pursuant to RA 7279.5 Then, on June 30, 1999, the SP of Cebu City passed Ordinance No. 17726 which included Lot 1029 among the identified sites for socialized housing. On July, 19, 2000, Ordinance No. 18437 was enacted by the SP of Cebu City authorizing the mayor of Cebu City to initiate expropriation proceedings for the acquisition of Lot 1029 which was registered in the name of petitioners. The intended acquisition was to be used for the benefit of the homeless after its subdivision and sale to the actual occupants thereof. For this purpose, the ordinance appropriated the amount of P6,881,600 for the payment of the subject lot. This ordinance was approved by Mayor Garcia on August 2, 2000. On August 29, 2000, petitioners filed with the RTC an action for declaration of nullity of Ordinance No. 1843 for being unconstitutional. The trial court rendered its decision on July 1, 2002 dismissing the complaint filed by petitioners whose subsequent motion for reconsideration was likewise denied on August 26, 2002.

In this appeal, petitioners argue that Ordinance No. 1843 is unconstitutional as it sanctions the expropriation of their property for the purpose of selling it to the squatters, an endeavor contrary to the concept of "public use" contemplated in the Constitution.8 They allege that it will benefit only a handful of people. The ordinance, according to petitioners, was obviously passed for politicking, the squatters undeniably being a big source of votes.
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In sum, this Court is being asked to resolve whether or not the intended expropriation by the City of Cebu of a 4,048-square-meter parcel of land owned by petitioners contravenes the Constitution and applicable laws. Under Section 48 of RA 7160,9 otherwise known as the Local Government Code of 1991,10 local legislative power shall be exercised by the Sangguniang Panlungsod of the city. The legislative acts of the Sangguniang Panlungsod in the exercise of its lawmaking authority are denominated ordinances. Local government units have no inherent power of eminent domain and can exercise it only when expressly authorized by the legislature.11 By virtue of RA 7160, Congress conferred upon local government units the power to expropriate. Ordinance No. 1843 was enacted pursuant to Section 19 of RA 7160: SEC. 19. Eminent Domain. A local government unit may, through its chief executive and acting pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose, or welfare for the benefit of the poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and pertinent laws xxx. (italics supplied). Ordinance No. 1843 which authorized the expropriation of petitioners lot was enacted by the SP of Cebu City to provide socialized housing for the homeless and low-income residents of the City. However, while we recognize that housing is one of the most serious social problems of the country, local government units do not possess unbridled authority to exercise their power of eminent domain in seeking solutions to this problem. There are two legal provisions which limit the exercise of this power: (1) no person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws;12 and (2) private property shall not be taken for public use without just compensation.13 Thus, the exercise by local government units of the power of eminent domain is not absolute. In fact, Section 19 of RA 7160 itself explicitly states that such exercise must comply with the provisions of the Constitution and pertinent laws. The exercise of the power of eminent domain drastically affects a landowners right to private property, which is as much a constitutionally-protected right necessary for the preservation and enhancement of personal dignity and intimately connected with the rights to life and liberty.14 Whether directly exercised by the State or by its authorized agents, the exercise of eminent domain is necessarily in derogation of private rights.15 For this reason, the need for a painstaking scrutiny cannot be overemphasized. The due process clause cannot be trampled upon each time an ordinance orders the expropriation of a private individuals 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,16 we said:

It is obvious then that a land-owner is covered by the mantle of protection due process affords. It is a mandate of reason. It frowns on arbitrariness, it is the antithesis of any governmental act that smacks of whim or caprice. It negates state power to act in an oppressive manner. It is, as had been stressed so often, the embodiment of the sporting idea of fair play. In that sense, it stands as a guaranty of justice. That is the standard that must be met by any governmental agency in the exercise of whatever competence is entrusted to it. As was so emphatically stressed by the present Chief Justice, "Acts of Congress, as well as those of the Executive, can deny due process only under pain of nullity. xxx. The foundation of the right to exercise eminent domain is genuine necessity and that necessity must be of public character.17 Government may not capriciously or arbitrarily choose which private property should be expropriated. In this case, there was no showing at all why petitioners property was singled out for expropriation by the city ordinance or what necessity impelled the particular choice or selection. Ordinance No. 1843 stated no reason for the choice of petitioners property as the site of a socialized housing project. Condemnation of private lands in an irrational or piecemeal fashion or the random expropriation of small lots to accommodate no more than a few tenants or squatters is certainly not the condemnation for public use contemplated by the Constitution. This is depriving a citizen of his property for the convenience of a few without perceptible benefit to the public.18 RA 7279 is the law that governs the local expropriation of property for purposes of urban land reform and housing. Sections 9 and 10 thereof provide: SEC 9. Priorities in the Acquisition of Land. Lands for socialized housing shall be acquired in the following order: (a) Those owned by the Government or any of its subdivisions, instrumentalities, or agencies, including government-owned or controlled corporations and their subsidiaries; (b) Alienable lands of the public domain; (c) Unregistered or abandoned and idle lands; (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; (e) Bagong Lipunan Improvement of Sites and Services or BLISS which have not yet been acquired; and (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: xxx. (Emphasis supplied). In the recent case of Estate or Heirs of the Late Ex-Justice Jose B.L. Reyes et al. vs. City of Manila,19 we ruled that the above-quoted provisions are strict limitations on the exercise of the power of eminent domain by local government units, especially with respect to (1) the order of priority in acquiring land for socialized housing and (2) the resort to expropriation proceedings as a means to acquiring it. Private lands rank last in the order of priority for purposes of socialized housing. In the same vein, expropriation proceedings may be resorted to only after the other modes of acquisition are exhausted. Compliance with these conditions is 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 7279. Ordinance No. 1843 sought to expropriate petitioners property without any attempt to first acquire the lands listed in (a) to (e) of Section 9 of RA 7279. Likewise, Cebu City failed to establish that the other modes of acquisition in Section 10 of RA 7279 were first exhausted. Moreover, prior to the passage of Ordinance No. 1843, there was no evidence of a valid and definite offer to buy petitioners property as required by Section 19 of RA 7160.20 We therefore find Ordinance No. 1843 to be constitutionally infirm for being violative of the petitioners right to due process. It should also be noted that, as early as 1998, petitioners had already obtained a favorable judgment of eviction against the illegal occupants of their property. The judgment in this ejectment case had, in fact, already attained finality, with a writ of execution and an order of demolition. But Mayor Garcia requested the trial court to suspend the demolition on the pretext that the City was still searching for a relocation site for the squatters. However, instead of looking for a relocation site during the suspension period, the city council suddenly enacted Ordinance No. 1843 for the expropriation of petitioners lot. It was trickery and bad faith, pure and simple. The unconscionable manner in which the questioned ordinance was passed clearly indicated that respondent City transgressed the Constitution, RA 7160 and RA 7279. For an ordinance to be valid, it must not only be within the corporate powers of the city or municipality to enact but must also be passed according to the procedure prescribed by law. It must be in accordance with certain well-established basic principles of a substantive nature. These principles require that an ordinance (1) must not contravene the Constitution or any statute (2) must not be unfair or oppressive (3) must not be partial or discriminatory (4) must not prohibit but may regulate trade (5) must be general and consistent with public policy, and (6) must not be unreasonable.21 Ordinance No. 1843 failed to comply with the foregoing substantive requirements. A clear case of constitutional infirmity having been thus established, this Court is constrained to nullify the subject ordinance. We recapitulate: first, as earlier discussed, the questioned ordinance is repugnant to the pertinent provisions of the Constitution, RA 7279 and RA 7160; second, the precipitate manner in which it was enacted was plain oppression masquerading as a pro-poor ordinance;

third, the fact that petitioners small property was singled out for expropriation for the purpose of awarding it to no more than a few squatters indicated manifest partiality against petitioners, and fourth, the ordinance failed to show that there was a reasonable relation between the end sought and the means adopted. While the objective of the City of Cebu was to provide adequate housing to slum dwellers, the means it employed in pursuit of such objective fell short of what was legal, sensible and called for by the circumstances. Indeed, experience has shown that the disregard of basic liberties and the use of short-sighted methods in expropriation proceedings have not achieved the desired results. Over the years, the government has tried to remedy the worsening squatter problem. Far from solving it, however, governments kid-glove approach has only resulted in the multiplication and proliferation of squatter colonies and blighted areas. A pro-poor program that is well-studied, adequately funded, genuinely sincere and truly respectful of everyones 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.

United States v. Sanchez, 340 U.S. 42 (1950)


United States v. Sanchez No. 81 Argued October 20, 1950 Decided November 13, 1950 340 U.S. 42 Syllabus 1. The tax of $100 per ounce imposed by 2590 of the Internal Revenue Code on transferors of marihuana who make transfers to unregistered transferees without the order form required by 2591 and without payment by the transferees of the tax imposed by 2590 is a valid exercise of the taxing power of Congress, notwithstanding its collateral regulatory purpose and effect. Pp. 340 U. S. 44-45. (a) A tax is not invalid merely because it regulates, discourages, or deters the activities taxed, nor because the revenue obtained is negligible, or the revenue purpose is secondary. P. 340 U. S. 44. (b) A tax is not invalid merely because it affects activities which Congress might not otherwise regulate. P. 340 U. S. 44. 2. The tax levied by 2590(a)(2) is not conditioned on the commission of a crime, and it may properly be treated as a civil, rather than a criminal, sanction. Pp. 340 U. S. 45-46.

(a) That Congress provided civil procedure for collection indicates its intention that the levy be treated as civil in character. P. 340 U. S. 45. (b) The civil character of the tax of $100 per ounce imposed by 2590(a)(2) is not altered by its severity in relation to the tax of $1 per ounce levied by 2590(a)(1). Pp. 340 U. S. 45-46. (c) The imposition by 2590(b) of liability on transferors is reasonably adapted to secure payment of the tax by transferees or stop transfers to unregistered persons, as well as to provide an additional source from which the expense of unearthing clandestine transfers can be recovered. Pp. 340 U. S. 45-46. Reversed. The United States brought suit in the District Court to recover taxes alleged to be due under the Marihuana Tax Act, 50 Stat. 551, now 26 U.S.C. 2590 et seq. Defendants' motion to dismiss, attacking the constitutionality of the tax, was granted by the District Court. On direct appeal to this Court, reversed,

McCulloch v. Maryland
ERROR TO THE COURT OF APPEALS OF THE STATE OF MARYLAND

Argued: --- Decided:

Congress has power to incorporate a bank. The Act of the 10th of April, 1816, ch. 44, to "incorporate the subscribers to the Bank of the United States" is a law made in pursuance of the Constitution. The Government of the Union, though limited in its powers, is supreme within its sphere of action, and its laws, when made in pursuance of the Constitution, form the supreme law of the land. There is nothing in the Constitution of the United States similar to the Articles of Confederation, which exclude incidental or implied powers. If the end be legitimate, and within the scope of the Constitution, all the means which are appropriate, which are plainly adapted to that end, and which are not prohibited, may constitutionally be employed to carry it into effect. The power of establishing a corporation is not a distinct sovereign power or end of Government, but only the means of carrying into effect other powers which are sovereign. Whenever it becomes an appropriate means of exercising

any of the powers given by the Constitution to the Government of the Union, it may be exercised by that Government. If a certain means to carry into effect of any of the powers expressly given by the Constitution to the Government of the Union be an appropriate measure, not prohibited by the Constitution, the degree of its necessity is a question of legislative discretion, not of judicial cognizance. The Bank of the United States has, constitutionally, a right to establish its branches or offices of discount and deposit within any state. The State within which such branch may be established cannot, without violating the Constitution, tax that branch. The State governments have no right to tax any of the constitutional means employed by the Government of the Union to execute its constitutional powers. The States have no power, by taxation or otherwise, to retard, impede, burthen, or in any manner control the operations of the constitutional laws enacted by Congress to carry into effect the powers vested in the national Government. This principle does not extend to a tax paid by the real property of the Bank of the United States in common with the other real property in a particular state, nor to a tax imposed on the proprietary interest which the citizens of that State may hold in this institution, in common with other property of the same description throughout the State. This was an action of debt, brought by the defendant in error, John James, who sued as well for himself as for the State of Maryland, in the County Court of Baltimore County, in the said State, against the plaintiff in error, McCulloch, to recover certain penalties, under the act of the Legislature of Maryland hereafter mentioned. Judgment being rendered against the plaintiff in error, upon the following statement of facts agreed and submitted to the court by the parties, was affirmed by the Court of Appeals of the State of Maryland, the highest court of law of said State, and the cause was brought by writ of error to this Court. It is admitted by the parties in this cause, by their counsel, that there was passed, on the 10th day of April, 1816, by the Congress of the United States, an act entitled, "an act to incorporate the subscribers to the Bank of the

United States;" and that there was passed on the 11th day of February, 1818, by the General Assembly of Maryland, an act, entitled, "an act to impose a tax on all banks, or branches thereof, in the State of Maryland, not chartered by the legislature," [p318] which said acts are made part of this Statement, and it is agreed, may be read from the statute books in which they are respectively printed. It is further admitted that the President, directors and company of the Bank of the United States, incorporated by the act of Congress aforesaid, did organize themselves, and go into full operation, in the City of Philadelphia, in the State of Pennsylvania, in pursuance of the said act, and that they did on the ___ day of _____ 1817, establish a branch of the said bank, or an office of discount and deposit, in the City of Baltimore, in the State of Maryland, which has, from that time until the first day of May 1818, ever since transacted and carried on business as a bank, or office of discount and deposit, and as a branch of the said Bank of the United States, by issuing bank notes and discounting promissory notes, and performing other operations usual and customary for banks to do and perform, under the authority and by the direction of the said President, directors and company of the Bank of the United States, established at Philadelphia as aforesaid. It is further admitted that the said President, directors and company of the said bank had no authority to establish the said branch, or office of discount and deposit, at the City of Baltimore, from the State of Maryland, otherwise than the said State having adopted the Constitution of the United States and composing one of the States of the Union. It is further admitted that James William McCulloch, the defendant below, being the cashier of the said branch, or office of discount and [p319]deposit did, on the several days set forth in the declaration in this cause, issue the said respective bank notes therein described, from the said branch or office, to a certain George Williams, in the City of Baltimore, in part payment of a promissory note of the said Williams, discounted by the said branch or office, which said respective bank notes were not, nor was either of them, so issued on stamped paper in the manner prescribed by the act of assembly aforesaid. It is further admitted that the said President, directors and company of the Bank of the United States, and the said branch, or office of discount and deposit have not, nor has either of them, paid in advance, or otherwise, the sum of $15,000, to the Treasurer of the Western Shore, for the use of the State of Maryland, before the issuing of the said notes, or any of them, nor since those periods. And it is further admitted that the Treasurer of the Western Shore of Maryland, under the direction of the Governor and Council of the said State, was ready, and offered to deliver to the said President, directors and company of the said bank, and to the said branch, or office of discount and deposit, stamped

paper of the kind and denomination required and described in the said act of assembly. The question submitted to the Court for their decision in this case is as to the validity of the said act of the General Assembly of Maryland on the ground of its being repugnant to the Constitution of the United States and the act of Congress aforesaid, or to one of them. Upon the foregoing statement of facts and the pleadings in this cause (all errors in [p320] which are hereby agreed to be mutually released), if the Court should be of opinion that the plaintiffs are entitled to recover, then judgment, it is agreed, shall be entered for the plaintiffs for $2,500 and costs of suit. B ut if the Court should be of opinion that the plaintiffs are not entitled to recover upon the statement and pleadings aforesaid, then judgment of non pros shall be entered, with costs to the defendant. It is agreed that either party may appeal from the decision of the County Court to the Court of Appeals, and from the decision of the Court of Appeals to the Supreme Court of the United States, according to the modes and usages of law, and have the same benefit of this statement of facts in the same manner as could be had if a jury had been sworn and impanneled in this cause and a special verdict had been found, or these facts had appeared and been stated in an exception taken to the opinion of the Court, and the Court's direction to the jury thereon. Copy of the act of the Legislature of the State of Maryland, referred to in the preceding Statement. An act to impose a tax on all banks or branches thereof, in the State of Maryland not chartered by the legislature Be it enacted by the General Assembly of Maryland that if any bank has established or shall, without authority from the State first had and obtained establish any branch, office of discount and [p321]deposit, or office of pay and receipt in any part of this State, it shall not be lawful for the said branch, office of discount and deposit, or office of pay and receipt to issue notes, in any manner, of any other denomination than five, ten, twenty, fifty, one hundred, five hundred and one thousand dollars, and no note shall be issued except upon stamped paper of the following denominations; that is to say, every five dollar note shall be upon a

stamp of ten cents; every ten dollar note, upon a stamp of twenty cents; every twenty dollar note, upon a stamp of thirty cents; every fifty dollar note, upon a stamp of fifty cents; every one hundred dollar note, upon a stamp of one dollar; every five hundred dollar note, upon a stamp of ten dollars; and every thousand dollar note, upon a stamp of twenty dollars; which paper shall be furnished by the Treasurer of the Western Shore, under the direction of the Governor and Council, to be paid for upon delivery; provided always that any institution of the above description may relieve itself from the operation of the provisions aforesaid by paying annually, in advance, to the Treasurer of the Western Shore, for the use of State, the sum of $15,000. And be it enacted that the President, cashier, each of the directors and officers of every institution established or to be established as aforesaid, offending against the provisions aforesaid shall forfeit a sum of $500 for each and every offence, and every person having any agency in circulating any note aforesaid, not stamped as aforesaid directed, shall forfeit a sum not exceeding $100, [p322] every penalty aforesaid to be recovered by indictment or action of debt in the county court of the county where the offence shall be committed, one-half to the informer and the other half to the use of the State. And be it enacted that this act shall be in full force and effect from and after the first day of May next.

J. W. Hampton, Jr. & Co. v. United States, 276 U.S. 394 (1928)
J. W. Hampton, Jr. & Company v. United States No. 242 Argued March 1, 1928 Decided April 9, 1928 276 U.S. 394 Syllabus

1. Section 315(a), Title III, of the Tariff Act of Sept. 21, 1922, empowers and directs the President to increase or decrease duties imposed by the Act so as to equalize the differences which, upon investigation, he finds and ascertains between the costs of producing at home and in competing foreign countries the kinds of articles to which such duties apply. The Act lays down certain criteria to be taken into consideration in ascertaining the differences, fixes certain limits of change, and makes an investigation by the Tariff Commission, in aid of the President, a necessary preliminary to any proclamation changing the duties. chanroblesvirtualawlibrary Page 276 U. S. 395 Held that the delegation of power is not unconstitutional. P. 276 U. S. 405. 2. Congress has power to frame the customs duties with a view to protecting and encouraging home industries. P. 276 U. S. 411. 14 Ct.Cust.App. 350 affirmed. Certiorari, 274 U.S. 735, to a judgment of the Court of Customs Appeals, which affirmed a judgment of the United States Customs Court, 49 Treas.Dec. 593, sustaining a rate of duty as increased by proclamation of the President

U.S. Supreme Court


Loan Association v. Topeka, 87 U.S. 20 Wall. 655 655 (1874)
Loan Association v. Topeka 87 U.S. (20 Wall.) 655 ERROR TO THE CIRCUIT COURT FOR THE DISTRICT OF KANSAS Syllabus 1. A statute which authorizes towns to contract debts or other obligations payable in money implies the duty to levy taxes to pay them unless some other fund or source of payment is provided. 2. If there is no power in the legislature which passed such a statute to authorize the levy of taxes in aid of the purpose for which the obligation is to be contracted, the statute is void, and so are the bonds or other forms of contract based on the statute. 3. There is no such thing in the theory of our governments, state and national, as unlimited power in any of their branches. The executive, the legislative, and the judicial departments are all of limited and defined powers.

4. There are limitations of such powers which arise out of the essential nature of all free governments; implied reservations of individual rights, without which the social compact could not exist, and which are respected by all governments entitled to the name. 5. Among these is the limitation of the right of taxation, that it can only be used in aid of a public object, an object which is within the purpose for which governments are established. Page 87 U. S. 656 6. It cannot, therefore, be exercised in aid of enterprises strictly private, for the benefit of individuals, though in a remote or collateral way the local public may be benefited thereby. 7. Though the line which distinguishes the public use for which taxes may be assessed from the private use for which they may not, is not always easy to discern, yet it is the duty of the courts, where the case falls clearly within the latter class, to interpose when properly called on for the protection of the rights of the citizen, and aid to prevent his private property from being unlawfully appropriated to the use of others. 8. A statute which authorizes a town to issue its bonds in aid of the manufacturing enterprise of individuals is void, because the taxes necessary to pay the bonds would, if collected, be a transfer of the property of individuals to aid in the projects of gain and profit of others, and not for a public use, in the proper sense of that term. 9. And in a suit brought on such bonds or the interest coupons attached thereon, they are properly declared void. 10. The fact that the town authorities paid one installment of interest on the bonds, by means of a levy of taxes, does not alter the case. It works no estoppel. The Citizens' Savings and Loan Association of Cleveland brought their action in the court below, against the City of Topeka, on coupons for interest attached to bonds of the City of Topeka. The bonds on their face purported to be payable to the King Wrought-Iron Bridge Manufacturing and Iron-Works Company, of Topeka, to aid and encourage that company in establishing and operating bridge shops in said City of Topeka, under and in pursuance of section twenty-six of an act of the Legislature of the State of Kansas,

entitled "An act to incorporate cities of the second class," approved February 29, 1872; and also of another "Act to authorize cities and counties to issue bonds for the purpose of building bridges, aiding railroads, water power, or other works of internal improvement," approved March 2, 1872. The city issued one hundred of these bonds for $1,000 each, as a donation (and so it was stated in the declaration), to encourage that company in its design of establishing a manufactory of iron bridges in that city. The declaration also alleged that the interest coupons first due were paid out of a fund raised by taxation for that purpose, Page 87 U. S. 657 and that after this payment the plaintiff became the purchaser of the bonds and the coupons on which suit was brought, for value. A demurrer was interposed by the City of Topeka to this declaration. The section of the Act of February 29, on which the main reliance was placed for the authority to issue these bonds, reads as follows: "SECTION 76. The council shall have power to encourage the establishment of manufactories and such other enterprises as may tend to develop and improve such city, either by direct appropriation from the general fund or by the issuance of bonds of such city in such amounts as the council may determine, provided that no greater amount than one thousand dollars shall be granted for any one purpose, unless a majority of the votes cast at an election called for that purpose shall authorize the same. The bonds thus issued shall be made payable at any time within twenty years, and bear interest not exceeding ten percent per annum." It was conceded that the steps required by this act prerequisite as to issuing the bonds were regular, as were also the other details, and that the language of the statute was sufficient to justify the action of the city authorities, if the statute was within the constitutional competency of the legislature. The single question, therefore, for consideration raised by the demurrer was the authority of the legislature of the State of Kansas to enact this part of the statute. The court below denied the authority, placing the denial on two grounds:

1st. That this part of the statute violated the fifth section of Article XII of the Constitution of the State of Kansas, a section in these words: "SECTION 5. Provision shall be made by general law for the organization of cities, towns, and villages; and their power of taxation, assessment, borrowing money, contracting debts, and Page 87 U. S. 658 loaning their credit, shall be so restricted as to prevent the abuse of such power." [The argument here was that the section of the Act of February 29, 1872, conferring the power to issue bonds contained no restriction as to the amount which the city might issue to aid manufacturing enterprises, and that the failure of the legislature to limit and restrict the power so as to prevent abuse, violated the fifth section of Article XII of the constitution above referred to.] 2d. That the act authorized the towns and other municipalities to which it applied, by issuing bonds or lending its credit, to take the property of the citizen under the guise of taxation to pay these bonds, and use it in aid of the enterprises of others which were not of a public character; that this was a perversion of the right of taxation, which could only be exercised for a public use, to the aid of individual interests and personal purposes of profit and gain. The court below accordingly, sustaining the demurrer, gave judgment in favor of the defendant, the City of Topeka, and to its judgment this writ of error was taken. MR. JUSTICE MILLER delivered the opinion of the Court. Two grounds are taken in the opinion of the circuit judge and in the argument of counsel for defendant, on which it is insisted that the section of the statute of February 29, 1872, on which the main reliance is placed to issue the bonds, is unconstitutional. The first of these is that by section five of article twelve of the Constitution of that state it is declared that provision shall be made by general law for the organization of cities, towns, and villages; and their power of taxation, assessment, borrowing money, contracting debts, and loaning their credit, shall be so restricted as to prevent the abuse of such power. The argument is that the statute in question is void because Page 87 U. S. 659

it authorizes cities and towns to contract debts, and does not contain any restriction on the power so conferred. But whether the statute which confers power to contract debts should always contain some limitation or restriction, or whether a general restriction applicable to all cases should be passed, and whether in the absence of both the grant of power to contract is wholly void, are questions whose solution we prefer to remit to the state courts, as in this case we find ample reason to sustain the demurrer on the second ground on which it is argued by counsel and sustained by the circuit court. That proposition is that the act authorizes the towns and other municipalities to which it applies, by issuing bonds or loaning their credit, to take the property of the citizen under the guise of taxation to pay these bonds, and use it in aid of the enterprises of others which are not of a public character, thus perverting the right of taxation, which can only be exercised for a public use, to the aid of individual interests and personal purposes of profit and gain. The proposition as thus broadly stated is not new, nor is the question which it raises difficult of solution. If these municipal corporations, which are in fact subdivisions of the state, and which for many reasons are vested with quasi-legislative powers, have a fund or other property out of which they can pay the debts which they contract, without resort to taxation, it may be within the power of the legislature of the state to authorize them to use it in aid of projects strictly private or personal, but which would in a secondary manner contribute to the public good; or where there is property or money vested in a corporation of the kind for a particular use, as public worship or charity, the legislature may pass laws authorizing them to make contracts in reference to this property, and incur debts payable from that source. But such instances are few and exceptional, and the proposition is a very broad one, that debts contracted by municipal corporations must be paid, if paid at all, out of taxes which they may lawfully levy, and that all contracts creating Page 87 U. S. 660 debts to be paid in future, not limited to payment from some other source, imply an obligation to pay by taxation. It follows that in this class of cases the right to contract must be limited by the right to tax, and if in the given case no tax can lawfully be levied to pay the debt, the contract itself is void for want of authority to make it.

If this were not so, these corporations could make valid promises, which they have no means of fulfilling, and on which even the legislature that created them can confer no such power. The validity of a contract which can only be fulfilled by a resort to taxation, depends on the power to levy the tax for that purpose. [Footnote 1] It is therefore to be inferred that when the legislature of the state authorizes a county or city to contract a debt by bond, it intends to authorize it to levy such taxes as are necessary to pay the debt, unless there is in the act itself, or in some general statute, a limitation upon the power of taxation which repels such an inference. With these remarks and with the reference to the authorities which support them, we assume that unless the Legislature of Kansas had the right to authorize the counties and towns in that state to levy taxes to be used in aid of manufacturing enterprises, conducted by individuals, or private corporations, for purposes of gain, the law is void, and the bonds issued under it are also void. We proceed to the inquiry whether such a power exists in the Legislature of the State of Kansas. We have already said the question is not new. The subject of the aid voted to railroads by counties and towns has been brought to the attention of the courts of almost every state in the Union. It has been thoroughly discussed and is still the subject of discussion in those courts. It is quite true that a decided preponderance of authority is to be found in favor of the proposition that the legislatures of the states, Page 87 U. S. 661 unless restricted by some special provisions of their constitutions, may confer upon these municipal bodies the right to take stock in corporations created to build railroads, and to lend their credit to such corporations. Also to levy the necessary taxes on the inhabitants, and on property within their limits subject to general taxation, to enable them to pay the debts thus incurred. But very few of these courts have decided this without a division among the judges of which they were composed, while others have decided against the existence of the power altogether. [Footnote 2] In all these cases, however, the decision has turned upon the question whether the taxation by which this aid was afforded to the building of railroads was for a public purpose. Those who came to the conclusion that it was, held the laws for that purpose valid. Those who could not reach that conclusion held them void. In all the controversy this has been the turning-point of the judgments of the courts. And it is safe to say that no court has held debts created in aid of railroad companies, by counties or towns, valid

on any other ground than that the purpose for which the taxes were levied was a public use, a purpose or object which it was the right and the duty of state governments to assist by money raised from the people by taxation. The argument in opposition to this power has been, that railroads built by corporations organized mainly for purposes of gain -- the roads which they built being under their control, and not that of the state -were private and not public roads, and the tax assessed on the people went to swell the profits of individuals and not to the good of the state, or the benefit of the public, except in a remote and collateral way. On the other hand it was said that roads, canals, bridges, navigable streams, and all other highways had in all times been matter of public concern. That such channels of travel and of the carrying business had always been established, improved, regulated by the state, and that the railroad had Page 87 U. S. 662 not lost this character because constructed by individual enterprise, aggregated into a corporation. We are not prepared to say that the latter view of it is not the true one, especially as there are other characteristics of a public nature conferred on these corporations, such as the power to obtain right of way, their subjection to the laws which govern common carriers, and the like which seem to justify the proposition. Of the disastrous consequences which have followed its recognition by the courts and which were predicted when it was first established there can be no doubt. We have referred to this history of the contest over aid to railroads by taxation, to show that the strongest advocates for the validity of these laws never placed it on the ground of the unlimited power in the state legislature to tax the people, but conceded that where the purpose for which the tax was to be issued could no longer be justly claimed to have this public character, but was purely in aid of private or personal objects, the law authorizing it was beyond the legislative power, and was an unauthorized invasion of private right. [Footnote 3] It must be conceded that there are such rights in every free government beyond the control of the state. A government which recognized no such rights, which held the lives, the liberty, and the property of its citizens subject at all times to the absolute disposition and unlimited control of even the most democratic depository of power, is after all but a despotism. It is true it is a despotism of the many, of the majority, if you choose to call it so, but it is nonetheless a despotism. It may well be doubted if a man

is to hold all that he is accustomed to call his own, all in which he has placed his happiness, and the security of which is essential to that happiness, under the unlimited dominion of others, whether it is not wiser that this power should be exercised by one man than by many. Page 87 U. S. 663 The theory of our governments, state and national, is opposed to the deposit of unlimited power anywhere. The executive, the legislative, and the judicial branches of these governments are all of limited and defined powers. There are limitations on such power which grow out of the essential nature of all free governments. Implied reservations of individual rights, without which the social compact could not exist and which are respected by all governments entitled to the name. No court, for instance, would hesitate to declare void a statute which enacted that A. and B. who were husband and wife to each other should be so no longer, but that A. should thereafter be the husband of C., and B. the wife of D. Or which should enact that the homestead now owned by A. should no longer be his, but should henceforth be the property of B. [Footnote 4] Of all the powers conferred upon government, that of taxation is most liable to abuse. Given a purpose or object for which taxation may be lawfully used and the extent of its exercise is in its very nature unlimited. It is true that express limitation on the amount of tax to levied or the things to be taxed may be imposed by constitution or statute, but in most instances for which taxes are levied, as the support of government, the prosecution of war, the National defense, any limitation is unsafe. The entire resources of the people should in some instances be at the disposal of the government. The power to tax is therefore the strongest, the most pervading of all the powers of government, reaching directly or indirectly to all classes of the people. It was said by Chief Justice Marshall, in the case of McCulloch v. state of Maryland, [Footnote 5] that the power to tax is the power to destroy. A striking instance of the truth of the proposition is seen in the fact that the existing tax of ten percent imposed by the United States on the circulation of all other banks than the national banks drove out of existence every Page 87 U. S. 664 state bank of circulation within a year or two after its passage. This power can as readily be employed against one class of individuals and in favor of another, so as to

ruin the one class and give unlimited wealth and prosperity to the other, if there is no implied limitation of the uses for which the power may be exercised. To lay with one hand the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery because it is done under the forms of law and is called taxation. This is not legislation. It is a decree under legislative forms. Nor is it taxation. A "tax," says Webster's Dictionary, "is a rate or sum of money assessed on the person or property of a citizen by government for the use of the nation or state." "Taxes are burdens or charges imposed by the legislature upon persons or property to raise money for public purposes." [Footnote 6] Coulter, J., in Northern Liberties v. St. John's Church, [Footnote 7] says, very forcibly, "I think the common mind has everywhere taken in the understanding that taxes are a public imposition, levied by authority of the government for the purpose of carrying on the government in all its machinery and operations -- that they are imposed for a public purpose." We have established, we think, beyond cavil that there can be no lawful tax which is not laid for a public purpose. It may not be easy to draw the line in all cases so as to decide what is a public purpose in this sense and what is not. It is undoubtedly the duty of the legislature which imposes or authorizes municipalities to impose a tax to see that it is not to be used for purposes of private interest instead of a public use, and the courts can only be justified in interposing when a violation of this principle is clear and the Page 87 U. S. 665 reason for interference cogent. And in deciding whether, in the given case, the object for which the taxes are assessed falls upon the one side or the other of this line, they must be governed mainly by the course and usage of the government, the objects for which taxes have been customarily and by long course of legislation levied, what objects or purposes have been considered necessary to the support and for the proper use of the government, whether state or municipal. Whatever lawfully pertains to this and is sanctioned by time and the acquiescence of the people may well be held to belong to the public use, and proper for the maintenance of good government, though this may not be the only criterion of rightful taxation.

But in the case before us, in which the towns are authorized to contribute aid by way of taxation to any class of manufacturers, there is no difficulty in holding that this is not such a public purpose as we have been considering. If it be said that a benefit results to the local public of a town by establishing manufactures, the same may be said of any other business or pursuit which employs capital or labor. The merchant, the mechanic, the innkeeper, the banker, the builder, the steamboat owner are equally promoters of the public good, and equally deserving the aid of the citizens by forced contributions. No line can be drawn in favor of the manufacturer which would not open the coffers of the public treasury to the importunities of two-thirds of the businessmen of the city or town. A reference to one or two cases adjudicated by courts of the highest character will be sufficient, if any authority were needed, to sustain us in this proposition. In the case of Allen v. Inhabitants of Jay, [Footnote 8] the town meeting had voted to loan their credit to the amount of $10,000, to Hutchins and Lane, if they would invest $12,000 in a steam saw mill, grist mill, and box factory machinery, to be built in that town by them. There was a provision to secure the town by mortgage on the mill, and the selectmen Page 87 U. S. 666 were authorized to issue town bonds for the amount of the aid so voted. Ten of the taxable inhabitants of the town filed a bill to enjoin the selectmen from issuing the bonds. The Supreme Judicial Court of Maine, in an able opinion by Chief Justice Appleton, held that this was not a public purpose, and that the town could levy no taxes on the inhabitants in aid of the enterprise, and could, therefore, issue no bonds, though a special act of the legislature had ratified the vote of the town, and they granted the injunction as prayed for. Shortly after the disastrous fire in Boston, in 1872, which laid an important part of that city in ashes, the governor of the state convened the legislative body of Massachusetts, called the General Court, for the express purpose of affording some relief to the city and its people from the sufferings consequent on this great calamity. A statute was passed, among others, which authorized the city to issue its bonds to an amount not exceeding twenty millions of dollars, which bonds were to be loaned, under proper

guards for securing the city from loss, to the owners of the ground whose buildings had been destroyed by fire, to aid them in rebuilding. In the case of Lowell v. City of Boston, in the Supreme Judicial Court of Massachusetts, the validity of this act was considered. We have been furnished a copy of the opinion, though it is not yet reported in the regular series of that court. The American Law Review for July, 1873, says that the question was elaborately and ably argued. The court, in an able and exhaustive opinion, decided that the law was unconstitutional, as giving a right to tax for other than a public purpose. The same court had previously decided, in the case of Jenkins v. Anderson, [Footnote 9] that a statute authorizing the town authorities to aid by taxation a school established by the will of a citizen, and governed by trustees selected by the will, Page 87 U. S. 667 was void because the school was not under the control of the town officers, and was not, therefore, a public purpose for which taxes could be levied on the inhabitants. The same principle precisely was decided by the state court of Wisconsin in the case ofCurtis v. Whipple. [Footnote 10] In that case, a special statute which authorized the town to aid the Jefferson Liberal Institute was declared void because, though a school of learning, it was a private enterprise not under the control of the town authorities. In the subsequent case of Whiting v. Fond du Lac, already cited, the principle is fully considered and reaffirmed. These cases are clearly in point, and they assert a principle which meets our cordial approval. We do not attach any importance to the fact that the town authorities paid one installment of interest on these bonds. Such a payment works no estoppel. If the legislature was without power to authorize the issue of these bonds and its statute attempting to confer such authority is void, the mere payment of interest, which was equally unauthorized, cannot create of itself a power to levy taxes resting on no other foundation than the fact that they have once been illegally levied for that purpose. The Act of March 2, 1872, concerning internal improvements, can give no assistance to these bonds. If we could hold that the corporation for manufacturing wrought iron bridges was within the meaning of the statute, which seems very difficult to do, it would

still be liable to the objection that money raised to assist the company was not for a public purpose, as we have already demonstrated. Judgment affirmed.

G.R. 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. Antero 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 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The 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) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in character 5For petitioner, therefore, there is a transgression of both the equal protection and due process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7 The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982.8 The facts as alleged were admitted but not the allegations 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." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed. 1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was 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 to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence. 12 2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of government." 13 It is, of course, to be admitted 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 properly rights, both the due process and equal protection clauses inay properly be invoked, all 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." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it is riot 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 Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the Philippines. 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 here alleges fails to abide by its command, then this Court must so declare and adjudge it null. The injury thus is centered on the question of whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm. 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 or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. 18 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 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. 19

6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. 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. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumtances 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." 20 That 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 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, address 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." 21Hence 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, 22 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.'" 23 7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable." 27 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, ... . 28 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." 29 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 corporations placed in similar situation." 30 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 e 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. 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; 31 (2) the force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable net income of professionals and businessman certainly not a suspect classification, WHEREFORE, the petition is dismissed. Costs against petitioner.

G.R. No. L-68118 October 29, 1985 JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and sisters, petitioners vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents. Demosthenes B. Gadioma for petitioners.

AQUINO, J.: This case is about the income tax liability of four brothers and sisters who sold two parcels of land which they had acquired from their father. On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the petitioners, to enable them to build their residences. The company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots. In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax on one-half thereof or of P16,792. In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56.

Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a mere capital gain of which is taxable) and required them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest. Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains already paid by them. The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822). The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented. Hence, the instant appeal. We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves. To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated. As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction. Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeas says: Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad? El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad presupone necesariamente la convencion, mentras que la comunidad puede existir y existe ordinariamente sin ela; y por razon del fin objecto, en que el objeto de la sociedad es obtener lucro, mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer su conservacion. Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro Derecho positive se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad de bienes y contrato de sociedad, la moderna orientacion de la doctrina cientifica seala como nota fundamental de diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la finalidad perseguida por los interesados: lucro comun partible en la sociedad, y mera conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.* Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership. The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oa vs. ** This view is supported by the following rulings of respondent Commissioner: Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in questionpro-indiviso from their deceased parents; they did not contribute or invest additional ' capital to increase or expand the inherited properties; they merely continued dedicating the property to the use to which it had been put by their forebears; they individually reported in their tax returns their corresponding shares in the income and expenses of the 'hacienda', and they continued for many years the status of co-ownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue the existing contractual relations with the Central Azucarera de Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963). All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78). Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves, it was held that they were taxable as an unregistered partnership. It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased a lot and building, entrusted the administration of the building to an administrator and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought four pieces of real property which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an unregistered partnership. In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It might have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs. SO ORDERED.

G.R. Nos. L-49839-46 April 26, 1991 JOSE B. L. REYES and EDMUNDO A. REYES, petitioners, vs. PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, 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. Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:p This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board of Assessment Appeals 1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976 decision of the Board of Tax Assessment Appeals 2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "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 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 healing 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 applying 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 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 finding 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 Philippines " (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 strength 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 temporary 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 (e) 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.

G.R. No. 11572

September 22, 1916

FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, plaintiffs-appellants, vs. VENANCIO CONCEPCION, as Acting Collector of Internal Revenue, defendant-appellee. Aitken and De Selms for appellants. Attorney-General Avancea for appellee. TRENT, J.: Section 100 of Act No. 2339, passed February 27, 1914, effective July 1, 1914, imposed an annual tax of P4 per square meter upon "electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on premises not occupied by buildings." This section was subsequently amended by Act No. 2432, effective January 1, 1915, by reducing the tax on such signs, billboards, etc., to P2 per square meter or fraction thereof. Section 26 of Act No. 2432 was in turn amended by Act No. 2445, but this amendment does not in any way affect the questions involved in the case under consideration. The taxes imposed by Act No. 2432, as amended, were ratified by the Congress of the United States on March 4, 1915. The ratifying clause reads as follows: The internal-revenue taxes imposed by the Philippine Legislature under the law enacted by that body on December twenty-third, nineteen hundred and fourteen (Act No. 2432), as amended by the law enacted by it on January sixteenth, nineteen hundred and fifteen (Act No. 2445), are hereby legalized and ratified, and the collection of all such taxes heretofore or hereafter is hereby legalized, ratified and confirmed as fully to all intents and purposes as if the same had by prior Act of Congress been specifically authorized and directed. Francis A. Churchill and Stewart Tait, copartners doing business under the firm name and style of the Mercantile Advertising Agency, owners of a sign or billboard containing an area of 52 square meters constructed on private property in the city of Manila and exposed to public view, were taxes thereon P104. The tax was paid under protest and the plaintiffs having exhausted all their administrative remedies instituted the present action under section 140 of Act No. 2339 against the Collector of Internal Revenue to recover back the amount thus paid. From a judgment dismissing the complaint upon the merits, with costs, the plaintiffs appealed. It is now urged that the trial court erred: (1) In not holding that the tax as imposed by virtue of Act No. 2339, as amended by Act No. 2432, as amended by Act No. 2445, constitutes deprivation of property without compensation or due process of law, because it is confiscatory and unjustly discriminatory and (2) in not holding that the said tax is void for lack of uniformity, because it is not graded according to value; because the classification on which it is based on any reasonable ground; and furthermore, because it constitutes double taxation. We will first inquire whether the tax in question is confiscatory as to the business of the plaintiff Upon this point the lower court, in accepting the testimony of the plaintiff, Churchill, to the effect that "the billboard in question cost P300 to construct, that its annual gross earning power is P268, and that the annual tax is P104," found "that for a five years' period the gross income from the billboard would be P1,340, and that the expenditures for original construction and taxes would amount to P820, leaving a balance of P520," held that "unless the tax equals or exceeds the gross income, the court would hardly be justified in declaring the tax confiscatory." These findings of fact and conclusions of

law are attacked upon the ground that the court failed to take into-consideration the pertinent facts that the annual depreciation of the billboard is 20 per cent; that at the end of five years the capital of P300 would be completely lost; that the plaintiffs are entitled to receive a reasonable rate of interest on this capital; and that there should be charged against the billboard its proportion of the overhead charges such as labor, management, maintenance, rental of office premises, rental or purchase of ground space for board, repair, paints, oils, etc., resulting in an actual loss per year on the business, instead of an apparent profit of P520 for five years, or P44 for one year. If these contentions rested upon a sound basis it might be said that the tax is, in a sense, confiscatory; but they do not, as we will attempt to show from the evidence of record. The plaintiff Churchill testified in part as follows: Q. In your opinion, Mr. Churchill, state what you would think of the rates that are charged by you for advertising purposes in connection with this board; could they be raised? A. Q. No. Why?

A. The business wouldn't allow it; the business wouldn't afford it; and otherwise it would mean bankruptcy to try to increase it. Q. A. Who couldn't afford it? Explain it fully Mr. Churchill? The merchants couldn't afford to pay more. On cross-examination:

Q. It is a fact, it is not, Mr. Churchill, that since the passage of Act No. 2339 you have never made any attempt to raise the advertising rates? A. Q. It would be impossible to raise them. My question is: You have never made any attempt to raise them?

A. We have talked it over with the merchants and talked over the price on the event of a tax being put at a reasonable amount, about putting up some increase. Q. A. Q. A. But you have never made an actual attempt to increase your rates? I would consider that an actual attempt. You have never fixed the rate higher than it is now? No; no.

It was agreed that Tait, the other plaintiff, would testify to the same effect. The parties, plaintiffs and defendant, further agreed "that a number of persons have voluntarily and without protest paid the taxes imposed by section 100 of Act No. 2339, as amended by Act No. 2432, and in turn amended by Act No. 2445."

It will thus be seen that the contention that the rates charged for advertising cannot be raised is purely hypothetical, based entirely upon the opinion of the plaintiffs, unsupported by actual test, and that the plaintiffs themselves admit that a number of other persons have voluntarily and without protest paid the tax herein complained of. Under these circumstances, can it be held as a matter of fact that the tax is confiscatory or that, as a matter of law, the tax is unconstitutional? Is the exercise of the taxing power of the Legislature dependent upon and restricted by the opinion of two interested witnesses? There can be but one answer to these questions, especially in view of the fact that others are paying the tax and presumably making a reasonable profit from their business. In Chicago and Grand Trunk Railway Co. vs. Wellman (143 U. S., 339), a question similar to the one now under consideration was raised and decided by the Supreme Court of the United States. The principal contention made in that case was that an Act of the Legislature of Michigan fixing the amount per mile to be charged by railways for the transportation of a passenger was unconstitutional, on the ground that the rate so fixed was confiscatory. It was agreed in the pleadings that the total earnings and income of the company from all sources for a given year were less than the expenses for the same period. In addition to this agreed statement of facts, two witnesses were called, one the traffic manager and the other the treasurer of the company. Their testimony was to the effect that in view of the competition prevailing at Chicago for through business, it was impossible to increase the freight rates then charged by the company because it would throw the volume of business into the hands of competing roads. In overruling the contention of the company that the act in question was unconstitutional on the ground that the rate fixed thereby was confiscatory, the court said: Surely, before the courts are called upon to adjudge an act of the legislature fixing the maximum passenger rates for railroad companies to be unconstitutional, on the ground that its enforcement would prevent the stockholders from receiving any dividends on their investments, or the bondholders any interest on their loans, they should be fully advised as to what is done with the receipts and earnings of the company; for if so advised, it might clearly appear that a prudent and honest management would, within the rates prescribed, secure to the bondholders their interest, and to the stockholders reasonable dividends. While the protection of vested rights of property is a supreme duty of the courts, it has not come to this, that the legislative power rests subservient to the discretion of any railroad corporation which may, by exorbitant and unreasonable salaries, or in some other improper way, transfer its earnings into what it is pleased to call `operating expenses.' It is further alleged that the tax in question is unconstitutional because "the law herein complained of was enacted for the sole purpose of destroying billboards and advertising business depending on the use of signs or billboards." If it be conceded that the Legislature has the power to impose a tax upon signs, signboards, and billboards, then "the judicial cannot prescribed to the legislative department of the Government limitation upon the exercise of its acknowledge powers." (Veazie Bank vs. Fenno, 8 Wall., 533, 548.) That the Philippine Legislature has the power to impose such taxes, we think there can be no serious doubt, because "the power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. It reaches to every trade or occupation; to every object of industry, use, or enjoyment; to every species of possession; and it imposes a burden which, in case of failure to discharge it, may be followed by seizure and sale or confiscation of property. No attribute of sovereignty is more pervading, and at no point does the power of the government affect more constantly and intimately all the relations of life than through the exactions made under it." (Cooley's Constitutional Limitations, 6th Edition, p. 587.) In McCray vs. U.S. (195 U.S., 27), the court, in ruling adversely to the contention that a federal tax on oleomargarine artificially colored was void because the real purpose of Congress was not to raise

revenue but to tax out of existence a substance not harmful of itself and one which might be lawfully manufactured and sold, said: Whilst, as a result of our written constitution, it is axiomatic that the judicial department of the government is charged with the solemn duty of enforcing the Constitution, and therefore, in cases property presented, of determining whether a given manifestation of authority has exceeded the power conferred by that instrument, no instance is afforded from the foundation of the government where an act which was within a power conferred, was declared to be repugnant to the Constitution, because it appeared to the judicial mind that the particular exertion of constitutional power was either unwise or unjust. To announce such a principle would amount to declaring that, in our constitutional system, the judiciary was not only charged with the duty of upholding the Constitution, but also with the responsibility of correcting every possible abuse arising from the exercise by the other departments of their conceded authority. So to hold would be to overthrow the entire distinction between the legislative, judicial, and executive departments of the government, upon which our system is founded, and would be a mere act of judicial usurpation. If a case were presented where the abuse of the taxing power of the local legislature was to extreme as to make it plain to the judicial mind that the power had been exercised for the sole purpose of destroying rights which could not be rightfully destroyed consistently with the principles of freedom and justice upon which the Philippine Government rests, then it would be the duty of the courts to say that such an arbitrary act was not merely an abuse of the power, but was the exercise of an authority not conferred. (McCray vs. U.S., supra.) But the instant case is not one of that character, for the reason that the tax herein complained of falls far short of being confiscatory. Consequently, it cannot be held that the Legislature has gone beyond the power conferred upon it by the Philippine Bill in so far as the amount of the tax is concerned. Is the tax void for lack of uniformity or because it is not graded according to value or constitutes double taxation, or because the classification upon which it is based is mere arbitrary selection and not based on any reasonable grounds? The only limitation, in so far as these questions are concerned, placed upon the Philippine Legislature in the exercise of its taxing power is that found in section 5 of the Philippine Bill, wherein it is declared "that the rule of taxation in said Islands shall be uniform." Uniformity in taxation says Black on Constitutional Law, page 292 means that all taxable articles or kinds of property, of the same class, shall be taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations, franchises, privileges, necessities, and luxuries, shall all be assessed at the same rate. Different articles may be taxed at different amounts, provided the rate is uniform on the same class everywhere, with all people, and at all times. A tax is uniform when it operates with the same force and effect in every place where the subject of it is found (State Railroad Tax Cases, 92 U.S., 575.) The words "uniform throughout the United States," as required of a tax by the Constitution, do not signify an intrinsic, but simply a geographical, uniformity, and such uniformity is therefore the only uniformity which is prescribed by the Constitution. (Patton vs. Brady, 184 U.S., 608; 46 L. Ed., 713.) A tax is uniform, within the constitutional requirement, when it operates with the same force and effect in every place where the subject of it is found. (Edye vs. Robertson, 112 U.S., 580; 28 L. Ed., 798.) "Uniformity," as applied to the constitutional provision that all taxes shall be uniform, means that all property belonging to the same class shall be taxed alike. (Adams vs. Mississippi State Bank, 23 South, 395, citing Mississippi Mills vs Cook, 56 Miss., 40.) The statute under consideration imposes a tax of P2 per square meter or fraction thereof upon every electric sign, bill-board, etc., wherever found in the Philippine Islands.

Or in other words, "the rule of taxation" upon such signs is uniform throughout the Islands. The rule, which we have just quoted from the Philippine Bill, does not require taxes to be graded according to the value of the subject or subjects upon which they are imposed, especially those levied as privilege or occupation taxes. We can hardly see wherein the tax in question constitutes double taxation. The fact that the land upon which the billboards are located is taxed at so much per unit and the billboards at so much per square meter does not constitute "double taxation." Double taxation, within the true meaning of that expression, does not necessarily affect its validity. (1 Cooley on Taxation, 3d ed., 389.) And again, it is not for the judiciary to say that the classification upon which the tax is based "is mere arbitrary selection and not based upon any reasonable grounds." The Legislature selected signs and billboards as a subject for taxation and it must be presumed that it, in so doing, acted with a full knowledge of the situation. For the foregoing reasons, the judgment appealed from is affirmed, with costs against the appellants. So ordered.

G.R. No. L-22814

August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant, vs. CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD, THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendantsappellees. Sabido, Sabido and Associates for plaintiff-appellant. The City Attorney of Butuan City for defendants-appellees. CONCEPCION, C.J.: Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's complaint, with costs. Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its municipal board and its City Treasurer. Plaintiff seeks to recover the sums paid by it to the City of Butuan hereinafter referred to as the City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties submitted the case for decision in the lower court upon a stipulation to the effect: 1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff for distribution and sale in the City of Butuan and all municipalities of Agusan. . 2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as Exhibits "A" and "B", respectively.

3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961. 4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under protest and those that if may later on pay until the termination of this case on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax imposed is excessive and that it is unconstitutional. 5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a form to be accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed herewith as Exhibit "C". 6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and Loss Statement, the defendants claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of depreciation which the company claims to be P3,052.62. This is in accordance with the findings of the representative of the undersigned City Attorney who verified the records of the plaintiff. 7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to P1.92 which price is uniform throughout the Philippines. Said increase was made due to the increase in the production cost of its manufacture. 8. That the parties reserve the right to submit arguments on the constitutionality and illegality of Ordinance No. 110, as amended of the City of Butuan in their respective memoranda. xxx xxx xxx
1w ph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed from the cargo manifest or bill of lading or any other record showing the number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the taxes within the period prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund." Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory;

(4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative powers. The second and last objections are manifestly devoid of merit. Indeed independently of whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not express any opinion double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United States and of some States of the Union.1 Then, again, the general principle against delegation of legislative powers, in consequence of the theory of separation of powers2 is subject to one well-established exception, namely: legislative powers may be delegated to local governments to which said theory does not apply3 in respect of matters of local concern. The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks in the production and sale of which plaintiff is engaged or less than P0.0042 per bottle, is manifestly too small to be excessive, oppressive, or confiscatory. The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee of any person, association, partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No. 122: ... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a consignee of agent shall mean any person, association, partnership, company or corporation who acts in the place of another by authority from him or one entrusted with the business of another or to whom is consigned or shipped no less than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or wholesale. As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax,unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in business outside the City. Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we consider, also, that the tax "shall be based and computed from the cargo manifest or bill of lading ... showing the number of cases" not sold but "received" by the taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import duty, which is beyond defendant's authority to impose by express provision of law.4 Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax. It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the authority to classify the objects of

taxation.5 The classification made in the exercise of this authority, to be valid, must, however, be reasonable6 and this requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions which make real differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; and (4) the classification applies equally all those who belong to the same class.7 These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax. WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the amounts collected from and paid under protest by the latter, with interest thereon at the legal rate from the date of the promulgation of this decision, in addition to the costs, and defendants herein are, accordingly, restrained and prohibited permanently from enforcing said Ordinance, as amended. It is so ordered.

G.R. No. 109289 October 3, 1994 RUFINO R. TAN, petitioner, vs. RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF INTERNAL REVENUE, respondents. G.R. No. 109446 October 3, 1994 CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners, vs. RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his capacity as COMMISSIONER OF INTERNAL REVENUE, respondents. Rufino R. Tan for and in his own behalf. Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.

VITUG, J.: These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending certain provisions of the National Internal Revenue Code and, in

G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public respondents pursuant to said law. Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation. In G.R. No. 109289, it is asserted that the enactment of Republic Act No. 7496 violates the following provisions of the Constitution: Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof. Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. Article III, Section 1 No person shall be deprived of . . . property without due process of law, nor shall any person be denied the equal protection of the laws. In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public respondents have exceeded their rule-making authority in applying SNIT to general professional partnerships. The Solicitor General espouses the position taken by public respondents. The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have filed their respective memoranda. G.R. No. 109289 Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289). The full text of the title actually reads: An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue Code, as Amended. The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now amended, provide: Sec. 21. Tax on citizens or residents. xxx xxx xxx (f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of Profession. A tax is hereby imposed upon the taxable net income as determined in Section 27 received during each taxable year from all sources, other than income covered by paragraphs (b), (c), (d) and (e) of this section by every

individual whether a citizen of the Philippines or an alien residing in the Philippines who is selfemployed or practices his profession herein, determined in accordance with the following schedule: Not over P10,000 3% Over P10,000 P300 + 9% but not over P30,000 of excess over P10,000 Over P30,000 P2,100 + 15% but not over P120,00 of excess over P30,000 Over P120,000 P15,600 + 20% but not over P350,000 of excess over P120,000 Over P350,000 P61,600 + 30% of excess over P350,000 Sec. 29. Deductions from gross income. In computing taxable income subject to tax under Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this section: Provided, however, That in computing taxable income subject to tax under Section 21 (f) in the case of individuals engaged in business or practice of profession, only the following direct costs shall be allowed as deductions: (a) Raw materials, supplies and direct labor; (b) Salaries of employees directly engaged in activities in the course of or pursuant to the business or practice of their profession; (c) Telecommunications, electricity, fuel, light and water; (d) Business rentals; (e) Depreciation; (f) Contributions made to the Government and accredited relief organizations for the rehabilitation of calamity stricken areas declared by the President; and (g) Interest paid or accrued within a taxable year on loans contracted from accredited financial institutions which must be proven to have been incurred in connection with the conduct of a taxpayer's profession, trade or business. For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of forty per cent (40%) of their gross receipts shall be allowed as deductions to answer for business or professional expenses as the case may be. On the basis of the above language of the law, it would be difficult to accept petitioner's view that the amendatory law should be considered as having now adopted a gross income, instead of as having still retained the netincome, taxation scheme. The allowance for deductible items, it is true, may

have significantly been reduced by the questioned law in comparison with that which has prevailed prior to the amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. The fact of the matter is still that various deductions, which are by no means inconsequential, continue to be well provided under the new law. Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended to unite the members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the people, through such publications of its proceedings as are usually made, of the subjects of legislation. 1 The above objectives of the fundamental law appear to us to have been sufficiently met. Anything else would be to require a virtual compendium of the law which could not have been the intendment of the constitutional mandate. Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform and equitable" in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on corporations and partnerships. The contention clearly forgets, however, that such a system of income taxation has long been the prevailing rule even prior to Republic Act No. 7496. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52). What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax system towards the schedular approach 2 in the income taxation of individual taxpayers and to maintain, by and large, the present global treatment 3 on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate. Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not. With the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override constitutional proscriptions. This stage, however, has not been demonstrated to have been reached within any appreciable distance in this controversy before us. Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. No such transgression is so evident to us. G.R. No. 109446

The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496. The questioned regulation reads: Sec. 6. General Professional Partnership The general professional partnership (GPP) and the partners comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership, only the direct costs mentioned in said law are to be deducted from partnership income. Also, the expenses paid or incurred by partners in their individual capacities in the practice of their profession which are not reimbursed or paid by the partnership but are not considered as direct cost, are not deductible from his gross income. The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to partners in general professional partnerships. Petitioners cite the pertinent deliberations in Congress during its enactment of Republic Act No. 7496, also quoted by the Honorable Hernando B. Perez, minority floor leader of the House of Representatives, in the latter's privilege speech by way of commenting on the questioned implementing regulation of public respondents following the effectivity of the law, thusly: MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill. Do we speak here of individuals who are earning, I mean, who earn through business enterprises and therefore, should file an income tax return? MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It applies only to individuals. (See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours). Other deliberations support this position, to wit: MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that this bill is intended to increase collections as far as individuals are concerned and to make collection of taxes equitable? MR. PEREZ. That is correct, Mr. Speaker. (Id. at 6:40 P.M.; Emphasis ours). In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS, it is categorically stated, thus: This bill, Mr. President, is not applicable to business corporations or to partnerships; it is only with respect to individuals and professionals. (Emphasis ours) The Court, first of all, should like to correct the apparent misconception that general professional partnerships are subject to the payment of income tax or that there is a difference in the tax treatment between individuals engaged in business or in the practice of their respective professions

and partners in general professional partnerships. The fact of the matter is that a general professional partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. Section 23 of the Tax Code, which has not been amended at all by Republic Act 7496, is explicit: Sec. 23. Tax liability of members of general professional partnerships. (a) Persons exercising a common profession in general partnership shall be liable for income tax only in their individual capacity, and the share in the net profits of the general professional partnership to which any taxable partner would be entitled whether distributed or otherwise, shall be returned for taxation and the tax paid in accordance with the provisions of this Title. (b) In determining his distributive share in the net income of the partnership, each partner (1) Shall take into account separately his distributive share of the partnership's income, gain, loss, deduction, or credit to the extent provided by the pertinent provisions of this Code, and (2) Shall be deemed to have elected the itemized deductions, unless he declares his distributive share of the gross income undiminished by his share of the deductions. There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and one who does it through partnership (whether registered or not) with others in the exercise of a common profession. Indeed, outside of the gross compensation income tax and the final tax on passive investment income, under the present income tax system all individuals deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules. We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax Code, and it practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable base (that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income). Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above categorization, are by law assimilated to be within the context of, and so legally contemplated as, corporations. Except for few variances, such as in the application of the "constructive receipt rule" in the derivation of income, the income tax

approach is alike to both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions in Congress during its deliberations on Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject to the payment of income tax. "Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as independent taxable entities for income tax purposes. A general professional partnership is such an example. 4Here, the partners themselves, not the partnership (although it is still obligated to file an income tax return [mainly for administration and data]), are liable for the payment of income tax in their individual capacity computed on their respective and distributive shares of profits. In the determination of the tax liability, a partner does so as anindividual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the general professional partnership is deemed to be no more than a mere mechanism or a flow-through entity in the generation of income by, and the ultimate distribution of such income to, respectively, each of the individual partners. Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do it through a general professional partnership. WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs. SO ORDERED.

G.R. No. 119252 August 18, 1997 COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners, vs. HON. APOLINARIO B. SANTOS, in his capacity as Presiding Judge of the Regional Trial Court, Branch 67, Pasig City; ANTONIO M. MARCO; JEWELRY BY MARCO & CO., INC., and GUILD OF PHILIPPINE JEWELLERS, INC., respondents.

HERMOSISIMA, JR., J.: Of grave concern to this Court is the judicial pronouncement of the court a quo that certain provisions of the Tariff & Customs Code and the National Internal Revenue Code are unconstitutional. This provokes the issue: Can the Regional Trial Courts declare a law inoperative and without force and effect or otherwise unconstitutional? If it can, under what circumstances? In this petition, the Commissioner of Internal Revenue and the Commissioner of Customs jointly seek the reversal of the Decision, 1 dated February 16, 1995, of herein public respondent, Hon. Apolinario B. Santos, Presiding Judge of Branch 67 of the Regional Trial Court of Pasig City.

The following facts, concisely related in the petition 2 of the Office of the Solicitor General, appear to be undisputed: 1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers engaged in the manufacture of jewelries (sic) and allied undertakings. Among its members are Hans Brumann, Inc., Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., Diagem Trading Corporation, and private respondent Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the President of the Guild. 2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of the Bureau of Internal Revenue, acting for and in behalf of the Commissioner of Internal Revenue, issued Regional Mission Order No. 109-88 to BIR officers, led by Eliseo Corcega, to conduct surveillance, monitoring, and inventory of all imported articles of Hans Brumann, Inc., and place the same under preventive embargo. The duration of the mission was from August 8 to August 20, 1988 (Exhibit "1"; Exhibit "A"). 3. On August 17, 1988, pursuant to the aforementioned Mission Order, the BIR officers proceeded to the establishment of Hans Brumann, Inc., served the Mission Order, and informed the establishment that they were going to make an inventory of the articles involved to see if the proper taxes thereon have been paid. They then made an inventory of the articles displayed in the cabinets with the assistance of an employee of the establishment. They listed down the articles, which list was signed by the assistant employee. They also requested the presentation of proof of necessary payments for excise tax and value-added tax on said articles (pp. 10-15, TSN, April 12, 1993, Exhibits "2", "2-A", "3", "3-A").
4. The BIR officers requested the establishment not to sell the articles until it can be proven that the necessary taxes thereon have been paid. Accordingly, Mr. Hans Brumann, the owner of the establishment, signed a receipt for Goods, Articles, and Things Seized under Authority of the National Internal Revenue Code (dated August 17, 1988), acknowledging that the articles inventoried have been seized and left in his possession, and promising not to dispose of the same without authority of the Commissioner of Internal Revenue pending investigation. 3 5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the inventory conducted and a computation of the value-added tax and ad valorem tax on the articles for evaluation and disposition. 4 6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the BIR on the preventive embargo of the articles. 5

7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy Commissioner Eufracio D. Santos to BIR officers to examine the books of accounts and other accounting records of Hans Brumann, Inc., for "stocktaking investigation for excise tax purposes for the period January 1, 1988 to present" (Exhibit "C"). In a letter dated October 27, 1988, in connection with the physical count of the inventory (stocks on hand) pursuant to said Letter of Authority, Hans Brumann, Inc. was requested to prepare and make available to the BIR the documents indicated therein (Exhibit "D").
8. Hans Brumann, Inc., did not produce the documents requested by the BIR. 6

9. Similar Letter of Authority were issued to BIR officers to examine the books of accounts and other accounting records of Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., (Exhibits "E", "G" and "N") and Diagem Trading Corporation 7 for "stocktaking/investigation far excise tax purpose for the period January 1, 1988 to present."

10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what actually transpired in the implementation of the Letters of Authority.
11. In the case of Solid Gold International Traders Corporation, the BIR officers made an inventory of the articles in the establishment. 8 The same is true with respect to Diagem Traders Corporation. 9

12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By Marco & Co., Inc. filed with the Regional Trial Court, National Capital Judicial Region, Pasig City, Metro Manila, a petition for declaratory relief with writ of preliminary injunction and/or temporary restraining order against herein petitioners and Revenue Regional Director Felicidad L. Viray (docketed as Civil Case No. 56736) praying that Sections 126, 127(a) and (b) and 150(a) of the National Internal Revenue Code and Hdg. No. 71.01, 71.02, 71.03, and 71.04, Chapter 71 of the Tariff and Customs Code of the Philippines be declared unconstitutional and void, and that the Commissioner of Internal Revenue and Customs be prevented or enjoined from issuing mission orders and other orders of similar nature. . . . 13. On February 9, 1989, herein petitioners filed their answer to the petition. . . . 14 On October 16, 1989, private respondents filed a Motion with Leave to Amend Petition by including as petitioner the Guild of Philippine Jewelers, Inc., which motion was granted. . . . 15. The case, which was originally assigned to Branch 154, was later reassigned to Branch 67. 16. On February 16, 1995, public respondents rendered a decision, the dispositive portion of which reads: In view of the foregoing reflections, judgment is hereby rendered, as follows: 1. Declaring Section 104 of the Tariff and the Customs Code of the Philippines, Hdg. 71.01, 71.02, 71.03, and 71.04, Chapter 71 as amended by Executive Order No. 470, imposing three to ten (3% to 10%) percent tariff and customs duty on natural and cultured pearls and precious or semi-precious stones, and Section 150 par. (a) the National Internal Revenue Code of 1977, as amended, renumbered and rearranged by Executive Order 273, imposing twenty (20%) percent excise tax on jewelry, pearls and other precious stones, as INOPERATIVE and WITHOUT FORCE and EFFECT insofar as petitioners are concerned.

2. Enforcement of the same is hereby enjoined. No cost. SO ORDERED. Section 150 (a) of Executive Order No. 273 reads: Sec. 150. Non-essential goods. There shall be levied, assessed and collected a tax equivalent to 20% based on the wholesale price or the value of importation used by the Bureau of Customs in determining tariff and customs duties; net of the excise tax and value-added tax, of the following goods: (a) All goods commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-precious stones and imitations thereof; goods made of, or ornamented, mounted and fitted with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-plated wares, frames or mountings for spectacles or eyeglasses, and dental gold or gold alloys and other precious metals used in filling, mounting or fitting of the teeth); opera glasses and lorgnettes. The term "precious metals" shall include platinum, gold, silver, and other metals of similar or greater value. The term "imitations thereof" shall include platings and alloys of such metals. Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988, amended the then Section 163 (a) of the Tax Code of 1986 which provided that: Sec. 163. Percentage tax on sales of non-essential articles. There shall be levied, assessed and collected, once only on every original sale, barter, exchange or similar transaction for nominal or valuable consideration intended to transfer ownership of, or title to, the articles herein below enumerated a tax equivalent to 50% of the gross value in money of the articles so sold, bartered, exchanged or transferred, such tax to be paid by the manufacturer or producer: (a) All articles commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-precious stones, and imitations thereof, articles made of, or ornamented, mounted or fitted with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-plated wares, frames or mounting for spectacles or eyeglasses, and dental gold or gold alloys and other precious metal used in filling, mounting or fitting of the teeth); opera glasses, and lorgnettes. The term "precious metals" shall include platinum, gold, silver, and other metals of similar or greater value. The term "imitations thereof" shall include platings and alloys of such metals; Section 163 (a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax Code and Section 184(a) of the Tax code, as amended by Presidential Decree No. 69, which took effect on January 1, 1974.

It will be noted that, while under the present law, jewelry is subject to a 20% excise tax in addition to a 10% value-added tax under the old law, it was subjected to 50% percentage tax. It was even subjected to a 70% percentage tax under then Section 184(a) of the Tax Code, as amended by P.D. 69. Section 104, Hdg. Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and Customs Code, as amended by Executive Order No. 470, dated July 20, 1991, imposes import duty on natural or cultured pearls and precious or semi-precious stones at the rate of 3% to 10% to be applied in stages from 1991 to 1994 and 30% in 1995. Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the petition was filed in the court a quo. In support of their petition before the lower court, the private respondents submitted a position paper purporting to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in comparison to tax rates levied on the same in the Philippines. 10 The following issues were thus raised therein: 1. Whether or not the Honorable Court has jurisdiction over the subject matter of the petition. 2. Whether the petition states a cause of action or whether the petition alleges a justiciable controversy between the parties. 3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the Tariff and Customs Code are unconstitutional. 4. Whether the issuance of the Mission Order and Letters of Authority is valid and legal. In the assailed decision, the public respondent held indeed that the Regional Trial Court has jurisdiction to take cognizance of the petition since "jurisdiction over the nature of the suit is conferred by law and it is determine[d] through the allegations in the petition," and that the "Court of Tax Appeals has no jurisdiction to declare a statute unconstitutional much less issue writs of certiorari and prohibition in order to correct acts of respondents allegedly committed with grave abuse of discretion amounting to lack of jurisdiction." As to the second issue, the public respondent, made the holding that there exists a justiciable controversy between the parties, agreeing with the statements made in the position paper presented by the private respondents, and considering these statements to be factual evidence, to wit: Evidence for the petitioners indeed reveals that government taxation policy treats jewelry, pearls, and other precious stones and metals as non-essential luxury items and therefore, taxed heavily; that the atmospheric cost of taxation is killing the local manufacturing jewelry industry because they cannot compete with neighboring and other countries where importation and manufacturing of jewelry is not taxed heavily, if not at all; that while government incentives and subsidies exit, local manufacturers cannot avail of the same because officially many of them are unregistered and are unable to produce the required official documents because they operate underground, outside the tariff and tax structure; that local jewelry manufacturing is

under threat of extinction, otherwise discouraged, while domestic trading has become more attractive; and as a consequence, neighboring countries, such as: Hongkong, Singapore, Malaysia, Thailand, and other foreign competitors supplying the Philippine market either through local channels or through the black market for smuggled goods are the ones who are getting business and making money, while members of the petitioner Guild of Philippine Jewelers, Inc. are constantly subjected to bureaucratic harassment instead of being given by the government the necessary support in order to survive and generate revenue for the government, and most of all fight competitively not only in the domestic market but in the arena of world market where the real contest is.
Considering the allegations of fact in the petition which were duly proven during the trial, the Court holds that the petition states a cause of action and there exists a justiciable controversy between the parties which would require determination of constitutionality of the laws imposing excise tax and customs duty on jewelry. 11(emphasis ours)

The public respondent, in addressing the third issue, ruled that the laws in question are confiscatory and oppressive. Again, virtually adopting verbatim the reasons presented by the private respondents in their position paper, the lower court stated: The Court finds that indeed government taxation policy trats(sic) hewelry(sic) as nonessential luxury item and therefore, taxed heavily. Aside from the ten (10%) percent value added tax (VAT), local jewelry manufacturers contend with the (manufacturing) excise tax of twenty (20%) percent (to be applied in stages) customs duties on imported raw materials, the highest in the Asia-Pacific region. In contrast, imported gemstones and other precious metals are duty free in Hongkong, Thailand, Malaysia and Singapore. The Court elaborates further on the experiences of other countries in their treatment of the jewelry sector. MALAYSIA Duties and taxes on imported gemstones and gold and the sales tax on jewelry were abolished in Malaysia in 1984. They were removed to encourage the development of Malaysia's jewelry manufacturing industry and to increase exports of jewelry. THAILAND Gems and jewelry are Thailand's ninth most important export earner. In the past, the industry was overlooked by successive administrations much to the dismay of those involved in developing trade. Prohibitive import duties and sales tax on precious gemstones restricted the growht (sic) of the industry, resulting in most of the business being unofficial. It was indeed difficult for a government or businessman to promote an industry which did not officially exist. Despite these circumstances, Thailand's Gem business kept growing up in (sic) businessmen began to realize it's potential. In 1978, the government quietly removed the severe duties on precious stones, but imposed a sales tax of 3.5%. Little was said or done at that time as the government wanted to see if a free trade in gemstones and jewelry would increase local manufacturing and exports or if it would mean more foreign made jewelry pouring into Thailand. However, as time

progressed, there were indications that local manufacturing was indeed being encouraged and the economy was earning mom from exports. The government soon removed the 3% sales tax too, putting Thailand at par with Hongkong and Singapore. In these countries, there are no more import duties and sales tax on gems. (Cited in pages 6 and 7 of Exhibit "M". The Center for Research and Communication in cooperation with the Guild of Philippine Jewelers, Inc., June 1986). To illustrate, shown hereunder is the Philippine tariff and tax structure on jewelry and other precious and semi-precious stones compared to other neighboring countries, to wit: Tariff on imported Jewelry and (Manufacturing) Sales Tax 10% (VAT) precious stones Excise tax Philippines 3% to 10% to be 20% 10% VAT applied in stages Malaysia None None None Thailand None None None Singapore None None None Hongkong None None None In this connection, the present tariff and tax structure increases manufacturing costs and renders the local jewelry manufacturers uncompetitive against other countries even before they start manufacturing and trading. Because of the prohibitive cast (sic) of taxation, most manufacturers source from black market for smuggled goods, and that while manufacturers can avail of tax exemption and/or tax credits from the (manufacturing) excise tax, they have no documents to present when filing this exemption because, or pointed out earlier, most of them source their raw materials from the block market, and since many of them do not legally exist or operate onofficially (sic), or underground, again they have no records (receipts) to indicate where and when they will utilize such tax credits. (Cited in Exhibit "M" Buencamino Report). Given these constraints, the local manufacturer has no recourse but to the back door for smuggled goods if only to be able to compete even ineffectively, or cease manufacturing activities and instead engage in the tradinf (sic) of smuggled finished jewelry. Worthy of note is the fact that indeed no evidence was adduced by respondents to disprove the foregoing allegations of fact. Under the foregoing factual circumstances, the Court finds the questioned statutory provisions confiscatory and destructive of the proprietary right of the petitioners to engage in business in violation of Section 1, Article III of the Constitution which states, as follows:
No person shall be deprived of the life, liberty, or property without due process of law . . . . 12

Anent the fourth and last issue, the herein public respondent did not find it necessary to rule thereon, since, in his opinion, "the same has been rendered moot and academic by the aforementioned pronouncement." 13 The petitioners now assail the decision rendered by the public respondent, contending that the latter has no authority to pass judgment upon the taxation policy of the government. In addition, the petitioners impugn the decision in question by asserting that there was no showing that the tax laws on jewelry are confiscatory and destructive of private respondent's proprietary rights. We rule in favor of the petitioners. It is interesting to note that public respondent, in the dispositive portion of his decision, perhaps keeping in mind his limitations under the law as a trial judge, did not go so far as to declare the laws in question to be unconstitutional. However, therein he declared the laws to be inoperative and without force and effect insofar as the private respondents are concerned. But, respondent judge, in the body of his decision, unequivocally but wrongly declared the said provisions of law to be violative of Section 1, Article III of the Constitution. In fact, in their Supplemental Comment on the Petition for Review, 14 the private respondents insist that Judge Santos, in his capacity as judge of the Regional Trial Court, acted within his authority in passing upon the issues, to wit: A perusal of the appealed decision would undoubtedly disclose that public respondent did not pass judgment on the soundness or wisdom of the government's tax policy on jewelry. True, public respondent, in his questioned decision, observed, inter alia, that indeed government tax policy treats jewelry as non-essential item, and therefore, taxed heavily; that the present tariff and tax structure increase manufacturing cost and renders the local jewelry manufacturers uncompetitive against other countries even before they start manufacturing and trading; that many of the local manufacturers do not legally exist or operate unofficially or underground; and that the manufacturers have no recourse but to the back door for smuggled goods if only to be able to compete even if ineffectively or cease manufacturing activities. BUT, public respondent did not, in any manner, interfere with or encroach upon the prerogative of the legislature to determine what should be the tax policy on jewelry. On the other hand, the issue raised before, and passed upon by, the public respondent was whether or not Section 150, paragraph (a) of the National Internal Revenue Code (NIRC) and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the Tariff and Customs Code are unconstitutional, or differently stated, whether or not the questioned statutory provisions affect the constitutional right of private respondents to engage in business. It is submitted that public respondent confined himself on this issue which is clearly a judicial question. We find it incongruous, in the face of the sweeping pronouncements made by Judge Santos in his decision, that private respondents can still persist in their argument that the former did not overreach the restrictions dictated upon him by law. There is no doubt in the Court's mind, despite protestations to the contrary, that respondent judge encroached upon matters properly falling within the province of legislative functions. In citing as basis for his decision unproven comparative data pertaining to differences between tax rates of various Asian countries, and concluding that the jewelry industry in the Philippines suffers as a result, the respondent judge took it upon himself to supplant legislative policy regarding jewelry taxation. In advocating the abolition of local tax and duty on jewelry simply

because other countries have adopted such policies, the respondent judge overlooked the fact that such matters are not for him to decide. There are reasons why jewelry, a non-essential item, is taxed as it is in this country, and these reasons, deliberated upon by our legislature, are beyond the reach of judicial questioning. As held in Macasiano vs. National Housing Authority: 15 The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to sustain. This presumption is based on the doctrine of separation of powers which enjoins upon each department a becoming respect for the acts of the other departments. The theory is that as the joint act of Congress and the President of the Philippines, a law has been carefully studied and determined to be in accordance with the fundamental low before it was finally enacted. (emphasis ours) What we see here is a debate on the WISDOM of the laws in question. This is a matter on which the RTC is not competent to rule. 16 As Cooley observed: "Debatable questions are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues." 17 In Angara vs. Electoral Commission, 18 Justice Laurel made it clear that "the judiciary does not pass upon questions of wisdom, justice or expediency of legislation." And fittingly so, for in the exercise of judicial power, we are allowed only "to settle actual controversies involving rights which are legally demandable and enforceable", and may not annul an act of the political departments simply because we feel it is unwise or impractical. 19 This is not to say that Regional Trial Courts have no power whatsoever to declare a law unconstitutional. In J.M. Tuason and Co. v. Court of Appeals, 20 we said that "[p]lainly the Constitution contemplates that the inferior courts should have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate review of final judgments of inferior courts in cases where such constitutionality happens to be in issue." This authority of lower courts to decide questions of constitutionality in the first instance reaffirmed in Ynos v. Intermediate Court of Appeals. 21 But this authority does not extend to deciding questions which pertain to legislative policy. The trial court is not the proper forum for the ventilation of the issues raised by the private respondents. The arguments they presented focus on the wisdom of the provisions of law which they seek to nullify. Regional Trial Courts can only look into the validity of a provision, that is, whether or not it has been passed according to the procedures laid down by law, and thus cannot inquire as to the reasons for its existence. Granting arguendo that the private respondents may have provided convincing arguments why the jewelry industry in the Philippines should not be taxed as it is, it is to the legislature that they must resort to for relief, since with the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) andsitus (place) of taxation. This Court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. 22 As succinctly put in Lim vs. Pacquing: 23 "Where a controversy may be settled on a platform other than one involving constitutional adjudication, the court should exercise becoming modesty and avoid the constitutional question." As judges, we can only interpret and apply the law and, despite our doubts about its wisdom, cannot repeal or amend it. 24 The respondents presented an exhaustive study on the tax rates on jewelry levied by different Asian countries. This is meant to convince us that compared to other countries, the tax rates imposed on said industry in the Philippines is oppressive and confiscatory. This Court, however, cannot subscribe to the theory that the tax rates of other countries should be used as a yardstick in determining what may be the proper subjects of taxation in our own country. It should be pointed out that in imposing the aforementioned taxes and duties, the State, acting through the legislative and

executive branches, is exercising its sovereign prerogative. It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out or one particular class for taxation, or exemption, infringe no constitutional limitation." 25 WHEREFORE, premises considered, the petition is hereby GRANTED, and the Decision in Civil Case No. 56736 is hereby REVERSED and SET ASIDE. No costs. SO ORDERED.

G.R. No. L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma, plaintiff-appellant, vs. J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee. Ernesto J. Gonzaga for appellant. Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act. Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes." In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. According to section 6 of the law SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid

out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law. First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial position of the Philippine sugar in the United States market, and ultimately to insure its continued existence notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets of the world; Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so that all might continue profitably to engage therein;lawphi1.net Third, to limit the production of sugar to areas more economically suited to the production thereof; and Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular session of the National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and operation of sugar experiment station or stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable to different district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f) to determine what crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution of which would help rehabilitate and stabilize the industry, and (2) for the improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to organize the necessary agency or agencies to take charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund herein created of the necessary amount or amounts needed for salaries, wages, travelling expenses, equipment, and other sundry expenses of said agency or agencies. Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section 17). The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of

the important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121). As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857). Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. 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" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251). From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied;" and that "the legislative authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893). Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.

G.R. No. 81311 June 30, 1988 KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners, vs. HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent. G.R. No. 81820 June 30, 1988 KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor federations and alliances,petitioners, vs. THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE, and SECRETARY OF BUDGET, respondents. G.R. No. 81921 June 30, 1988 INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and JESUS B. BANAL, petitioners, vs. The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent. G.R. No. 82152 June 30, 1988 RICARDO C. VALMONTE, petitioner, vs. THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF BUDGET, respondent. Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311. Jaime C. Opinion for individual petitioners in G.R. No. 81311. Banzuela, Flores, Miralles, Raeses, Sy, Taquio and Associates for petitioners in G.R. No 81820. Union of Lawyers and Advocates for Peoples Right collaborating counsel for petitioners in G.R. No 81820. Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.

PADILLA, J.:

These four (4) petitions, which have been consolidated because of the similarity of the main issues involved therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment is not alledgedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution. The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to show justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate case; (2) an interest, personal and substantial, of the party raising the constitutional questions; (3) the constitutional question should be raised at the earliest opportunity; and (4) the question of constitutionality is directly and necessarily involved in a justiciable controversy and its resolution is essential to the protection of the rights of the parties. According to the Solicitor General, only the third requisite that the constitutional question should be raised at the earliest opportunity has been complied with. He also questions the legal standing of the petitioners who, he contends, are merely asking for an advisory opinion from the Court, there being no justiciable controversy for resolution. Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the main procedural matters. Considering the importance to the public of the cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine wether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of these petitions. But, before resolving the issues raised, a brief look into the tax law in question is in order. The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized from the sale of services. The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery. The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single stage value added tax system computed under the "cost subtraction method" or "cost deduction method" and was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only on the second sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt. Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to issue EO 273 on 25 July 1987.

The contention is without merit. It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states: Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to exercise legislative powers. On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of the Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution, provides: Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened. It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers until a legislature under a new Constitution is convened. The first Congress, created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's constitutional power and authority to legislate. Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July 1987). He contends that the word "convene" is synonymous with "the date when the elected members of Congress assumed office." The contention is without merit. The word "convene" which has been interpreted to mean "to call together, cause to assemble, or convoke," 1 is clearly different from assumption of office by the individual members of Congress or their taking the oath of office. As an example, we call to mind the interim National Assembly created under the 1973 Constitution, which had not been "convened" but some members of the body, more particularly the delegates to the 1971 Constitutional Convention who had opted to serve therein by voting affirmatively for the approval of said Constitution, had taken their oath of office. To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too far. It would also defeat the purpose of the framers of the 1987 Constitutional and render meaningless some other provisions of said Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress to convene once every year on the fourth Monday of July for its regular session would be a contrariety, since Congress would already be deemed to be in session after the individual members have taken their oath of office. A portion of the provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of enacting a law calling for a special election to elect a President and Vice-President in case a vacancy occurs in said offices, would also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to decide a conflict between the President and the Cabinet as to whether or not the President and the Cabinet as to whether or not the President can re-assume the powers and duties of his office, would also be redundant. The same is true with the portion of Art. VII, sec. 18, which requires Congress to convene within twenty-four (24) hours following the declaration of martial law or the suspension of the privilage of the writ of habeas corpus. The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of said Constitution had intended to terminate the exercise of legislative powers by the President at the beginning of the term of office of the members of Congress, they should have so

stated (but did not) in clear and unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning different from that intended. The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave abuse of discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other words, where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2

Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened." 3 Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states: Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. 4 As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of Baguio vs. De Leon, 5 said: ... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court, stated: "A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found." There was no occasion in that case to consider the possible effect on such a constitutional requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus: "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; . . ." About two years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his opinion and continued; "Taking everything into account, the differentiation against which the

plaintiffs complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution." To satisfy this requirement then, all that is needed as held in another case decided two years later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation." This Court is on record as accepting the view in a leading American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that "inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153). The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%. The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public. 6 The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs brokers. The contested provision states: Sec. 103. Exempt transactions. The following shall be exempt from the valueadded tax: xxx xxx xxx (r) Service performed in the exercise of profession or calling (except customs brokers) subject to the occupation tax under the Local Tax Code, and professional services performed by registered general professional partnerships; The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services of customs brokers subject to the payment of the VAT and to distinguish customs brokers from other professionals who are subject to the payment of an occupation tax under the Local Tax Code. Pertinent provisions of Sec. 102 read: Sec. 102. Value-added tax on sale of services. There shall be levied, assessed and collected, a value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services. The phrase sale of services" means the performance of all kinds of services for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of personal property; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; and similar services regardless of whether or not the performance thereof call for the exercise or use of the physical or mental faculties: ...

With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict between the two sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is averted. At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner Association did not protest the classification of customs brokers then, the Court sees no reason why it should protest now. The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears expressed by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic commodities and services, as well as mass actions and demonstrations against the VAT should by now be evident. The fact that nothing of the sort has happened shows that the fears and apprehensions of the petitioners appear to be more imagined than real. It would seem that the VAT is not as bad as we are made to believe. In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse and relief from the political branches of the government. The Court, following the timehonored doctrine of separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and advisability of the adoption of the VAT. The Court can only look into and determine whether or not EO 273 was enacted and made effective as law, in the manner required by, and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to impede its application or continued implementation. WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs. SO ORDERED.

G.R. No. 115455 October 30, 1995 ARTURO M. TOLENTINO, petitioner, vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents. G.R. No. 115525 October 30, 1995 JUAN T. DAVID, petitioner, vs. TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR REPRESENTATIVES, respondents. G.R. No. 115543 October 30, 1995

RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners, vs. THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents. G.R. No. 115544 October 30, 1995 PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners, vs. HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents. G.R. No. 115754 October 30, 1995 CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent. G.R. No. 115781 October 30, 1995 KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO TAADA,petitioners, vs. THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents. G.R. No. 115852 October 30, 1995 PHILIPPINE AIRLINES, INC., petitioner, vs. THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents. G.R. No. 115873 October 30, 1995 COOPERATIVE UNION OF THE PHILIPPINES, petitioner, vs. HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents. G.R. No. 115931 October 30, 1995 PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK SELLERS, petitioners,

vs. HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of Customs, respondents. RESOLUTION

MENDOZA, J.: These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners in these cases, with the exception of the Philippine Educational Publishers Association, Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931. The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply. In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply. On June 27, 1995 the matter was submitted for resolution. I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI, 24 of the Constitution. Although they admit that H. No. 11197 was filed in the House of Representatives where it passed three readings and that afterward it was sent to the Senate where after first reading it was referred to the Senate Ways and Means Committee, they complain that the Senate did not pass it on second and third readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill and substituting it with the text of S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes the text (only the text) of the House bill." The contention has no merit. The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions during the Eighth Congress, the Senate passed its own version of revenue bills, which, in consolidation with House bills earlier passed, became the enrolled bills. These were: R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the President on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was approved by the House on January 29, 1992, and S. No. 1920, which was approved by the Senate on February 3, 1992.

R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22, 1992. This Act is a consolidation of H. No. 22232, which was approved by the House of Representatives on August 2, 1989, and S. No. 807, which was approved by the Senate on October 21, 1991. On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of House and Senate bills. These are the following, with indications of the dates on which the laws were approved by the President and dates the separate bills of the two chambers of Congress were respectively passed: 1. R.A. NO. 7642 AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992). House Bill No. 2165, October 5, 1992 Senate Bill No. 32, December 7, 1992 2. R.A. NO. 7643 AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992) House Bill No. 1503, September 3, 1992 Senate Bill No. 968, December 7, 1992 3. R.A. NO. 7646 AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24, 1993) House Bill No. 1470, October 20, 1992 Senate Bill No. 35, November 19, 1992 4. R.A. NO. 7649 AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF

THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES RENDERED BY CONTRACTORS (April 6, 1993) House Bill No. 5260, January 26, 1993 Senate Bill No. 1141, March 30, 1993 5. R.A. NO. 7656 AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9, 1993) House Bill No. 11024, November 3, 1993 Senate Bill No. 1168, November 3, 1993 6. R.A. NO. 7660 AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993) House Bill No. 7789, May 31, 1993 Senate Bill No. 1330, November 18, 1993 7. R.A. NO. 7717 AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994) House Bill No. 9187, November 3, 1993 Senate Bill No. 1127, March 23, 1994 Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to propose amendments to bills required to originate in the House, passed its own version of a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings. On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere matter of form. Petitioner has not shown what substantial difference it would make

if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted as a substitute measure, "taking into Consideration . . . H.B. 11197." Indeed, so far as pertinent, the Rules of the Senate only provide: RULE XXIX AMENDMENTS xxx xxx xxx 68. Not more than one amendment to the original amendment shall be considered. No amendment by substitution shall be entertained unless the text thereof is submitted in writing. Any of said amendments may be withdrawn before a vote is taken thereon. 69. No amendment which seeks the inclusion of a legislative provision foreign to the subject matter of a bill (rider) shall be entertained. xxx xxx xxx 70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject distinct from that proposed in the original bill or resolution. (emphasis added). Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses less power than the U.S. Senate because of textual differences between constitutional provisions giving them the power to propose or concur with amendments. Art. I, 7, cl. 1 of the U.S. Constitution reads: All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills. Art. VI, 24 of our Constitution reads: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on other Bills" in the American version, according to petitioners, shows the intention of the framers of our Constitution to restrict the Senate's power to propose amendments to revenue bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and "the words 'as in any other bills' (sic) were eliminated so as to show that these bills were not to be like other bills but must be treated as a special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935 Constitution originally provided for a unicameral National Assembly. When it was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the procedure for lawmaking by the Senate and the House of Representatives. The work of proposing amendments to the Constitution was done by the National Assembly, acting as a constituent assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers, sought to curtail the powers of the proposed Senate. Accordingly they proposed the following provision: All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall originate exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of disapproval by the Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed enacted and may be submitted to the President for corresponding action. In the event that the Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the opening of the next regular session of the same legislative term, reapprove the same with a vote of two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be deemed enacted and may be submitted to the President for corresponding action. The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted everything after the first sentence. As rewritten, the proposal was approved by the National Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the people and ratified by them in the elections held on June 18, 1940. This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present Constitution was derived. It explains why the word "exclusively" was added to the American text from which the framers of the Philippine Constitution borrowed and why the phrase "as on other Bills" was not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments must be understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills are required to originate exclusively in the House of Representatives, the Senate cannot enact revenue measures of its own without such bills. After a revenue bill is passed and sent over to it by the House, however, the Senate certainly can pass its own version on the same subject matter. This follows from the coequality of the two chambers of Congress. That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the following commentaries: The power of the Senate to propose or concur with amendments is apparently without restriction. It would seem that by virtue of this power, the Senate can practically re-write a bill required to come from the House and leave only a trace of the original bill. For example, a general revenue bill passed by the lower house of the United States Congress contained provisions for the imposition of an inheritance tax . This was changed by the Senate into a corporation tax. The amending authority of the Senate was declared by the United States Supreme Court to be sufficiently broad to enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].

(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961)) The above-mentioned bills are supposed to be initiated by the House of Representatives because it is more numerous in membership and therefore also more representative of the people. Moreover, its members are presumed to be more familiar with the needs of the country in regard to the enactment of the legislation involved. The Senate is, however, allowed much leeway in the exercise of its power to propose or concur with amendments to the bills initiated by the House of Representatives. Thus, in one case, a bill introduced in the U.S. House of Representatives was changed by the Senate to make a proposed inheritance tax a corporation tax. It is also accepted practice for the Senate to introduce what is known as an amendment by substitution, which may entirely replace the bill initiated in the House of Representatives. (I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)). In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is referred may do any of the following: (1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case it will be known as a committee bill; or (4) to make no report at all. (A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950)) To except from this procedure the amendment of bills which are required to originate in the House by prescribing that the number of the House bill and its other parts up to the enacting clause must be preserved although the text of the Senate amendment may be incorporated in place of the original body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S. No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as any which the Senate could have made. II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No. 1630 is an independent and distinct bill. Hence their repeated references to its certification that it was passed by the Senate "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there is something substantially different between the reference to S. No. 1129 and the reference to H. No. 11197. From this premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two "half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress." In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of

petitioner Tolentino, while showing differences between the two bills, at the same time indicates that the provisions of the Senate bill were precisely intended to be amendments to the House bill. Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and three readings. It was enough that after it was passed on first reading it was referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be passed by the House of Representatives before the two bills could be referred to the Conference Committee. There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were referred to a conference committee, the question was raised whether the two bills could be the subject of such conference, considering that the bill from one house had not been passed by the other and vice versa. As Congressman Duran put the question: MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed by the House but not passed by the Senate, and a Senate bill of a similar nature is passed in the Senate but never passed in the House, can the two bills be the subject of a conference, and can a law be enacted from these two bills? I understand that the Senate bill in this particular instance does not refer to investments in government securities, whereas the bill in the House, which was introduced by the Speaker, covers two subject matters: not only investigation of deposits in banks but also investigation of investments in government securities. Now, since the two bills differ in their subject matter, I believe that no law can be enacted. Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said: THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like this where a conference should be had. If the House bill had been approved by the Senate, there would have been no need of a conference; but precisely because the Senate passed another bill on the same subject matter, the conference committee had to be created, and we are now considering the report of that committee. (2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added)) III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that because the President separately certified to the need for the immediate enactment of these measures, his certification was ineffectual and void. The certification had to be made of the version of the same revenue bill which at the momentwas being considered. Otherwise, to follow petitioners' theory, it would be necessary for the President to certify as many bills as are presented in a house of Congress even though the bills are merely versions of the bill he has already certified. It is enough that he certifies the bill which, at the time he makes the certification, is under consideration. Since on March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to be certified. For that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate enactment because it was the one which at that time was being considered by the House. This bill was later substituted, together with other bills, by H. No. 11197.

As to what Presidential certification can accomplish, we have already explained in the main decision that the phrase "except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26 (2) qualifies not only the requirement that "printed copies [of a bill] in its final form [must be] distributed to the members three days before its passage" but also the requirement that before a bill can become a law it must have passed "three readings on separate days." There is not only textual support for such construction but historical basis as well. Art. VI, 21 (2) of the 1935 Constitution originally provided: (2) No bill shall be passed by either House unless it shall have been printed and copies thereof in its final form furnished its Members at least three calendar days prior to its passage, except when the President shall have certified to the necessity of its immediate enactment. Upon the last reading of a bill, no amendment thereof shall be allowed and the question upon its passage shall be taken immediately thereafter, and the yeas and nays entered on the Journal. When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2): (2) No bill shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to the Members three days before its passage, except when the Prime Minister certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal. This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the present Constitution, thus: (2) No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeasand nays entered in the Journal. The exception is based on the prudential consideration that if in all cases three readings on separate days are required and a bill has to be printed in final form before it can be passed, the need for a law may be rendered academic by the occurrence of the very emergency or public calamity which it is meant to address. Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the Philippines where budget deficit is a chronic condition. Even if this were the case, an enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the situation calling for its enactment any less an emergency. Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there was an urgent need for consideration of S. No. 1630, because they responded to the call of the President by voting on the bill on second and third readings on the same day. While the judicial department is not bound by the Senate's acceptance of the President's certification, the respect due coequal departments of the government in matters committed to them by the

Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the judicial hand. At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was discussed for six days. Only its distribution in advance in its final printed form was actually dispensed with by holding the voting on second and third readings on the same day (March 24, 1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second reading and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate on third reading. The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the members of Congress of what they must vote on and (2) to give them notice that a measure is progressing through the enacting process, thus enabling them and others interested in the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were substantially achieved in the case of R.A. No. 7716. IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy of full public disclosure and the people's right to know (Art. II, 28 and Art. III, 7) the Conference Committee met for two days in executive session with only the conferees present. As pointed out in our main decision, even in the United States it was customary to hold such sessions with only the conferees and their staffs in attendance and it was only in 1975 when a new rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress has not adopted a rule prescribing open hearings for conference committees. It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff members were present. These were staff members of the Senators and Congressmen, however, who may be presumed to be their confidential men, not stenographers as in this case who on the last two days of the conference were excluded. There is no showing that the conferees themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes of their meetings. Above all, the public's right to know was fully served because the Conference Committee in this case submitted a report showing the changes made on the differing versions of the House and the Senate. Petitioners cite the rules of both houses which provide that conference committee reports must contain "a detailed, sufficiently explicit statement of the changes in or other amendments." These changes are shown in the bill attached to the Conference Committee Report. The members of both houses could thus ascertain what changes had been made in the original bills without the need of a statement detailing the changes. The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a point of order. He said: MR. BENGZON. My point of order is that it is out of order to consider the report of the conference committee regarding House Bill No. 2557 by reason of the provision of Section 11, Article XII, of the Rules of this House which provides specifically that the conference report must be accompanied by a detailed statement of the effects of

the amendment on the bill of the House. This conference committee report is not accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to consider it. Petitioner Tolentino, then the Majority Floor Leader, answered: MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point of order raised by the gentleman from Pangasinan. There is no question about the provision of the Rule cited by the gentleman from Pangasinan, but this provision applies to those cases where only portions of the bill have been amended. In this case before us an entire bill is presented; therefore, it can be easily seen from the reading of the bill what the provisions are. Besides, this procedure has been an established practice. After some interruption, he continued: MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions of the Rules, and the reason for the requirement in the provision cited by the gentleman from Pangasinan is when there are only certain words or phrases inserted in or deleted from the provisions of the bill included in the conference report, and we cannot understand what those words and phrases mean and their relation to the bill. In that case, it is necessary to make a detailed statement on how those words and phrases will affect the bill as a whole; but when the entire bill itself is copied verbatim in the conference report, that is not necessary. So when the reason for the Rule does not exist, the Rule does not exist. (2 CONG. REC. NO. 2, p. 4056. (emphasis added)) Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it was upheld by viva voce and when a division of the House was called, it was sustained by a vote of 48 to 5. (Id., p. 4058) Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are germane to the subject of the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the jurisdiction of the conference committee is not limited to resolving differences between the Senate and the House. It may propose an entirely new provision. What is important is that its report is subsequently approved by the respective houses of Congress. This Court ruled that it would not entertain allegations that, because new provisions had been added by the conference committee, there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no amendment thereto shall be allowed." Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made upon the last reading of the bill that eventually became R.A. No. 7354 and that copiesthereof in its final form were not distributed among the members of each House. Both the enrolled bill and the legislative journals certify that the measure was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official assurances from a coordinate department of the government, to which we owe, at the very least, a becoming courtesy.

(Id. at 710. (emphasis added)) It is interesting to note the following description of conference committees in the Philippines in a 1979 study: Conference committees may be of two types: free or instructed. These committees may be given instructions by their parent bodies or they may be left without instructions. Normally the conference committees are without instructions, and this is why they are often critically referred to as "the little legislatures." Once bills have been sent to them, the conferees have almost unlimited authority to change the clauses of the bills and in fact sometimes introduce new measures that were not in the original legislation. No minutes are kept, and members' activities on conference committees are difficult to determine. One congressman known for his idealism put it this way: "I killed a bill on export incentives for my interest group [copra] in the conference committee but I could not have done so anywhere else." The conference committee submits a report to both houses, and usually it is accepted. If the report is not accepted, then the committee is discharged and new members are appointed. (R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)). In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that conference committees here are no different from their counterparts in the United States whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all events, under Art. VI, 16(3) each house has the power "to determine the rules of its proceedings," including those of its committees. Any meaningful change in the method and procedures of Congress or its committees must therefore be sought in that body itself. V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26 (1) of the Constitution which provides that "Every bill passed by Congress shall embrace only one subject which shall be expressed in the title thereof." PAL contends that the amendment of its franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law. Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed or collected by any municipal, city, provincial or national authority or government agency, now or in the future." PAL was exempted from the payment of the VAT along with other entities by 103 of the National Internal Revenue Code, which provides as follows: 103. Exempt transactions. The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under special laws or international agreements to which the Philippines is a signatory.

R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending 103, as follows: 103. Exempt transactions. The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . . The amendment of 103 is expressed in the title of R.A. No. 7716 which reads: AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES. By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its intention to amend any provision of the NIRC which stands in the way of accomplishing the purpose of the law. PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is already stated in the title that the law seeks to amend the pertinent provisions of the NIRC, among which is 103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a law that is required to express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among the provisions sought to be amended. We are satisfied that sufficient notice had been given of the pendency of these bills in Congress before they were enacted into what is now R.A. No. 7716. In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It contained a provision repealing all franking privileges. It was contended that the withdrawal of franking privileges was not expressed in the title of the law. In holding that there was sufficient description of the subject of the law in its title, including the repeal of franking privileges, this Court held: To require every end and means necessary for the accomplishment of the general objectives of the statute to be expressed in its title would not only be unreasonable but would actually render legislation impossible. [Cooley, Constitutional Limitations, 8th Ed., p. 297] As has been correctly explained: The details of a legislative act need not be specifically stated in its title, but matter germane to the subject as expressed in the title, and

adopted to the accomplishment of the object in view, may properly be included in the act. Thus, it is proper to create in the same act the machinery by which the act is to be enforced, to prescribe the penalties for its infraction, and to remove obstacles in the way of its execution. If such matters are properly connected with the subject as expressed in the title, it is unnecessary that they should also have special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed. 725) (227 SCRA at 707-708) VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of these. Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional." With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly circulation was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long who controlled the state legislature which enacted the license tax. The censorial motivation for the law was thus evident. On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing or consuming tangible goods, the press was not. Instead, the press was exempted from both taxes. It was, however, later made to pay a special use tax on the cost of paper and ink which made these items "the only items subject to the use tax that were component of goods to be sold at retail." The U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of regulation is not related to suppression of expression, and such goal is presumptively unconstitutional." It would therefore appear that even a law that favors the press is constitutionally suspect. (See the dissent of Rehnquist, J. in that case) Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort to broaden the base of the tax.

The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions will suffice to show that by and large this is not so and that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit. The exempt transactions are: (a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds). (b) Goods used for personal consumption or use (household and personal effects of citizens returning to the Philippines) or for professional use, like professional instruments and implements, by persons coming to the Philippines to settle here. (c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products subject to excise tax and services subject to percentage tax. (d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employer-employee relationship. (e) Works of art and similar creations sold by the artist himself. (f) Transactions exempted under special laws, or international agreements. (g) Export-sales by persons not VAT-registered. (h) Goods or services with gross annual sale or receipt not exceeding P500,000.00. (Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 5860) The PPI asserts that it does not really matter that the law does not discriminate against the press because "even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943): The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First Amendment is not so restricted. A license tax certainly does not acquire constitutional validity because it classifies the privileges protected by the First Amendment along with the wares and merchandise of hucksters and peddlers and treats them all alike. Such equality in treatment does not save the ordinance. Freedom of press, freedom of speech, freedom of religion are in preferred position. The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling goods, is valid, its application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with

the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon." A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated a city ordinance requiring a business license fee on those engaged in the sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by the American Bible Society without restraining the free exercise of its right to propagate. The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution. Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the preacher to make a sermon. On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration and enforcement of provisions such as those relating to accounting in 108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal Revenue. VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that Congress shall "evolve a progressive system of taxation." With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of real property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the contract. The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into

contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)). It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real property which is equally essential. The sale of real property for socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be exempted. The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between the "homeless poor" and the "homeless less poor" in the example given by petitioner, because the second group or middle class can afford to rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is inherent in the power to tax that the 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.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)). Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1) which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation." Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra) Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held: As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. ... The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%. The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products,

so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public. (At 382-383) The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the mandate of Congress to provide for a progressive system of taxation because the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC). Thus, the following transactions involving basic and essential goods and services are exempted from the VAT: (a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds). (b) Goods used for personal consumption or use (household and personal effects of citizens returning to the Philippines) and or professional use, like professional instruments and implements, by persons coming to the Philippines to settle here. (c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products subject to excise tax and services subject to percentage tax. (d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employer-employee relationship. (e) Works of art and similar creations sold by the artist himself. (f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered. (h) Goods or services with gross annual sale or receipt not exceeding P500,000.00. (Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 5860) On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups. These include real properties held primarily for sale to customers or for lease in the ordinary course of trade or business, the right or privilege to use patent, copyright, and other similar property or right, the right or privilege to use industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television time, hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services of franchise grantees of telephone and telegraph. The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering issues not at retail but at wholesale and in the abstract. There is no fully developed record which can impart to adjudication the impact of actuality. There is no factual foundation to show in the concrete the application of the law to actual contracts and exemplify its effect on property rights. For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questions asked which are no different from those dealt with in advisory opinions. 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. (Sison, Jr. v. Ancheta, 130 SCRA at 661) Adjudication of these broad claims must await the development of a concrete case. It may be that postponement of adjudication would result in a multiplicity of suits. This need not be the case, however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual case and not an abstract or hypothetical one, may thus be presented. Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise, adjudication would be no different from the giving of advisory opinion that does not really settle legal issues. We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "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." This duty can only arise if an actual case or controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms of "cases" and all that Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial power to determine questions of grave abuse of discretion by any branch or instrumentality of the government.

Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a court to hear and decide cases pending between parties who have the right to sue and be sued in the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from legislative and executive power. This power cannot be directly appropriated until it is apportioned among several courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other departments of the government. VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a definite policy of granting tax exemption to cooperatives that the present Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the framers of the Constitution "repudiated the previous actions of the government adverse to the interests of the cooperatives, that is, the repeated revocation of the tax exemption to cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant of tax exemptions," by providing the following in Art. XII: 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged. The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices. In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership. 15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social justice and economic development. Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, 5. What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential treatments theretofore granted to private business enterprises in general, in view of the economic crisis which then beset the nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of cooperatives in 1986, the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were not

the only ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all, including government and private entities. In the second place, the Constitution does not really require that cooperatives be granted tax exemptions in order to promote their growth and viability. Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives should be granted tax exemptions, but that is left to the discretion of Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no violation of any constitutional policy can be charged. Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation. Such theory is contrary to the Constitution under which only the following are exempt from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, 28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, 4 (3). CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal protection of the law because electric cooperatives are exempted from the VAT. The classification between electric and other cooperatives (farmers cooperatives, producers cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that there is greater need to provide cheaper electric power to as many people as possible, especially those living in the rural areas, than there is to provide them with other necessities in life. We cannot say that such classification is unreasonable. We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We have now come to the conclusion that the law suffers from none of the infirmities attributed to it by petitioners and that its enactment by the other branches of the government does not constitute a grave abuse of discretion. Any question as to its necessity, desirability or expediency must be addressed to Congress as the body which is electorally responsible, remembering that, as Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators, that those who took part in passing the law in question by voting for it in Congress should later thrust to the courts the burden of reviewing measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much less exercise a veto power over legislation. WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order previously issued is hereby lifted. SO ORDERED.

G.R. No. 158540

July 8, 2004

SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. THE PHILIPPINE CEMENT MANUFACTURERS CORP., THE SECRETARY OF THE DEPARTMENT OF TRADE & INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE, and THE COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.

DECISION

TINGA, J.: "Good fences make good neighbors," so observed Robert Frost, the archetype of traditional New England detachment. The Frost ethos has been heeded by nations adjusting to the effects of the liberalized global market.1 The Philippines, for one, enacted Republic Act (Rep. Act) No. 8751 (on the imposition of countervailing duties), Rep. Act No. 8752 (on the imposition of anti-dumping duties) and, finally, Rep. Act No. 8800, also known as the Safeguard Measures Act ("SMA")2 soon after it joined the General Agreement on Tariff and Trade (GATT) and the World Trade Organization (WTO) Agreement.3 The SMA provides the structure and mechanics for the imposition of emergency measures, including tariffs, to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them.4 The wisdom of the policies behind the SMA, however, is not put into question by the petition at bar. The questions submitted to the Court relate to the means and the procedures ordained in the law to ensure that the determination of the imposition or non-imposition of a safeguard measure is proper. Antecedent Facts Petitioner Southern Cross Cement Corporation ("Southern Cross") is a domestic corporation engaged in the business of cement manufacturing, production, importation and exportation. Its principal stockholders are Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly the largest cement manufacturers in Japan.5 Private respondent Philippine Cement Manufacturers Corporation6 ("Philcemcor") is an association of domestic cement manufacturers. It has eighteen (18) members,7 per Record. While Philcemcor heralds itself to be an association of domestic cement manufacturers, it appears that considerable equity holdings, if not controlling interests in at least twelve (12) of its member-corporations, were acquired by the three largest cement manufacturers in the world, namely Financiere Lafarge S.A. of France, Cemex S.A. de C.V. of Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank Financiere Glaris, Ltd., then Holderfin B.V.).8 On 22 May 2001, respondent Department of Trade and Industry ("DTI") accepted an application from Philcemcor, alleging that the importation of gray Portland cement9 in increased quantities has caused declines in domestic production, capacity utilization, market share, sales and employment; as well as caused depressed local prices. Accordingly, Philcemcor sought the imposition at first of provisional, then later, definitive safeguard measures on the import of cement pursuant to the SMA. Philcemcor filed the application in behalf of twelve (12) of its member-companies.10 After preliminary investigation, the Bureau of Import Services of the DTI, determined that critical circumstances existed justifying the imposition of provisional measures.11 On 7 November 2001, the DTI issued an Order,imposing a provisional measure equivalent to Twenty Pesos and Sixty Centavos (P20.60) per forty (40) kilogram bag on all importations of gray Portland cement for a

period not exceeding two hundred (200) days from the date of issuance by the Bureau of Customs (BOC) of the implementing Customs Memorandum Order.12 The corresponding Customs Memorandum Order was issued on 10 December 2001, to take effect that same day and to remain in force for two hundred (200) days.13 In the meantime, the Tariff Commission, on 19 November 2001, received a request from the DTI for a formal investigation to determine whether or not to impose a definitive safeguard measure on imports of gray Portland cement, pursuant to Section 9 of the SMA and its Implementing Rules and Regulations. A notice of commencement of formal investigation was published in the newspapers on 21 November 2001. Individual notices were likewise sent to concerned parties, such as Philcemcor, various importers and exporters, the Embassies of Indonesia, Japan and Taiwan, contractors/builders associations, industry associations, cement workers' groups, consumer groups, non-government organizations and concerned government agencies.14 A preliminary conference was held on 27 November 2001, attended by several concerned parties, including Southern Cross.15 Subsequently, the Tariff Commission received several position papers both in support and against Philcemcor's application.16The Tariff Commission also visited the corporate offices and manufacturing facilities of each of the applicant companies, as well as that of Southern Cross and two other cement importers.17 On 13 March 2002, the Tariff Commission issued its Formal Investigation Report ("Report"). Among the factors studied by the Tariff Commission in its Report were the market share of the domestic industry,18 production and sales,19 capacity utilization,20 financial performance and profitability,21 and return on sales.22 The Tariff Commission arrived at the following conclusions: 1. The circumstances provided in Article XIX of GATT 1994 need not be demonstrated since the product under consideration (gray Portland cement) is not the subject of any Philippine obligation or tariff concession under the WTO Agreement. Nonetheless, such inquiry is governed by the national legislation (R.A. 8800) and the terms and conditions of the Agreement on Safeguards. 2. The collective output of the twelve (12) applicant companies constitutes a major proportion of the total domestic production of gray Portland cement and blended Portland cement. 3. Locally produced gray Portland cement and blended Portland cement (Pozzolan) are "like" to imported gray Portland cement. 4. Gray Portland cement is being imported into the Philippines in increased quantities, both in absolute terms and relative to domestic production, starting in 2000. The increase in volume of imports is recent, sudden, sharp and significant. 5. The industry has not suffered and is not suffering significant overall impairment in its condition, i.e., serious injury. 6. There is no threat of serious injury that is imminent from imports of gray Portland cement. 7. Causation has become moot and academic in view of the negative determination of the elements of serious injury and imminent threat of serious injury.23 Accordingly, the Tariff Commission made the following recommendation, to wit:

The elements of serious injury and imminent threat of serious injury not having been established, it is hereby recommended that no definitive general safeguard measure be imposed on the importation of gray Portland cement.24 The DTI received the Report on 14 March 2002. After reviewing the report, then DTI Secretary Manuel Roxas II ("DTI Secretary") disagreed with the conclusion of the Tariff Commission that there was no serious injury to the local cement industry caused by the surge of imports.25 In view of this disagreement, the DTI requested an opinion from the Department of Justice ("DOJ") on the DTI Secretary's scope of options in acting on the Commission's recommendations. Subsequently, then DOJ Secretary Hernando Perez rendered an opinion stating that Section 13 of the SMA precluded a review by the DTI Secretary of the Tariff Commission's negative finding, or finding that a definitive safeguard measure should not be imposed.26 On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the conclusions of the Tariff Commission, the DTI Secretary noted the DTI's disagreement with the conclusions. However, he also cited the DOJ Opinion advising the DTI that it was bound by the negative finding of the Tariff Commission. Thus, he ruled as follows: The DTI has no alternative but to abide by the [Tariff] Commission's recommendations. IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA 8800 which states: "In the event of a negative final determination; or if the cash bond is in excess of the definitive safeguard duty assessed, the Secretary shall immediately issue, through the Secretary of Finance, a written instruction to the Commissioner of Customs, authorizing the return of the cash bond or the remainder thereof, as the case may be, previously collected as provisional general safeguard measure within ten (10) days from the date a final decision has been made; Provided, that the government shall not be liable for any interest on the amount to be returned. The Secretary shall not accept for consideration another petition from the same industry, with respect to the same imports of the product under consideration within one (1) year after the date of rendering such a decision." The DTI hereby issues the following: The application for safeguard measures against the importation of gray Portland cement filed by PHILCEMCOR (Case No. 02-2001) is hereby denied.27 (Emphasis in the original) Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus28 seeking to set aside the DTI Decision, as well as the Tariff Commission's Report. Philcemcor likewise applied for a Temporary Restraining Order/Injunction to enjoin the DTI and the BOC from implementing the questioned Decision and Report. It prayed that the Court of Appeals direct the DTI Secretary to disregard the Report and to render judgment independently of the Report. Philcemcor argued that the DTI Secretary, vested as he is under the law with the power of review, is not bound to adopt the recommendations of the Tariff Commission; and, that the Report is void, as it is predicated on a flawed framework, inconsistent inferences and erroneous methodology.29 On 10 June 2002, Southern Cross filed its Comment.30 It argued that the Court of Appeals had no jurisdiction over Philcemcor's Petition, for it is on the Court of Tax Appeals ("CTA") that the SMA

conferred jurisdiction to review rulings of the Secretary in connection with the imposition of a safeguard measure. It likewise argued that Philcemcor's resort to the special civil action of certiorari is improper, considering that what Philcemcor sought to rectify is an error of judgment and not an error of jurisdiction or grave abuse of discretion, and that a petition for review with the CTA was available as a plain, speedy and adequate remedy. Finally, Southern Cross echoed the DOJ Opinion that Section 13 of the SMA precludes a review by the DTI Secretary of a negative finding of the Tariff Commission. After conducting a hearing on 19 June 2002 on Philcemcor's application for preliminary injunction, the Court of Appeals' Twelfth Division31 granted the writ sought in its Resolution dated 21 June 2002.32 Seven days later, on 28 June 2002, the two-hundred (200)-day period for the imposition of the provisional measure expired. Despite the lapse of the period, the BOC continued to impose the provisional measure on all importations of Portland cement made by Southern Cross. The uninterrupted assessment of the tariff, according to Southern Cross, worked to its detriment to the point that the continued imposition would eventually lead to its closure.33 Southern Cross timely filed a Motion for Reconsideration of the Resolution on 9 September 2002. Alleging that Philcemcor was not entitled to provisional relief, Southern Cross likewise sought a clarificatory order as to whether the grant of the writ of preliminary injunction could extend the earlier imposition of the provisional measure beyond the two hundred (200)-day limit imposed by law. The appeals' court failed to take immediate action on Southern Cross's motion despite the four (4) motions for early resolution the latter filed between September of 2002 and February of 2003. After six (6) months, on 19 February 2003, the Court of Appeals directed Philcemcor to comment on Southern Cross's Motion for Reconsideration.34 After Philcemcor filed its Opposition35 on 13 March 2003, Southern Cross filed another set of four (4) motions for early resolution. Despite the efforts of Southern Cross, the Court of Appeals failed to directly resolve the Motion for Reconsideration. Instead, on 5 June 2003, it rendered a Decision,36 granting in part Philcemcor's petition. The appellate court ruled that it had jurisdiction over the petition for certiorari since it alleged grave abuse of discretion. It refused to annul the findings of the Tariff Commission, citing the rule that factual findings of administrative agencies are binding upon the courts and its corollary, that courts should not interfere in matters addressed to the sound discretion and coming under the special technical knowledge and training of such agencies.37 Nevertheless, it held that the DTI Secretary is not bound by the factual findings of the Tariff Commission since such findings are merely recommendatory and they fall within the ambit of the Secretary's discretionary review. It determined that the legislative intent is to grant the DTI Secretary the power to make a final decision on the Tariff Commission's recommendation.38 The dispositive portion of the Decision reads: WHEREFORE, based on the foregoing premises, petitioner's prayer to set aside the findings of the Tariff Commission in its assailed Report dated March 13, 2002 is DENIED. On the other hand, the assailed April 5, 2002 Decision of the Secretary of the Department of Trade and Industry is hereby SET ASIDE. Consequently, the case is REMANDED to the public respondent Secretary of Department of Trade and Industry for a final decision in accordance with RA 8800 and its Implementing Rules and Regulations. SO ORDERED.39 On 23 June 2003, Southern Cross filed the present petition, assailing the appellate court's Decision for departing from the accepted and usual course of judicial proceedings, and not deciding the substantial questions in accordance with law and jurisprudence. The petition argues in the main that the Court of Appeals has no jurisdiction over Philcemcor's petition, the proper remedy being a petition for review with the CTA conformably with the SMA, and; that the factual findings of

the Tariff Commission on the existence or non-existence conditions warranting the imposition of general safeguard measures are binding upon the DTI Secretary. The timely filing of Southern Cross's petition before this Court necessarily prevented the Court of AppealsDecision from becoming final.40 Yet on 25 June 2003, the DTI Secretary issued a new Decision, ruling this time that that in light of the appellate court's Decision there was no longer any legal impediment to his deciding Philcemcor's application for definitive safeguard measures.41 He made a determination that, contrary to the findings of the Tariff Commission, the local cement industry had suffered serious injury as a result of the import surges.42 Accordingly, he imposed a definitive safeguard measure on the importation of gray Portland cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for three years on imported gray Portland Cement.43 On 7 July 2003, Southern Cross filed with the Court a "Very Urgent Application for a Temporary Restraining Order and/or A Writ of Preliminary Injunction" ("TRO Application"), seeking to enjoin the DTI Secretary from enforcing hisDecision of 25 June 2003 in view of the pending petition before this Court. Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA that has jurisdiction over the application under the law. On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI Secretary's 25 June 2003 Decision which imposed the definite safeguard measure. Prescinding from this action, Philcemcor filed with this Court a Manifestation and Motion to Dismiss in regard to Southern Cross's petition, alleging that it deliberately and willfully resorted to forum-shopping. It points out that Southern Cross's TRO Application seeks to enjoin the DTI Secretary's second decision, while its Petition before the CTA prays for the annulment of the same decision.44 Reiterating its Comment on Southern Cross's Petition for Review, Philcemcor also argues that the CTA, being a special court of limited jurisdiction, could only review the ruling of the DTI Secretary when a safeguard measure is imposed, and that the factual findings of the Tariff Commission are not binding on the DTI Secretary.45 After giving due course to Southern Cross's Petition, the Court called the case for oral argument on 18 February 2004.46 At the oral argument, attended by the counsel for Philcemcor and Southern Cross and the Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether the Decision of the DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming that the Court of Appeals has jurisdiction, whether itsDecision is in accordance with law; and, (iii) whether a Temporary Restraining Order is warranted.47 During the oral arguments, counsel for Southern Cross manifested that due to the imposition of the general safeguard measures, Southern Cross was forced to cease operations in the Philippines in November of 2003.48 Propriety of the Temporary Restraining Order Before the merits of the Petition, a brief comment on Southern Cross's application for provisional relief. It sought to enjoin the DTI Secretary from enforcing the definitive safeguard measure he imposed in his 25 June 2003Decision. The Court did not grant the provisional relief for it would be tantamount to enjoining the collection of taxes, a peremptory judicial act which is traditionally frowned upon,49 unless there is a clear statutory basis for it.50 In that regard, Section 218 of the Tax Reform Act of 1997 prohibits any court from granting an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the internal revenue code.51A similar philosophy is expressed by Section 29 of the SMA, which states that the filing of a petition for review

before the CTA does not stop, suspend, or otherwise toll the imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard measures.52 This evinces a clear legislative intent that the imposition of safeguard measures, despite the availability of judicial review, should not be enjoined notwithstanding any timely appeal of the imposition. The Forum-Shopping Issue In the same breath, we are not convinced that the allegation of forum-shopping has been duly proven, or that sanction should befall upon Southern Cross and its counsel. The standard by Section 5, Rule 7 of the 1997 Rules of Civil Procedure in order that sanction may be had is that "the acts of the party or his counsel clearly constitute willful and deliberate forum shopping."53 The standard implies a malicious intent to subvert procedural rules, and such state of mind is not evident in this case. The Jurisdictional Issue On to the merits of the present petition. In its assailed Decision, the Court of Appeals, after asserting only in brief that it had jurisdiction over Philcemcor'sPetition, discussed the issue of whether or not the DTI Secretary is bound to adopt the negative recommendation of the Tariff Commission on the application for safeguard measure. The Court of Appeals maintained that it had jurisdiction over the petition, as it alleged grave abuse of discretion on the part of the DTI Secretary, thus: A perusal of the instant petition reveals allegations of grave abuse of discretion on the part of the DTI Secretary in rendering the assailed April 5, 2002 Decision wherein it was ruled that he had no alternative but to abide by the findings of the Commission on the matter of safeguard measures for the local cement industry. Abuse of discretion is admittedly within the ambit of certiorari. Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. It is alleged that, in the assailed Decision, the DTI Secretary gravely abused his discretion in wantonly evading to discharge his duty to render an independent determination or decision in imposing a definitive safeguard measure.54 We do not doubt that the Court of Appeals' certiorari powers extend to correcting grave abuse of discretion on the part of an officer exercising judicial or quasi-judicial functions.55 However, the special civil action of certiorari is available only when there is no plain, speedy and adequate remedy in the ordinary course of law.56 Southern Cross relies on this limitation, stressing that Section 29 of the SMA is a plain, speedy and adequate remedy in the ordinary course of law which Philcemcor did not avail of. The Section reads: Section 29. Judicial Review. Any interested party who is adversely affected by the ruling of the Secretary in connection with the imposition of a safeguard measure may file with the CTA, a petition for review of such ruling within thirty (30) days from receipt thereof. Provided, however, that the filing of such petition for review shall not in any way stop, suspend or otherwise toll the imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard measures, as the case may be. The petition for review shall comply with the same requirements and shall follow the same rules of procedure and shall be subject to the same disposition as in appeals in connection with adverse rulings on tax matters to the Court of Appeals.57 (Emphasis supplied)

It is not difficult to divine why the legislature singled out the CTA as the court with jurisdiction to review the ruling of the DTI Secretary in connection with the imposition of a safeguard measure. The Court has long recognized the legislative determination to vest sole and exclusive jurisdiction on matters involving internal revenue and customs duties to such a specialized court.58 By the very nature of its function, the CTA is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject.59 At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to take cognizance of a case should be clearly conferred and should not be deemed to exist on mere implication.60 Concededly, Rep. Act No. 1125, the statute creating the CTA, does not extend to it the power to review decisions of the DTI Secretary in connection with the imposition of safeguard measures.61 Of course, at that time which was before the advent of trade liberalization the notion of safeguard measures or safety nets was not yet in vogue. Undeniably, however, the SMA expanded the jurisdiction of the CTA by including review of the rulings of the DTI Secretary in connection with the imposition of safeguard measures. However, Philcemcor and the public respondents agree that the CTA has appellate jurisdiction over a decision of the DTI Secretary imposing a safeguard measure, but not when his ruling is not to impose such measure. In a related development, Rep. Act No. 9282, enacted on 30 March 2004, expressly vests unto the CTA jurisdiction over "[d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product, commodity or article xxx involving xxx safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties."62 Had Rep. Act No. 9282 already been in force at the beginning of the incidents subject of this case, there would have been no need to make any deeper inquiry as to the extent of the CTA's jurisdiction. But as Rep. Act No. 9282 cannot be applied retroactively to the present case, the question of whether such jurisdiction extends to a decision not to impose a safeguard measure will have to be settled principally on the basis of the SMA. Under Section 29 of the SMA, there are three requisites to enable the CTA to acquire jurisdiction over the petition for review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition must be filed by an interested party adversely affected by the ruling; and (iii) such ruling must be in connection with the imposition of a safeguard measure. The first two requisites are clearly present. The third requisite deserves closer scrutiny. Contrary to the stance of the public respondents and Philcemcor, in this case where the DTI Secretary decides not to impose a safeguard measure, it is the CTA which has jurisdiction to review his decision. The reasons are as follows: First. Split jurisdiction is abhorred. Essentially, respondents' position is that judicial review of the DTI Secretary's ruling is exercised by two different courts, depending on whether or not it imposes a safeguard measure, and in either case the court exercising jurisdiction does so to the exclusion of the other. Thus, if the DTI decision involves the imposition of a safeguard measure it is the CTA which has appellate jurisdiction; otherwise, it is the Court of Appeals. Such setup is as novel and unusual as it is cumbersome and unwise. Essentially, respondents advocate that Section 29 of the SMA has established split appellate jurisdiction over rulings of the DTI Secretary on the imposition of safeguard measure. This interpretation cannot be favored, as the Court has consistently refused to sanction split jurisdiction.63 The power of the DTI Secretary to adopt or withhold a safeguard measure emanates

from the same statutory source, and it boggles the mind why the appeal modality would be such that one appellate court is qualified if what is to be reviewed is a positive determination, and it is not if what is appealed is a negative determination. In deciding whether or not to impose a safeguard measure, provisional or general, the DTI Secretary would be evaluating only one body of facts and applying them to one set of laws. The reviewing tribunal will be called upon to examine the same facts and the same laws, whether or not the determination is positive or negative. In short, if we were to rule for respondents we would be confirming the exercise by two judicial bodies of jurisdiction over basically the same subject matterprecisely the split-jurisdiction situation which is anathema to the orderly administration of justice.64 The Court cannot accept that such was the legislative motive especially considering that the law expressly confers on the CTA, the tribunal with the specialized competence over tax and tariff matters, the role of judicial review without mention of any other court that may exercise corollary or ancillary jurisdiction in relation to the SMA. The provision refers to the Court of Appeals but only in regard to procedural rules and dispositions of appeals from the CTA to the Court of Appeals.65 The principle enunciated in Tejada v. Homestead Property Corporation66 is applicable to the case at bar: The Court agrees with the observation of the [that] when an administrative agency or body is conferred quasi-judicial functions, all controversies relating to the subject matter pertaining to its specialization are deemed to be included within the jurisdiction of said administrative agency or body. Split jurisdiction is not favored.67 Second. The interpretation of the provisions of the SMA favors vesting untrammeled appellate jurisdiction on the CTA. A plain reading of Section 29 of the SMA reveals that Congress did not expressly bar the CTA from reviewing a negative determination by the DTI Secretary nor conferred on the Court of Appeals such review authority. Respondents note, on the other hand, that neither did the law expressly grant to the CTA the power to review a negative determination. However, under the clear text of the law, the CTA is vested with jurisdiction to review the ruling of the DTI Secretary "in connection with the imposition of a safeguard measure." Had the law been couched instead to incorporate the phrase "the ruling imposing a safeguard measure," then respondent's claim would have indisputable merit. Undoubtedly, the phrase "in connection with" not only qualifies but clarifies the succeeding phrase "imposition of a safeguard measure." As expounded later, the phrase also encompasses the opposite or converse ruling which is the non-imposition of a safeguard measure. In the American case of Shaw v. Delta Air Lines, Inc.,68 the United States Supreme Court, in interpreting a key provision of the Employee Retirement Security Act of 1974, construed the phrase "relates to" in its normal sense which is the same as "if it has connection with or reference to."69 There is no serious dispute that the phrase "in connection with" is synonymous to "relates to" or "reference to," and that all three phrases are broadly expansive. This is affirmed not just by jurisprudential fiat, but also the acquired connotative meaning of "in connection with" in common parlance. Consequently, with the use of the phrase "in connection with," Section 29 allows the CTA to review not only the ruling imposing a safeguard measure, but all other rulings related or have reference to the application for such measure. Now, let us determine the maximum scope and reach of the phrase "in connection with" as used in Section 29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the US Supreme Court in New York State Blue Cross Plans v. Travelers Ins.70 conceded that the phrases "relate to" or "in connection with" may be extended to the farthest stretch of indeterminacy for, universally,

relations or connections are infinite and stop nowhere.71Thus, in the case the US High Court, examining the same phrase of the same provision of law involved in Shaw, resorted to looking at the statute and its objectives as the alternative to an "uncritical literalism."72 A similar inquiry into the other provisions of the SMA is in order to determine the scope of review accorded therein to the CTA.73 The authority to decide on the safeguard measure is vested in the DTI Secretary in the case of nonagricultural products, and in the Secretary of the Department of Agriculture in the case of agricultural products.74 Section 29 is likewise explicit that only the rulings of the DTI Secretary or the Agriculture Secretary may be reviewed by the CTA.75 Thus, the acts of other bodies that were granted some powers by the SMA, such as the Tariff Commission, are not subject to direct review by the CTA. Under the SMA, the Department Secretary concerned is authorized to decide on several matters. Within thirty (30) days from receipt of a petition seeking the imposition of a safeguard measure, or from the date he made motu proprio initiation, the Secretary shall make a preliminary determination on whether the increased imports of the product under consideration substantially cause or threaten to cause serious injury to the domestic industry.76Such ruling is crucial since only upon the Secretary's positive preliminary determination that a threat to the domestic industry exists shall the matter be referred to the Tariff Commission for formal investigation, this time, to determine whether the general safeguard measure should be imposed or not.77 Pursuant to a positive preliminary determination, the Secretary may also decide that the imposition of a provisional safeguard measure would be warranted under Section 8 of the SMA.78 The Secretary is also authorized to decide, after receipt of the report of the Tariff Commission, whether or not to impose the general safeguard measure, and if in the affirmative, what general safeguard measures should be applied.79 Even after the general safeguard measure is imposed, the Secretary is empowered to extend the safeguard measure,80 or terminate, reduce or modify his previous rulings on the general safeguard measure.81 With the explicit grant of certain powers involving safeguard measures by the SMA on the DTI Secretary, it follows that he is empowered to rule on several issues. These are the issues which arise in connection with, or in relation to, the imposition of a safeguard measure. They may arise at different stages the preliminary investigation stage, the post-formal investigation stage, or the postsafeguard measure stage yet all these issues do become ripe for resolution because an initiatory action has been taken seeking the imposition of a safeguard measure. It is the initiatory action for the imposition of a safeguard measure that sets the wheels in motion, allowing the Secretary to make successive rulings, beginning with the preliminary determination. Clearly, therefore, the scope and reach of the phrase "in connection with," as intended by Congress, pertain to all rulings of the DTI Secretary or Agriculture Secretary which arise from the time an application or motu proprioinitiation for the imposition of a safeguard measure is taken. Indeed, the incidents which require resolution come to the fore only because there is an initial application or action seeking the imposition of a safeguard measure. From the legislative standpoint, it was a matter of sense and practicality to lump up the questions related to the initiatory application or action for safeguard measure and to assign only one court and; that is the CTA to initially review all the rulings related to such initiatory application or action. Both directions Congress put in place by employing the phrase "in connection with" in the law. Given the relative expanse of decisions subject to judicial review by the CTA under Section 29, we do not doubt that a negative ruling refusing to impose a safeguard measure falls within the scope of its jurisdiction. On a literal level, such negative ruling is "a ruling of the Secretary in connection with the imposition of a safeguard measure," as it is one of the possible outcomes that may result from the initial application or action for a safeguard measure. On a more critical level, the rulings of the DTI Secretary in connection with a safeguard measure, however diverse the outcome may be, arise

from the same grant of jurisdiction on the DTI Secretary by the SMA.82 The refusal by the DTI Secretary to grant a safeguard measure involves the same grant of authority, the same statutory prescriptions, and the same degree of discretion as the imposition by the DTI Secretary of a safeguard measure. The position of the respondents is one of "uncritical literalism"83 incongruent with the animus of the law. Moreover, a fundamentalist approach to Section 29 is not warranted, considering the absurdity of the consequences. Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens Et Absurdum.84 Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction to review a negative ruling of the DTI Secretary, the Court is precluded from favoring an interpretation that would cause inconvenience and absurdity.85 Adopting the respondents' position favoring the CTA's minimal jurisdiction would unnecessarily lead to illogical and onerous results. Indeed, it is illiberal to assume that Congress had intended to provide appellate relief to rulings imposing a safeguard measure but not to those declining to impose the measure. Respondents might argue that the right to relief from a negative ruling is not lost since the applicant could, as Philcemcor did, question such ruling through a special civil action for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, in lieu of an appeal to the CTA. Yet these two reliefs are of differing natures and gravamen. While an appeal may be predicated on errors of fact or errors of law, a special civil action for certiorari is grounded on grave abuse of discretion or lack of or excess of jurisdiction on the part of the decider. For a special civil action for certiorari to succeed, it is not enough that the questioned act of the respondent is wrong. As the Court clarified in Sempio v. Court of Appeals: A tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to determine the case. There is excess of jurisdiction where, being clothed with the power to determine the case, the tribunal, board or officer oversteps its/his authority as determined by law. And there is grave abuse of discretion where the tribunal, board or officer acts in a capricious, whimsical, arbitrary or despotic manner in the exercise of his judgment as to be said to be equivalent to lack of jurisdiction. Certiorari is often resorted to in order to correct errors of jurisdiction. Where the error is one of law or of fact, which is a mistake of judgment, appeal is the remedy.86 It is very conceivable that the DTI Secretary, after deliberate thought and careful evaluation of the evidence, may either make a negative preliminary determination as he is so empowered under Section 7 of the SMA, or refuse to adopt the definitive safeguard measure under Section 13 of the same law. Adopting the respondents' theory, this negative ruling is susceptible to reversal only through a special civil action for certiorari, thus depriving the affected party the chance to elevate the ruling on appeal on the rudimentary grounds of errors in fact or in law. Instead, and despite whatever indications that the DTI Secretary acted with measure and within the bounds of his jurisdiction are, the aggrieved party will be forced to resort to a gymnastic exercise, contorting the straight and narrow in an effort to discombobulate the courts into believing that what was within was actually beyond and what was studied and deliberate actually whimsical and capricious. What then would be the remedy of the party aggrieved by a negative ruling that simply erred in interpreting the facts or the law? It certainly cannot be the special civil action for certiorari, for as the Court held in Silverio v. Court of Appeals: "Certiorari is a remedy narrow in its scope and inflexible in its character. It is not a general utility tool in the legal workshop."87

Fortunately, this theoretical quandary need not come to pass. Section 29 of the SMA is worded in such a way that it places under the CTA's judicial review all rulings of the DTI Secretary, which are connected with the imposition of a safeguard measure. This is sound and proper in light of the specialized jurisdiction of the CTA over tax matters. In the same way that a question of whether to tax or not to tax is properly a tax matter, so is the question of whether to impose or not to impose a definitive safeguard measure. On another note, the second paragraph of Section 29 similarly reveals the legislative intent that rulings of the DTI Secretary over safeguard measures should first be reviewed by the CTA and not the Court of Appeals. It reads: The petition for review shall comply with the same requirements and shall follow the same rules of procedure and shall be subject to the same disposition as in appeals in connection with adverse rulings on tax matters to the Court of Appeals. This is the only passage in the SMA in which the Court of Appeals is mentioned. The express wish of Congress is that the petition conform to the requirements and procedure under Rule 43 of the Rules of Civil Procedure. Since Congress mandated that the form and procedure adopted be analogous to a review of a CTA ruling by the Court of Appeals, the legislative contemplation could not have been that the appeal be directly taken to the Court of Appeals. Issue of Binding Effect of Tariff Commission's Factual Determination on DTI Secretary. The next issue for resolution is whether the factual determination made by the Tariff Commission under the SMA is binding on the DTI Secretary. Otherwise stated, the question is whether the DTI Secretary may impose general safeguard measures in the absence of a positive final determination by the Tariff Commission. The Court of Appeals relied upon Section 13 of the SMA in ruling that the findings of the Tariff Commission do not necessarily constitute a final decision. Section 13 details the procedure for the adoption of a safeguard measure, as well as the steps to be taken in case there is a negative final determination. The implication of the Court of Appeals' holding is that the DTI Secretary may adopt a definitive safeguard measure, notwithstanding a negative determination made by the Tariff Commission. Undoubtedly, Section 13 prescribes certain limitations and restrictions before general safeguard measures may be imposed. However, the most fundamental restriction on the DTI Secretary's power in that respect is contained in Section 5 of the SMAthat there should first be a positive final determination of the Tariff Commissionwhich the Court of Appeals curiously all but ignored. Section 5 reads: Sec. 5. Conditions for the Application of General Safeguard Measures. The Secretary shall apply a general safeguard measure upon a positive final determination of the [Tariff] Commission that a product is being imported into the country in increased quantities, whether absolute or relative to the domestic production, as to be a substantial cause of serious injury or threat thereof to the domestic industry; however, in the case of nonagricultural products, the Secretary shall first establish that the application of such safeguard measures will be in the public interest. (emphasis supplied)

The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a "positive final determination." This power lodged in the Tariff Commission, must be distinguished from the power to impose the general safeguard measure which is properly vested on the DTI Secretary.88 All in all, there are two condition precedents that must be satisfied before the DTI Secretary may impose a general safeguard measure on grey Portland cement. First, there must be a positive final determination by the Tariff Commission that a product is being imported into the country in increased quantities (whether absolute or relative to domestic production), as to be a substantial cause of serious injury or threat to the domestic industry. Second, in the case of non-agricultural products the Secretary must establish that the application of such safeguard measures is in the public interest.89 As Southern Cross argues, Section 5 is quite clear-cut, and it is impossible to finagle a different conclusion even through overarching methods of statutory construction. There is no safer nor better settled canon of interpretation that when language is clear and unambiguous it must be held to mean what it plainly expresses:90 In the quotable words of an illustrious member of this Court, thus: [I]f a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. The verba legis or plain meaning rule rests on the valid presumption that the words employed by the legislature in a statute correctly express its intent or will and preclude the court from construing it differently. The legislature is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its intent by the use of such words as are found in the statute.91 Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA,92 which interprets Section 5 of the law, likewise requires a positive final determination on the part of the Tariff Commission before the application of the general safeguard measure. The SMA establishes a distinct allocation of functions between the Tariff Commission and the DTI Secretary. The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a "positive final determination." This power, which belongs to the Tariff Commission, must be distinguished from the power to impose general safeguard measure properly vested on the DTI Secretary. The distinction is vital, as a "positive final determination" clearly antecedes, as a condition precedent, the imposition of a general safeguard measure. At the same time, a positive final determination does not necessarily result in the imposition of a general safeguard measure. Under Section 5, notwithstanding the positive final determination of the Tariff Commission, the DTI Secretary is tasked to decide whether or not that the application of the safeguard measures is in the public interest. It is also clear from Section 5 of the SMA that the positive final determination to be undertaken by the Tariff Commission does not entail a mere gathering of statistical data. In order to arrive at such determination, it has to establish causal linkages from the statistics that it compiles and evaluates: after finding there is an importation in increased quantities of the product in question, that such importation is a substantial cause of serious threat or injury to the domestic industry. The Court of Appeals relies heavily on the legislative record of a congressional debate during deliberations on the SMA to assert a purported legislative intent that the findings of the Tariff Commission do not bind the DTI Secretary.93 Yet as explained earlier, the plain meaning of Section 5 emphasizes that only if the Tariff Commission renders a positive determination could the DTI Secretary impose a safeguard measure. Resort to the congressional records to ascertain legislative intent is not warranted if a statute is clear, plain and free from ambiguity. The legislature is presumed

to know the meaning of the words, to have used words advisedly, and to have expressed its intent by the use of such words as are found in the statute.94 Indeed, the legislative record, if at all to be availed of, should be approached with extreme caution, as legislative debates and proceedings are powerless to vary the terms of the statute when the meaning is clear.95 Our holding in Civil Liberties Union v. Executive Secretary96 on the resort to deliberations of the constitutional convention to interpret the Constitution is likewise appropriate in ascertaining statutory intent: While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional convention in order to arrive at the reason and purpose of the resulting Constitution, resort thereto may be had only when other guides fail as said proceedings are powerless to vary the terms of the Constitution when the meaning is clear. Debates in the constitutional convention "are of value as showing the views of the individual members, and as indicating the reasons for their votes, but they give us no light as to the views of the large majority who did not talk xxx. We think it safer to construe the constitution from what appears upon its face."97 Moreover, it is easy to selectively cite passages, sometimes out of their proper context, in order to assert a misleading interpretation. The effect can be dangerous. Minority or solitary views, anecdotal ruminations, or even the occasional crude witticisms, may improperly acquire the mantle of legislative intent by the sole virtue of their publication in the authoritative congressional record. Hence, resort to legislative deliberations is allowable when the statute is crafted in such a manner as to leave room for doubt on the real intent of the legislature. Section 5 plainly evinces legislative intent to restrict the DTI Secretary's power to impose a general safeguard measure by preconditioning such imposition on a positive determination by the Tariff Commission. Such legislative intent should be given full force and effect, as the executive power to impose definitive safeguard measures is but a delegated powerthe power of taxation, by nature and by command of the fundamental law, being a preserve of the legislature.98 Section 28(2), Article VI of the 1987 Constitution confirms the delegation of legislative power, yet ensures that the prerogative of Congress to impose limitations and restrictions on the executive exercise of this power: The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.99 The safeguard measures which the DTI Secretary may impose under the SMA may take the following variations, to wit: (a) an increase in, or imposition of any duty on the imported product; (b) a decrease in or the imposition of a tariff-rate quota on the product; (c) a modification or imposition of any quantitative restriction on the importation of the product into the Philippines; (d) one or more appropriate adjustment measures, including the provision of trade adjustment assistance; and (e) any combination of the above-described actions. Except for the provision of trade adjustment assistance, the measures enumerated by the SMA are essentially imposts, which precisely are the subject of delegation under Section 28(2), Article VI of the 1987 Constitution.100 This delegation of the taxation power by the legislative to the executive is authorized by the Constitution itself.101At the same time, the Constitution also grants the delegating authority (Congress) the right to impose restrictions and limitations on the taxation power delegated to the

President.102 The restrictions and limitations imposed by Congress take on the mantle of a constitutional command, which the executive branch is obliged to observe. The SMA empowered the DTI Secretary, as alter ego of the President,103 to impose definitive general safeguard measures, which basically are tariff imposts of the type spoken of in the Constitution. However, the law did not grant him full, uninhibited discretion to impose such measures. The DTI Secretary authority is derived from the SMA; it does not flow from any inherent executive power. Thus, the limitations imposed by Section 5 are absolute, warranted as they are by a constitutional fiat.104 Philcemcor cites our 1912 ruling in Lamb v. Phipps105 to assert that the DTI Secretary, having the final decision on the safeguard measure, has the power to evaluate the findings of the Tariff Commission and make an independent judgment thereon. Given the constitutional and statutory limitations governing the present case, the citation is misplaced. Lamb pertained to the discretion of the Insular Auditor of the Philippine Islands, whom, as the Court recognized, "[t]he statutes of the United States require[d] xxx to exercise his judgment upon the legality xxx [of] provisions of law and resolutions of Congress providing for the payment of money, the means of procuring testimony upon which he may act."106 Thus in Lamb, while the Court recognized the wide latitude of discretion that may have been vested on the Insular Auditor, it also recognized that such latitude flowed from, and is consequently limited by, statutory grant. However, in this case, the provision of the Constitution in point expressly recognizes the authority of Congress to prescribe limitations in the case of tariffs, export/import quotas and other such safeguard measures. Thus, the broad discretion granted to the Insular Auditor of the Philippine Islands cannot be analogous to the discretion of the DTI Secretary which is circumscribed by Section 5 of the SMA. For that matter, Cario v. Commissioner on Human Rights,107 likewise cited by Philcemcor, is also inapplicable owing to the different statutory regimes prevailing over that case and the present petition. In Cario, the Court ruled that the constitutional power of the Commission on Human Rights (CHR) to investigate human rights' violations did not extend to adjudicating claims on the merits.108 Philcemcor claims that the functions of the Tariff Commission being "only investigatory," it could neither decide nor adjudicate.109 The applicable law governing the issue in Cario is Section 18, Article XIII of the Constitution, which delineates the powers and functions of the CHR. The provision does not vest on the CHR the power to adjudicate cases, but only to investigate all forms of human rights violations.110 Yet, without modifying the thorough disquisition of the Court in Cario on the general limitations on the investigatory power, the precedent is inapplicable because of the difference in the involved statutory frameworks. The Constitution does not repose binding effect on the results of the CHR's investigation.111 On the other hand, through Section 5 of the SMA and under the authority of Section 28(2), Article VI of the Constitution, Congress did intend to bind the DTI Secretary to the determination made by the Tariff Commission.112 It is of no consequence that such determination results from the exercise of investigatory powers by the Tariff Commission since Congress is well within its constitutional mandate to limit the authority of the DTI Secretary to impose safeguard measures in the manner that it sees fit. The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and Rule 13 of the SMA's Implementing Rules in support of the view that the DTI Secretary may decide independently of the determination made by the Tariff Commission. Admittedly, there are certain infelicities in the language of Section 13 and Rule 13. But reliance should not be placed on the textual imprecisions.

Rather, Section 13 and Rule 13 must be viewed in light of the fundamental prescription imposed by Section 5. 113 Section 13 of the SMA lays down the procedure to be followed after the Tariff Commission renders its report. The provision reads in full: SEC. 13. Adoption of Definitive Measures. Upon its positive determination, the Commission shall recommend to the Secretary an appropriate definitive measure, in the form of: (a) An increase in, or imposition of, any duty on the imported product; (b) A decrease in or the imposition of a tariff-rate quota (MAV) on the product; (c) A modification or imposition of any quantitative restriction on the importation of the product into the Philippines; (d) One or more appropriate adjustment measures, including the provision of trade adjustment assistance; (e) Any combination of actions described in subparagraphs (a) to (d). The Commission may also recommend other actions, including the initiation of international negotiations to address the underlying cause of the increase of imports of the product, to alleviate the injury or threat thereof to the domestic industry, and to facilitate positive adjustment to import competition. The general safeguard measure shall be limited to the extent of redressing or preventing the injury and to facilitate adjustment by the domestic industry from the adverse effects directly attributed to the increased imports: Provided, however, That when quantitative import restrictions are used, such measures shall not reduce the quantity of imports below the average imports for the three (3) preceding representative years, unless clear justification is given that a different level is necessary to prevent or remedy a serious injury. A general safeguard measure shall not be applied to a product originating from a developing country if its share of total imports of the product is less than three percent (3%): Provided, however, That developing countries with less than three percent (3%) share collectively account for not more than nine percent (9%) of the total imports. The decision imposing a general safeguard measure, the duration of which is more than one (1) year, shall be reviewed at regular intervals for purposes of liberalizing or reducing its intensity. The industry benefiting from the application of a general safeguard measure shall be required to show positive adjustment within the allowable period. A general safeguard measure shall be terminated where the benefiting industry fails to show any improvement, as may be determined by the Secretary. The Secretary shall issue a written instruction to the heads of the concerned government agencies to implement the appropriate general safeguard measure as determined by the Secretary within fifteen (15) days from receipt of the report.

In the event of a negative final determination, or if the cash bond is in excess of the definitive safeguard duty assessed, the Secretary shall immediately issue, through the Secretary of Finance, a written instruction to the Commissioner of Customs, authorizing the return of the cash bond or the remainder thereof, as the case may be, previously collected as provisional general safeguard measure within ten (10) days from the date a final decision has been made: Provided, That the government shall not be liable for any interest on the amount to be returned. The Secretary shall not accept for consideration another petition from the same industry, with respect to the same imports of the product under consideration within one (1) year after the date of rendering such a decision. When the definitive safeguard measure is in the form of a tariff increase, such increase shall not be subject or limited to the maximum levels of tariff as set forth in Section 401(a) of the Tariff and Customs Code of the Philippines. To better comprehend Section 13, note must be taken of the distinction between the investigatory and recommendatory functions of the Tariff Commission under the SMA. The word "determination," as used in the SMA, pertains to the factual findings on whether there are increased imports into the country of the product under consideration, and on whether such increased imports are a substantial cause of serious injury or threaten to substantially cause serious injury to the domestic industry.114The SMA explicitly authorizes the DTI Secretary to make a preliminary determination,115 and the Tariff Commission to make the final determination.116 The distinction is fundamental, as these functions are not interchangeable. The Tariff Commission makes its determination only after a formal investigation process, with such investigation initiated only if there is a positive preliminary determination by the DTI Secretary under Section 7 of the SMA.117 On the other hand, the DTI Secretary may impose definitive safeguard measure only if there is a positive final determination made by the Tariff Commission.118 In contrast, a "recommendation" is a suggested remedial measure submitted by the Tariff Commission under Section 13 after making a positive final determination in accordance with Section 5. The Tariff Commission is not empowered to make a recommendation absent a positive final determination on its part.119 Under Section 13, the Tariff Commission is required to recommend to the [DTI] Secretary an "appropriate definitive measure."120 The Tariff Commission "may also recommend other actions, including the initiation of international negotiations to address the underlying cause of the increase of imports of the products, to alleviate the injury or threat thereof to the domestic industry and to facilitate positive adjustment to import competition."121 The recommendations of the Tariff Commission, as rendered under Section 13, are not obligatory on the DTI Secretary. Nothing in the SMA mandates the DTI Secretary to adopt the recommendations made by the Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the application of such safeguard measures is in the public interest, notwithstanding the Tariff Commission's recommendation on the appropriate safeguard measure based on its positive final determination.122 The non-binding force of the Tariff Commission's recommendations is congruent with the command of Section 28(2), Article VI of the 1987 Constitution that only the President may be empowered by the Congress to impose appropriate tariff rates, import/export quotas and other similar measures.123 It is the DTI Secretary, as alter ego of the President, who under the SMA may impose such safeguard measures subject to the limitations imposed therein. A contrary conclusion would in essence unduly arrogate to the Tariff Commission the executive power to impose the appropriate tariff measures. That is why the SMA empowers the DTI Secretary to adopt safeguard measures other than those recommended by the Tariff Commission.

Unlike the recommendations of the Tariff Commission, its determination has a different effect on the DTI Secretary. Only on the basis of a positive final determination made by the Tariff Commission under Section 5 can the DTI Secretary impose a general safeguard measure. Clearly, then the DTI Secretary is bound by the determinationmade by the Tariff Commission. Some confusion may arise because the sixth paragraph of Section 13124 uses the variant word "determined" in a different context, as it contemplates "the appropriate general safeguard measure as determined by the Secretary within fifteen (15) days from receipt of the report." Quite plainly, the word "determined" in this context pertains to the DTI Secretary's power of choice of the appropriate safeguard measure, as opposed to the Tariff Commission's power to determine the existence of conditions necessary for the imposition of any safeguard measure. In relation to Section 5, such choice also relates to the mandate of the DTI Secretary to establish that the application of safeguard measures is in the public interest, also within the fifteen (15) day period. Nothing in Section 13 contradicts the instruction in Section 5 that the DTI Secretary is allowed to impose the general safeguard measures only if there is a positive determination made by the Tariff Commission. Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned "Final Determination by the Secretary." The assailed Decision and Philcemcor latch on this phraseology to imply that the factual determination rendered by the Tariff Commission under Section 5 may be amended or reversed by the DTI Secretary. Of course, implementing rules should conform, not clash, with the law that they seek to implement, for a regulation which operates to create a rule out of harmony with the statute is a nullity.125 Yet imperfect draftsmanship aside, nothing in Rule 13.2 implies that the DTI Secretary can set aside the determination made by the Tariff Commission under the aegis of Section 5. This can be seen by examining the specific provisions of Rule 13.2, thus: RULE 13.2. Final Determination by the Secretary RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of the Commission, the Secretary shall make a decision, taking into consideration the measures recommended by the Commission. RULE 13.2.b. If the determination is affirmative, the Secretary shall issue, within two (2) calendar days after making his decision, a written instruction to the heads of the concerned government agencies to immediately implement the appropriate general safeguard measure as determined by him. Provided, however, that in the case of non-agricultural products, the Secretary shall first establish that the imposition of the safeguard measure will be in the public interest. RULE 13.2.c. Within two (2) calendar days after making his decision, the Secretary shall also order its publication in two (2) newspapers of general circulation. He shall also furnish a copy of his Order to the petitioner and other interested parties, whether affirmative or negative. (Emphasis supplied.) Moreover, the DTI Secretary does not have the power to review the findings of the Tariff Commission for it is not subordinate to the Department of Trade and Industry ("DTI"). It falls under the supervision, not of the DTI nor of the Department of Finance (as mistakenly asserted by Southern Cross),126 but of the National Economic Development Authority, an independent planning agency of the government of co-equal rank as the DTI.127 As the supervision and control of a Department Secretary is limited to the bureaus, offices, and agencies under him,128 the DTI Secretary generally cannot exercise review authority over actions of the Tariff Commission. Neither does the SMA specifically authorize the DTI Secretary to alter, amend or modify in any way the determination made by the Tariff Commission. The most that the DTI Secretary could do to

express displeasure over the Tariff Commission's actions is to ignore its recommendation, but not its determination. The word "determination" as used in Rule 13.2 of the Implementing Rules is dissonant with the same word as employed in the SMA, which in the latter case is undeviatingly in reference to the determination made by the Tariff Commission. Beyond the resulting confusion, however, the divergent use in Rule 13.2 is explicable as the Rule textually pertains to the power of the DTI Secretary to review the recommendations of the Tariff Commission, not the latter's determination. Indeed, an examination of the specific provisions show that there is no real conflict to reconcile. Rule 13.2 respects the logical order imposed by the SMA. The Rule does not remove the essential requirement under Section 5 that a positive final determination be made by the Tariff Commission before a definitive safeguard measure may be imposed by the DTI Secretary. The assailed Decision characterizes the findings of the Tariff Commission as merely recommendatory and points to the DTI Secretary as the authority who renders the final decision.129 At the same time, Philcemcor asserts that the Tariff Commission's functions are merely investigatory, and as such do not include the power to decide or adjudicate. These contentions, viewed in the context of the fundamental requisite set forth by Section 5, are untenable. They run counter to the statutory prescription that a positive final determination made by the Tariff Commission should first be obtained before the definitive safeguard measures may be laid down. Was it anomalous for Congress to have provided for a system whereby the Tariff Commission may preclude the DTI, an office of higher rank, from imposing a safeguard measure? Of course, this Court does not inquire into the wisdom of the legislature but only charts the boundaries of powers and functions set in its enactments. But then, it is not difficult to see the internal logic of this statutory framework. For one, as earlier stated, the DTI cannot exercise review powers over the Tariff Commission which is not its subordinate office. Moreover, the mechanism established by Congress establishes a measure of check and balance involving two different governmental agencies with disparate specializations. The matter of safeguard measures is of such national importance that a decision either to impose or not to impose then could have ruinous effects on companies doing business in the Philippines. Thus, it is ideal to put in place a system which affords all due deliberation and calls to fore various governmental agencies exercising their particular specializations. Finally, if this arrangement drawn up by Congress makes it difficult to obtain a general safeguard measure, it is because such safeguard measure is the exception, rather than the rule. The Philippines is obliged to observe its obligations under the GATT, under whose framework trade liberalization, not protectionism, is laid down. Verily, the GATT actually prescribes conditions before a member-country may impose a safeguard measure. The pertinent portion of the GATT Agreement on Safeguards reads: 2. A Member may only apply a safeguard measure to a product only if that member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products.130 3. (a) A Member may apply a safeguard measure only following an investigation by the competent authorities of that Member pursuant to procedures previously established and

made public in consonance with Article X of the GATT 1994. This investigation shall include reasonable public notice to all interested parties and public hearings or other appropriate means in which importers, exporters and other interested parties could present evidence and their views, including the opportunity to respond to the presentations of other parties and to submit their views, inter alia, as to whether or not the application of a safeguard measure would be in the public interest. The competent authorities shall publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law.131 The SMA was designed not to contradict the GATT, but to complement it. The two requisites laid down in Section 5 for a positive final determination are the same conditions provided under the GATT Agreement on Safeguards for the application of safeguard measures by a member country. Moreover, the investigatory procedure laid down by the SMA conforms to the procedure required by the GATT Agreement on Safeguards. Congress has chosen the Tariff Commission as the competent authority to conduct such investigation. Southern Cross stresses that applying the provision of the GATT Agreement on Safeguards, the Tariff Commission is clearly empowered to arrive at binding conclusions.132 We agree: binding on the DTI Secretary is the Tariff Commission's determinations on whether a product is imported in increased quantities, absolute or relative to domestic production and whether any such increase is a substantial cause of serious injury or threat thereof to the domestic industry.133 Satisfied as we are with the proper statutory paradigm within which the SMA should be analyzed, the flaws in the reasoning of the Court of Appeals and in the arguments of the respondents become apparent. To better understand the dynamics of the procedure set up by the law leading to the imposition of definitive safeguard measures, a brief step-by-step recount thereof is in order. 1. After the initiation of an action involving a general safeguard measure,134 the DTI Secretary makes a preliminary determination whether the increased imports of the product under consideration substantially cause or threaten to substantially cause serious injury to the domestic industry,135 and whether the imposition of a provisional measure is warranted under Section 8 of the SMA.136 If the preliminary determination is negative, it is implied that no further action will be taken on the application. 2. When his preliminary determination is positive, the Secretary immediately transmits the records covering the application to the Tariff Commission for immediate formal investigation.137 3. The Tariff Commission conducts its formal investigation, keyed towards making a final determination. In the process, it holds public hearings, providing interested parties the opportunity to present evidence or otherwise be heard.138 To repeat, Section 5 enumerates what the Tariff Commission is tasked to determine: (a) whether a product is being imported into the country in increased quantities, irrespective of whether the product is absolute or relative to the domestic production; and (b) whether the importation in increased quantities is such that it causes serious injury or threat to the domestic industry.139 The findings of the Tariff Commission as to these matters constitute the final determination, which may be either positive or negative. 4. Under Section 13 of the SMA, if the Tariff Commission makes a positive determination, the Tariff Commission "recommends to the [DTI] Secretary an appropriate definitive measure." The Tariff Commission "may also recommend other actions, including the initiation of international negotiations to address the underlying cause of the increase of imports of the products, to alleviate the injury or threat thereof to the domestic industry, and to facilitate positive adjustment to import competition."140

5. If the Tariff Commission makes a positive final determination, the DTI Secretary is then to decide, within fifteen (15) days from receipt of the report, as to what appropriate safeguard measures should he impose. 6. However, if the Tariff Commission makes a negative final determination, the DTI Secretary cannot impose any definitive safeguard measure. Under Section 13, he is instructed instead to return whatever cash bond was paid by the applicant upon the initiation of the action for safeguard measure. The Effect of the Court's Decision The Court of Appeals erred in remanding the case back to the DTI Secretary, with the instruction that the DTI Secretary may impose a general safeguard measure even if there is no positive final determination from the Tariff Commission. More crucially, the Court of Appeals could not have acquired jurisdiction over Philcemcor's petition for certiorari in the first place, as Section 29 of the SMA properly vests jurisdiction on the CTA. Consequently, the assailed Decision is an absolute nullity, and we declare it as such. What is the effect of the nullity of the assailed Decision on the 5 June 2003 Decision of the DTI Secretary imposing the general safeguard measure? We have recognized that any initial judicial review of a DTI ruling in connection with the imposition of a safeguard measure belongs to the CTA. At the same time, the Court also recognizes the fundamental principle that a null and void judgment cannot produce any legal effect. There is sufficient cause to establish that the 5 June 2003 Decision of the DTI Secretary resulted from the assailed Court of Appeals Decision, even if the latter had not yet become final. Conversely, it can be concluded that it was because of the putative imprimatur of the Court of Appeals' Decision that the DTI Secretary issued his ruling imposing the safeguard measure. Since the 5 June 2003 Decision derives its legal effect from the void Decision of the Court of Appeals, this ruling of the DTI Secretary is consequently void. The spring cannot rise higher than the source. The DTI Secretary himself acknowledged that he drew stimulating force from the appellate court's Decision for in his own 5 June 2003 Decision, he declared: From the aforementioned ruling, the CA has remanded the case to the DTI Secretary for a final decision. Thus, there is no legal impediment for the Secretary to decide on the application.141 The inescapable conclusion is that the DTI Secretary needed the assailed Decision of the Court of Appeals to justify his rendering a second Decision. He explicitly invoked the Court of Appeals' Decision as basis for rendering his 5 June 2003 ruling, and implicitly recognized that without such Decision he would not have the authority to revoke his previous ruling and render a new, obverse ruling. It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product of the void Decision, it being an attempt to carry out such null judgment. There is therefore no choice but to declare it void as well, lest we sanction the perverse existence of a fruit from a non-existent tree. It does not even matter what the disposition of the 25 June 2003 Decision was, its nullity would be warranted even if the DTI Secretary chose to uphold his earlier ruling denying the application for safeguard measures. It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce a judicial decision which is not yet final and actually pending review on appeal. Had it been a judge who attempted to enforce a decision that is not yet final and executory, he or she would have readily been subjected to

sanction by this Court. The DTI Secretary may be beyond the ambit of administrative review by this Court, but we are capacitated to allocate the boundaries set by the law of the land and to exact fealty to the legal order, especially from the instrumentalities and officials of government. WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June 2003 is also DECLARED NULL AND VOID and SET ASIDE. No Costs. SO ORDERED.

G.R. No. L-19201

June 16, 1965

REV. FR. CASIMIRO LLADOC, petitioner, vs. The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX APPEALS, respondents. Hilado and Hilado for petitioner. Office of the Solicitor General for respondents. PAREDES, J.: Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the construction of a new Catholic Church in the locality. The total amount was actually spent for the purpose intended. On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to June 15, 1960, and the compromise for the late filing of the return. Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he was not the parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also asserted that the assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such would be a clear violation of the provisions of the Constitution. After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below: ... . Parish priests of the Roman Catholic Church under canon laws are similarly situated as its Archbishops and Bishops with respect to the properties of the church within their parish. They are the guardians, superintendents or administrators of these properties, with the right of succession and may sue and be sued.

xxx

xxx

xxx

The petitioner impugns the, fairness of the assessment with the argument that he should not be held liable for gift taxes on donation which he did not receive personally since he was not yet the parish priest of Victorias in the year 1957 when said donation was given. It is intimated that if someone has to pay at all, it should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received the donation in behalf of the Catholic parish of Victorias or the Roman Catholic Church. Following petitioner's line of thinking, we should be equally unfair to hold that the assessment now in question should have been addressed to, and collected from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his present parish where ever it may be. It does not seem right to indirectly burden the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a donation to which they were not benefited. xxx xxx xxx

We saw no legal basis then as we see none now, to include within the Constitutional exemption, taxes which partake of the nature of an excise upon the use made of the properties or upon the exercise of the privilege of receiving the properties. (Phipps vs. Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.) It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored by law, and the party claiming exemption must justify his claim by a clear, positive, or express grant of such privilege by law. (Collector vs. Manila Jockey Club, G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.) The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the Constitution of the Philippines, should not be interpreted to mean exemption from all kinds of taxes. Statutes exempting charitable and religious property from taxation should be construed fairly though strictly and in such manner as to give effect to the main intent of the lawmakers. (Roman Catholic Church vs. Hastrings 5 Phil. 701.) xxx xxx xxx

WHEREFORE, in view of the foregoing considerations, the decision of the respondent Commissioner of Internal Revenue appealed from, is hereby affirmed except with regard to the imposition of the compromise penalty in the amount of P20.00 (Collector of Internal Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to the respondent the amount of P900.00 as donee's gift tax, plus the surcharge of five per centum (5%) as ad valorem penalty under Section 119 (c) of the Tax Code, and one per centum (1%) monthly interest from May 15, 1958 to the date of actual payment. The surcharge of 25% provided in Section 120 for failure to file a return may not be imposed as the failure to file a return was not due to willful neglect.( ... ) No costs. The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly committed by the Tax Court, all of which converge on the singular issue of whether or not petitioner should be liable for the assessed donee's gift tax on the P10,000.00 donated for the construction of the Victorias Parish Church. Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious purposes. The exemption is only from the payment

of taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise taxes. In the present case, what the Collector assessed was a donee's gift tax; the assessment was not on the properties themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of giftinter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an impairment of the Constitution. As well observed by the learned respondent Court, the phrase "exempt from taxation," as employed in the Constitution (supra) should not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must be denied. The next issue which readily presents itself, in view of petitioner's thesis, and Our finding that a tax liability exists, is, who should be called upon to pay the gift tax? Petitioner postulates that he should not be liable, because at the time of the donation he was not the priest of Victorias. We note the merit of the above claim, and in order to put things in their proper light, this Court, in its Resolution of March 15, 1965, ordered the parties to show cause why the Head of the Diocese to which the parish of Victorias pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing that the Head of such Diocese is the real party in interest. The Solicitor General, in representation of the Commissioner of Internal Revenue, interposed no objection to such a substitution. Counsel for the petitioner did not also offer objection thereto. On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal issues and/or defenses he might wish to raise, to which resolution counsel for petitioner, who also appeared as counsel for the Head of the Diocese, the Roman Catholic Bishop of Bacolod, manifested that it was submitting itself to the jurisdiction and orders of this Court and that it was presenting, by reference, the brief of petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes. In view here of and considering that as heretofore stated, the assessment at bar had been properly made and the imposition of the tax is not a violation of the constitutional provision exempting churches, parsonages or convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to which the parish Victorias Pertains, is liable for the payment thereof. The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it is modified, in the sense that petitioner herein is not personally liable for the said gift tax, and that the Head of the Diocese, herein substitute petitioner, should pay, as he is presently ordered to pay, the said gift tax, without special, pronouncement as to costs.

G.R. No. L-49336 August 31, 1981 THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA, Provincial Assessor, petitioner, vs. HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding Judge of Branch I, Court of First Instance Abra; THE ROMAN CATHOLIC BISHOP OF BANGUED, INC., represented by Bishop Odilo etspueler and Reverend Felipe Flores, respondents.

FERNANDO, C.J.: On the face of this certiorari and mandamus petition filed by the Province of Abra, 1 it clearly appears that the actuation of respondent Judge Harold M. Hernando of the Court of First Instance of Abra left much to be desired. First, there was a denial of a motion to dismiss 2 an action for declaratory relief by private respondent Roman Catholic Bishop of Bangued desirous of being exempted from a real estate tax followed by a summary judgment 3granting such exemption, without even hearing the side of petitioner. In the rather vigorous language of the Acting Provincial Fiscal, as counsel for petitioner, respondent Judge "virtually ignored the pertinent provisions of the Rules of Court; ... wantonly violated the rights of petitioner to due process, by giving due course to the petition of private respondent for declaratory relief, and thereafter without allowing petitioner to answer and without any hearing, adjudged the case; all in total disregard of basic laws of procedure and basic provisions of due process in the constitution, thereby indicating a failure to grasp and understand the law, which goes into the competence of the Honorable Presiding Judge." 4 It was the submission of counsel that an action for declaratory relief would be proper only before a breach or violation of any statute, executive order or regulation. 5 Moreover, there being a tax assessment made by the Provincial Assessor on the properties of respondent Roman Catholic Bishop, petitioner failed to exhaust the administrative remedies available under Presidential Decree No. 464 before filing such court action. Further, it was pointed out to respondent Judge that he failed to abide by the pertinent provision of such Presidential Decree which provides as follows: "No court shall entertain any suit assailing the validity of a tax assessed under this Code until the taxpayer, shall have paid, under protest, the tax assessed against him nor shall any court declare any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes, or of failure to perform their duties within this time herein specified for their performance unless such irregularities, informalities or failure shall have impaired the substantial rights of the taxpayer; nor shall any court declare any portion of the tax assessed under the provisions of this Code invalid except upon condition that the taxpayer shall pay the just amount of the tax, as determined by the court in the pending proceeding." 6 When asked to comment, respondent Judge began with the allegation that there "is no question that the real properties sought to be taxed by the Province of Abra are properties of the respondent Roman Catholic Bishop of Bangued, Inc." 7 The very next sentence assumed the very point it asked when he categorically stated: "Likewise, there is no dispute that the properties including their procedure are actually, directly and exclusively used by the Roman Catholic Bishop of Bangued, Inc. for religious or charitable purposes." 8 For him then: "The proper remedy of the petitioner is appeal and not this special civil action." 9 A more exhaustive comment was submitted by private respondent Roman Catholic Bishop of Bangued, Inc. It was, however, unable to lessen the force of the objection raised by petitioner Province of Abra, especially the due process aspect. it is to be admitted that his opposition to the petition, pressed with vigor, ostensibly finds a semblance of support from the authorities cited. It is thus impressed with a scholarly aspect. It suffers, however, from the grave infirmity of stating that only a pure question of law is presented when a claim for exemption is made. The petition must be granted. 1. Respondent Judge would not have erred so grievously had he merely compared the provisions of the present Constitution with that appearing in the 1935 Charter on the tax exemption of "lands, buildings, and improvements." There is a marked difference. 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." 10 The present Constitution added "charitable institutions, mosques, and nonprofit 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. 11The 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. According to Commissioner of Internal Revenue v. Guerrero: 12"From 1906, in Catholic Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the constant and uniform holding that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on exemption from taxation, hence, an exempting provision should be construed strictissimi juris." 13 In Manila Electric Company v. Vera, 14 a 1975 decision, such principle was reiterated, reference being made to Republic Flour Mills, Inc. v. Commissioner of Internal Revenue; 15 Commissioner of Customs v. Philippine Acetylene Co. & CTA; 16 andDavao Light and Power Co., Inc. v. Commissioner of Customs. 17 2. Petitioner Province of Abra is therefore fully justified in invoking the protection of procedural due process. If there is any case where proof is necessary to demonstrate that there is compliance with the constitutional provision that allows an exemption, this is it. Instead, respondent Judge accepted at its face the allegation of private respondent. All that was alleged in the petition for declaratory relief filed by private respondents, after mentioning certain parcels of land owned by it, are that they are used "actually, directly and exclusively" as sources of support of the parish priest and his helpers and also of private respondent Bishop. 18 In the motion to dismiss filed on behalf of petitioner Province of Abra, the objection was based primarily on the lack of jurisdiction, as the validity of a tax assessment may be questioned before the Local Board of Assessment Appeals and not with a court. There was also mention of a lack of a cause of action, but only because, in its view, declaratory relief is not proper, as there had been breach or violation of the right of government to assess and collect taxes on such property. It clearly appears, therefore, that in failing to accord a hearing to petitioner Province of Abra and deciding the case immediately in favor of private respondent, respondent Judge failed to abide by the constitutional command of procedural due process. WHEREFORE, the petition is granted and the resolution of June 19, 1978 is set aside. Respondent Judge, or who ever is acting on his behalf, is ordered to hear the case on the merit. No costs.

G.R. No. 124043 October 14, 1998 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., respondents.

PANGANIBAN, J.: Is the income derived from rentals of real property owned by the Young Men's Christian Association of the Philippines, Inc. (YMCA) established as "a welfare, educational and charitable non-profit corporation" subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution?

The Case This is the main question raised before us in this petition for review on certiorari challenging two Resolutions issued by the Court of Appeals 1 on September 28, 1995 2 and February 29, 1996 3 in CA-GR SP No. 32007. Both Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing the YMCA to claim tax exemption on the latter's income from the lease of its real property. The Facts The facts are undisputed. 4 Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA. Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA: . . . [T]he leasing of [private respondent's] facilities to small shop owners, to restaurant and canteen operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the [private respondents]. It appears from the testimonies of the witnesses for the [private respondent] particularly Mr. James C. Delote, former accountant of YMCA, that these facilities were leased to members and that they have to service the needs of its members and their guests. The rentals were minimal as for example, the barbershop was only charged P300 per month. He also testified that there was actually no lot devoted for parking space but the parking was done at the sides of the building. The parking was primarily for members with stickers on the windshields of their cars and they charged P.50 for non-members. The rentals and parking fees were just enough to cover the costs of operation and maintenance only. The earning[s] from these rentals and parking charges including those from lodging and other charges for the use of the recreational facilities constitute [the] bulk of its income which [is] channeled to support its many activities and attainment of its objectives. As pointed out earlier, the membership dues are very insufficient to support its program. We find it reasonably necessary therefore for [private respondent] to make [the] most out [of] its existing facilities to earn some income. It would have been different if under the circumstances, [private respondent] will purchase a lot and convert it to a parking lot to cater to the needs of the general public for a fee, or construct a building and lease it out to the highest bidder or at the market rate for commercial purposes, or should it invest its funds in the buy and sell of properties, real or personal. Under these circumstances, we could conclude that the activities are already profit oriented, not incidental and reasonably necessary to the pursuit of the objectives of the association and therefore, will fall under the last paragraph of Section 27 of the Tax Code and any income derived therefrom shall be taxable.

Considering our findings that [private respondent] was not engaged in the business of operating or contracting [a] parking lot, we find no legal basis also for the imposition of [a] deficiency fixed tax and [a] contractor's tax in the amount[s] of P353.15 and P3,129.73, respectively. xxx xxx xxx WHEREFORE, in view of all the foregoing, the following assessments are hereby dismissed for lack of merit: 1980 Deficiency Fixed Tax P353,15; 1980 Deficiency Contractor's Tax P3,129.23; 1980 Deficiency Income Tax P372,578.20. While the following assessments are hereby sustained: 1980 Deficiency Expanded Withholding Tax P1,798.93; 1980 Deficiency Withholding Tax on Wages P33,058.82
plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid but not to exceed three (3) years pursuant to Section 51(e)(2) & (3) of the National Internal Revenue Code effective as of 1984. 5

Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its Decision of February 16, 1994, the CA 6 initially decided in favor of the CIR and disposed of the appeal in the following manner: Following the ruling in the afore-cited cases of Province of Abra vs. Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the respondent Court of Tax Appeals that "the leasing of petitioner's (herein respondent's) facilities to small shop owners, to restaurant and canteen operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the petitioners, and the income derived therefrom are tax exempt, must be reversed. WHEREFORE, the appealed decision is hereby REVERSED in so far as it dismissed the assessment for: 1980 Deficiency Income Tax P 353.15 1980 Deficiency Contractor's Tax P 3,129.23, & 1980 Deficiency Income Tax P 372,578.20 but the same is AFFIRMED in all other respect. 7 Aggrieved, the YMCA asked for reconsideration based on the following grounds:

I The findings of facts of the Public Respondent Court of Tax Appeals being supported by substantial evidence [are] final and conclusive. II
The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent from the income on rentals of small shops and parking fees [are] in accord with the applicable law and jurisprudence. 8

Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and promulgated on September 28, 1995 its first assailed Resolution which, in part, reads: The Court cannot depart from the CTA's findings of fact, as they are supported by evidence beyond what is considered as substantial. xxx xxx xxx The second ground raised is that the respondent CTA did not err in saying that the rental from small shops and parking fees do not result in the loss of the exemption. Not even the petitioner would hazard the suggestion that YMCA is designed for profit. Consequently, the little income from small shops and parking fees help[s] to keep its head above the water, so to speak, and allow it to continue with its laudable work. The Court, therefore, finds the second ground of the motion to be meritorious and in accord with law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the respondent CTA's decision is AFFIRMED in toto. 9

The internal revenue commissioner's own Motion for Reconsideration was denied by Respondent Court in its second assailed Resolution of February 29, 1996. Hence, this petition for review under Rule 45 of the Rules of Court. 10 The Issues Before us, petitioner imputes to the Court of Appeals the following errors: I In holding that it had departed from the findings of fact of Respondent Court of Tax Appeals when it rendered its Decision dated February 16, 1994; and II
In affirming the conclusion of Respondent Court of Tax Appeals that the income of private respondent from rentals of small shops and parking fees [is] exempt from taxation. 11

This Court's Ruling

The petition is meritorious. First Issue: Factual Findings of the CTA Private respondent contends that the February 16, 1994 CA Decision reversed the factual findings of the CTA. On the other hand, petitioner argues that the CA merely reversed the "ruling of the CTA that the leasing of private respondent's facilities to small shop owners, to restaurant and canteen operators and the operation of parking lots are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the private respondent and that the income derived therefrom are tax exempt." 12 Petitioner insists that what the appellate court reversed was the legal conclusion, not the factual finding, of the CTA. 13 The commissioner has a point. Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by substantial evidence, will be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts.14 In the present case, this Court finds that the February 16, 1994 Decision of the CA did not deviate from this rule. The latter merely applied the law to the facts as found by the CTA and ruled on the issue raised by the CIR: "Whether or not the collection or earnings of rental income from the lease of certain premises and income earned from parking fees shall fall under the last paragraph of Section 27 of the National Internal Revenue Code of 1977, as amended." 15 Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned issue, as indeed it was expected to. That it did so in a manner different from that of the CTA did not necessarily imply a reversal of factual findings. The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts." 16 In the present case, the CA did not doubt, much less change, the facts narrated by the CTA. It merely applied the law to the facts. That its interpretation or conclusion is different from that of the CTA is not irregular or abnormal. Second Issue: Is the Rental Income of the YMCA Taxable? We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to tax? At the outset, we set forth the relevant provision of the NIRC: Sec. 27. Exemptions from tax on corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such xxx xxx xxx (g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (h) Club organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member;

xxx xxx xxx Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457) Petitioner argues that while the income received by the organizations enumerated in Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the exemption does not apply to income derived ". . . from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income . . . ." Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its properties, real or personal, [is] not, therefore, exempt from income taxation, even if such income [is] exclusively used for the accomplishment of its objectives." 17 We agree with the commissioner. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. 18 Furthermore, a claim of statutory exemption from taxation should be manifest. and unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to be mistaken." 19 In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property,20 the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. It is axiomatic that where the language of the law is clear and unambiguous, its express terms must be applied. 21Parenthetically, a consideration of the question of construction must not even begin, particularly when such question is on whether to apply a strict construction or a liberal one on statutes that grant tax exemptions to "religious, charitable and educational propert[ies] or institutions." 22 The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification that the income from the properties must arise from activities 'conducted for profit' before it may be considered taxable." 23 This argument is erroneous. As previously stated, a reading of said paragraph ineludibly shows that the income from any property of exempt organizations, as well as that arising from any activity it conducts for profit, is taxable. The phrase "any of their activities conducted for profit" does not qualify the word "properties." This makes from the property of the organization taxable, regardless of how that income is used whether for profit or for lofty nonprofit purposes. Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible error when it allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its real property, on the solitary but unconvincing ground that the said income is not collected for profit but is merely incidental to its operation. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should we.

Constitutional Provisions On Taxation Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI, Section 28 of par. 3 of the 1987 Constitution, 24 exempts "charitable institutions" from the payment not only of property taxes but also of income tax from any source. 25 In support of its novel theory, it compares the use of the words "charitable institutions," "actually" and "directly" in the 1973 and the 1987 Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of the 1935 Constitution, on the other hand. 26 Private respondent enunciates three points. First, the present provision is divisible into two categories: (1) "[c]haritable institutions, churches and parsonages or convents appurtenant thereto, mosques and non-profit cemeteries," the incomes of which are, from whatever source, all taxexempt; 27 and (2) "[a]ll lands, buildings and improvements actually and directly used for religious, charitable or educational purposes," which are exempt only from property taxes. 28 Second, Lladoc v. Commissioner of Internal Revenue, 29 which limited the exemption only to the payment of property taxes, referred to the provision of the 1935 Constitution and not to its counterparts in the 1973 and the 1987 Constitutions. 30 Third, the phrase "actually, directly and exclusively used for religious, charitable or educational purposes" refers not only to "all lands, buildings and improvements," but also to the above-quoted first category which includes charitable institutions like the private respondent. 31 The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers of the Constitution reveal their intent which, in turn, may have guided the people in ratifying the Charter. 32 Such intent must be effectuated. Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a member of this Court, stressed during the Concom debates that ". . . 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." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and also a member of the Concom, adhered to the same view that the exemption created by said provision pertained only to property taxes.34 In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption covers property taxes only." 35 Indeed, the income tax exemption claimed by private respondent finds no basis in Article VI, Section 26, par. 3 of the Constitution. Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that the YMCA "is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income." 37 We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock, nonprofit educational institution is insufficient to justify its exemption from the payment of income tax. As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. However, the Court notes that not a scintilla of evidence was submitted by private respondent to prove that it met the said requisites.

Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the Constitution? We rule that it is not. The term "educational institution" or "institution of learning" has acquired a well-known technical meaning, of which the members of the Constitutional Commission are deemed cognizant. 38 Under the Education Act of 1982, such term refers to schools. 39 The school system is synonymous with formal education, 40 which "refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels." 41 The Court has examined the "Amended Articles of Incorporation" and "By-Laws" 43of the YMCA, but found nothing in them that even hints that it is a school or an educational institution. 44 Furthermore, under the Education Act of 1982, even non-formal education is understood to be school-based and "private auspices such as foundations and civic-spirited organizations" are ruled out. 45 It is settled that the term "educational institution," when used in laws granting tax exemptions, refers to a ". . . school seminary, college or educational establishment . . . ." 46 Therefore, the private respondent cannot be deemed one of the educational institutions covered by the constitutional provision under consideration.
. . . Words used in the Constitution are to be taken in their ordinary acceptation. While in its broadest and best sense education embraces all forms and phases of instruction, improvement and development of mind and body, and as well of religious and moral sentiments, yet in the common understanding and application it means a place where systematic instruction in any or all of the useful branches of learning is given by methods common to schools and institutions of learning. That we conceive to be the true intent and scope of the term [educational institutions,] as used in the Constitution. 47

Moreover, without conceding that Private Respondent YMCA is an educational institution, the Court also notes that the former did not submit proof of the proportionate amount of the subject income that was actually, directly and exclusively used for educational purposes. Article XIII, Section 5 of the YMCA by-laws, which formed part of the evidence submitted, is patently insufficient, since the same merely signified that "[t]he net income derived from the rentals of the commercial buildings shall be apportioned to the Federation and Member Associations as the National Board may decide." 48 In sum, we find no basis for granting the YMCA exemption from income tax under the constitutional provision invoked. Cases Cited by Private Respondent Inapplicable The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v. Collector of Internal Revenue 50 and Abra Valley College, Inc. v. Aquino 51 are not applicable, because the controversy in both cases involved exemption from the payment of property tax, not income tax. Hospital de San Juan de Dios, Inc. v. Pasay City 52 is not in point either, because it involves a claim for exemption from the payment of regulatory fees, specifically electrical inspection fees, imposed by an ordinance of Pasay City an issue not at all related to that involved in a claimed exemption from the payment of income taxes imposed on property leases. In Jesus Sacred Heart College v. Com. of Internal Revenue, 53 the party therein, which claimed an exemption from the payment of income tax, was an educational institution which submitted substantial evidence that the income subject of the controversy had been devoted or used solely for educational purposes. On the other hand, the private respondent in the present case has not given any proof that it is an educational institution, or that part of its rent income is actually, directly and exclusively used for educational purposes.

Epilogue In deliberating on this petition, the Court expresses its sympathy with private respondent. It appreciates the nobility of its cause. However, the Court's power and function are limited merely to applying the law fairly and objectively. It cannot change the law or bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation. We concede that private respondent deserves the help and the encouragement of the government. It needs laws that can facilitate, and not frustrate, its humanitarian tasks. But the Court regrets that, given its limited constitutional authority, it cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political departments of government. Indeed, some of the members of the Court may even believe in the wisdom and prudence of granting more tax exemptions to private respondent. But such belief, however well-meaning and sincere, cannot bestow upon the Court the power to change or amend the law. WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated September 28, 1995 and February 29, 1996 are hereby REVERSED and SET ASIDE. The Decision of the Court of Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled that the income derived by petitioner from rentals of its real property is subject to income tax. No pronouncement as to costs. SO ORDERED.

[G.R. No. 119775. March 29, 2005] JOHN HAY vs. LIM EN BANC
Sirs/Mesdames:

Quoted hereunder, for your information, is a resolution of this Court dated MAR 29 2005. G.R. No. 119775 (JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO CARIO FOUNDATION INC., CENTER FOR ALTERNATIVE SYSTEMS FOUNDATION INC., REGINA VICTORIA A. BENAFIN REPRESENTED AND JOINED BY HER MOTHER MRS. ELISA BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY HER MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PE REPRESENTED AND JOINED BY HER MOTHER ROSEMARIE G. PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS "KEVAB," BETTY I. STRASSER, RUBY C. GIRON, URSULA C. PEREZ ALIAS "BA-YAY," EDILBERTO T. CLARAVALL, CARMEN CAROMINA, LILIA G. YARANON, DIANE MONDOC vs. VICTOR LIM, PRESIDENT, BASES CONVERSION DEVELOPMENT AUTHORITY; JOHN HAY PORO POINT DEVELOPMENT CORPORATION, CITY OF

BAGUIO, TUNTEX (B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP, INC., DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES.) By their separate motions for reconsideration, public respondents Bases Conversion Development Authority (BCDA) John Hay Management Corporation (JHMC) and Victor Lim, and respondent-in-intervention CJH Development Corporation (CJHDC) seek the reconsideration of this Court's Decision of October 24, 2003 ` which invalidated the second sentence of Section 3 of Proclamation No. 420 insofar as it granted tax exemptions and incentives to the John Hay Special Economic Zone (SEZ).
[1] [2]

It may be recalled that on March 13, 1992, Republic Act No. 7227, otherwise known as the "Bases Conversion and Development Act of 1992," was enacted with the declared policy of accelerating "the sound and balanced conversion into alternative productive uses of the Clark and Subic military reservations and their extensions" -including the John Hay Station.
[3] [4]

To this end, R.A. No. 7227 created public respondent BCDA, the Subic SEZ and the Subic Bay Metropolitan Authority.
[5] [6] [7]

R.A. No. 7227 likewise authorized the President, subject to the concurrence of the local government units directly affected, to create through executive proclamation other SEZs in the areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La Union, and the Camp John Hay in Baguio. And upon recommendation by the BCDA, the law also authorized the President to create SEZs in the municipalities of Morong, Hermosa, Dinalupihan, Castillejos, and San Marcelino.
[8]

On July 5, 1994, then President Ramos, on the request of the Sangguniang Panlungsod of Baguio City, issued Proclamation No. 420 establishing the John Hay SEZ:
[9]

PROCLAMATION NO. 420 CREATING AND DESIGNATING A PORTION OF THE AREA COVERED BY THE FORMER CAMP JOHN [HAY] AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO REPUBLIC ACT NO. 7227 Pursuant to the powers vested in me by the law and the resolution of concurrence by the City Council of Baguio, I, FIDEL V. RAMOS, President of the Philippines, do hereby create and designate a portion of the area covered by the former John Hay reservation as embraced, covered, and defined by the 1947 Military Bases Agreement

between the Philippines and the United States of America, as amended, as the John Hay Special Economic Zone, and accordingly order: SECTION 1. Coverage of John Hay Special Economic Zone. - The John Hay Special Economic Zone shall cover the area consisting of Two Hundred Eighty Eight and one/tenth (288.1) hectares, more or less, of the total of Six Hundred Seventy-Seven (677) hectares of the John Hay Reservation, more or less, which have been surveyed and verified by the Department of Environment and Natural Resources (DENR) as defined by the following technical description: A parcel of land, situated in the City of Baguio, Province of Benguet, Island of Luzon, and particularly described in survey plans Psd-131102-002639 and Ccs131102-000030 as approved on 16 August 1993 and 26 August 1993, respectively, by the Department of Environment and Natural Resources, in detail containing : Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot 15, and Lot 20 of Ccs-131102-000030 - andLot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot 14, Lot 15, Lot 16, Lot 17, and Lot 18 of Psd-131102-002639 being portions of TCT No. T-3812, LRC Rec. No. 87. With a combined area of TWO HUNDRED EIGHTY EIGHT AND ONE/TENTH HECTARES (288.1 hectares); Provided that the area consisting of approximately Six and two/tenth (6.2) hectares, more or less, presently occupied by the VOA and the residence of the Ambassador of the United States, shall be considered as part of the SEZ only upon turnover of the properties to the government of the Republic of the Philippines. Sec. 2. Governing Body of the John Hay Special Economic Zone. - Pursuant to Section 15 of Republic Act No. 7227, the Bases Conversion and Development Authority is hereby established as the governing body of the John Hay Special Economic Zone and, as such, authorized to determine the utilization and disposition of the lands comprising it, subject to private rights, if any, and in consultation and coordination with the City Government of Baguio after consultation with its inhabitants, and to promulgate the necessary policies, rules, and regulations to govern and regulate the zone thru the John Hay Poro Point Development Corporation, which is its implementing arm for its economic development and optimum utilization.

Sec. 3. Investment Climate in John Hay Special Economic Zone. - Pursuant to Section 5(m) and Section 15 of Republic Act No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary policies, rules, and regulations governing the zone, including investment incentives, in consultation with pertinent government departments. Among others, the zone shall have all the applicable incentives of the Special Economic Zone under Section 12 of Republic Act No. 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and new investment laws that may hereinafter be enacted. Sec. 4. Role of Departments, Bureaus, Offices, Agencies and Instrumentalities. - All Heads of departments, bureaus, offices, agencies, and instrumentalities of the government are hereby directed to give full support to Bases Conversion and Development Authority and/or its implementing subsidiary or joint venture to facilitate the necessary approvals to expedite the implementation of various projects of the conversion program. Sec. 5. Local Authority. - Except as herein provided, the affected local government units shall retain their basic autonomy and identity. Sec. 6. Repealing Clause. - All orders, rules, and regulations, or parts thereof, which are inconsistent with the provisions of this Proclamation, are hereby repealed, amended, or modified accordingly. Sec. 7. Effectivity. This proclamation shall take effect immediately. Done in the City of Manila, this 5th day of July, in the year of Our Lord, nineteen hundred and ninety-four. On April 25, 1995, petitioners filed their Petition for prohibition, mandamus and declaratory relief assailing (1) the constitutionality of Proclamation No. 420 and (2) the legality of the Memorandum of Agreement and Joint Venture Agreement previously entered into between public respondent BCDA and private respondents Tuntex (B.V.I.) Co., Ltd. (TUNTEX) and Asiaworld Internationale Group, Inc. (ASIAWORLD).
[10]

The questions regarding the validity of the agreements between BCDA and TUNTEX and ASIAWORLD were rendered moot and academic by BCDA's revocation of these agreements by letter of November 21, 1995.
[11] [12]

On October 24, 2003, this Court promulgated its Decision, which disposed as follows:

WHEREFORE, the second sentence of Section 3 of Proclamation No. 420 is hereby declared NULL AND VOID and is accordingly declared of no legal force and effect. Public respondents are hereby enjoined from implementing the aforesaid void provision. Proclamation No. 420, without the invalidated portion, remains valid and effective. SO ORDERED. In their Motion for Reconsideration with Manifestation filed on December 29, 2003, public respondents, through the Office of the Government Corporate Counsel, submit the following grounds for reconsideration: I
THE HONORABLE COURT ERRED IN RULING THAT SECTION 3 OF PROCLAMATION NO. 420 IS NULL AND VOID AS THE JOHN HAY SPECIAL ECONOMIC ZONE ENJOYS EXEMPTION FOR (sic) TAXES, AS WELL AS OTHER FINANCIAL INCENTIVES GRANTED TO THE SUBIC SPECIAL ECONOMIC ZONE, IN THAT: A. THE LAW, CONSIDERED IN ITS ENTIRETY SUPPORTS THE CONCLUSION THAT THE JOHN HAY SPECIAL ECONOMIC ZONE ENJOYS THE SAME PRIVILEGES AS THE SUBIC SPECIAL ECONOMIC ZONE. B. THE GRANT OF TAX EXEMPTION AND OTHER FINANCIAL INCENTIVES IS INHERENT IN "SPECIAL ECONOMIC ZONES."

II
ASSUMING ARGUENDO THAT REPUBLIC ACT NO. 7227 DOES NOT GRANT TAX EXEMPTIONS TO SPECIAL ECONOMIC ZONES, THE SECOND SENTENCE OF SECTION THREE OF PROCLAMATION NO. 420 IS SUSCEPTIBLE OF OTHER PLAUSIBLE INTERPRETATIONS WHICH WOULD ADDRESS THE ALLEGED CONSTITUTIONAL INFIRMITY.

Ill
THE JOHN HAY SPECIAL ECONOMIC ZONE MAY BE GRANTED FINANCIAL INCENTIVES UNDER OTHER LAWS, AS IMPLEMENTED BY THE EXECUTIVE.

IV
THE HONORABLE COURT ERRED IN RULING THAT PETITIONERS HAVE LEGAL STANDING TO SUE.

Intervenor CJHDC filed on March 5, 2004 a Motion for Leave to Intervene alleging that it, together with its consortium partners Fil-Estate Management Inc. and Penta Capital Investment Corporation, entered into a Lease Agreement dated October 19, 1996 with respondent BCDA for the
[13]

development of the John Hay SEZ; and that it "stands to be most affected" by this Court's Decision "invalidating the grant of tax exemption and other financial incentives" in the John Hay SEZ since "[i]ts financial obligations and development and investment commitments under the Lease Agreement were entered into upon the premise that these incentives are valid and subsisting." CJHDC, proffering grounds parallel to those of public respondents, thus prays that: (1) it be granted leave to intervene in this case; (2) its attached Motion for Reconsideration in Intervention be admitted; and (3) this Court's Decision of October 24, 2003 be reconsidered and petitioners' petition dismissed.
[14]

By Order of May 25, 2004, this Court granted CJHDC's Motion for leave to Intervene and noted its Motion for Reconsideration in Intervention.
[15]

At bottom, the controversy centers on whether the tax exemptions and other financial incentives granted to the Subic SEZ under Section 12 of R.A. No. 7227 are applicable to the John Hay SEZ. Section 12 of R.A. No. 7227, which provides for the "policies" to govern and regulate the Subic SEZ, reads as follows: SECTION 12. Subic Special Economic Zone. Subject to the concurrence by resolution of the sangguniang panlungsod of the City of Olongapo and the sangguniang bayan of the Municipalities of Subic, Morong and Hermosa, there is hereby created a Special Economic and Free-port Zone consisting of the City of Olongapo and the Municipality of Subic, Province of Zambales, the lands occupied by the Subic Naval Base and its contiguous extensions as embraced, covered, and defined by the 1947 Military Bases Agreement between the Philippines and the United States of America as amended, and within the territorial jurisdiction of the Municipalities of Morong and Hermosa, Province of Bataan, hereinafter referred to as the Subic Special Economic Zone whose metes and bounds shall be delineated in a proclamation to be issued by the President of the Philippines. Within thirty (30) days after the approval of this Act, each local government unit shall submit its resolution of concurrence to join the Subic Special Economic Zone to the office of the President. Thereafter, the President of the Philippines shall issue a proclamation defining the metes and bounds of the Zone as provided herein. The abovementioned zone shall be subject to the following policies: (a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be developed into a self-sustaining, industrial,

commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments; b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty free importations of raw materials, capital and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines; (c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the Municipality of Subic, and other municipalities contiguous to [the] base areas. In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter; (d) No exchange control policy shall be applied and free markets for foreign exchange, gold, securities and futures shall be allowed and maintained in the Subic Special Economic Zone; (e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations of banks and other financial institutions within the Subic Special Economic Zone; (f) Banking and Finance shall be liberalized with the establishment of foreign currency depository units of local commercial banks and offshore banking units of foreign banks with minimum Central Bank regulation; (g) Any investor within the Subic Special Economic Zone whose continuing investment shall not be less than Two Hundred fifty thousand dollars ($250,000), his/her spouse and dependent children under twenty-one (21) years of age, shall be granted permanent resident status within the Subic Special Economic

Zone. They shall have freedom of ingress and egress to and from the Subic Special Economic Zone without any need of special authorization from the Bureau of Immigration and Deportation. The Subic Bay Metropolitan Authority referred to in Section 13 of this Act may also issue working visas renewable every two (2) years to foreign executives and other aliens possessing highly-technical skills which no Filipino within the Subic Special Economic Zone possesses, as certified by the Department of Labor and Employment. The names of aliens granted permanent residence status and working visas by the Subic Bay Metropolitan Authority shall be reported to the Bureau of Immigration and Deportation within thirty (30) days after issuance thereof; (h) The defense of the zone and the security of its perimeters shall be the responsibility of the National Government in coordination with the Subic Bay Metropolitan Authority. The Subic Bay Metropolitan Authority shall provide and establish its own internal security and firefighting forces; and (i) Except as herein provided, the local government units comprising the Subic Special Economic Zone shall retain their basic autonomy and identity. The cities shall be governed by their respective charters and the municipalities shall operate and function in accordance with Republic Act No. 7160, otherwise known as the Local Government Code of 1991. (Emphasis supplied) In their first line of argument, respondents allege that the foregoing "policies" or incentives, while enumerated in reference to the Subic SEZ, are nonetheless expressly made applicable to the other SEZs subsequently created by presidential proclamation, including the John Hay SEZ, by Section 15 of R.A. No. 7227. Thus, public respondents argue: That the privileges of tax exemption and other financial incentives were expressly provided under Section 12, constituting the SSEZ, is merely a result of the then reality that it is (sic) was only in Subic Bay where the precise metes and bounds of the SSEZ, as well as other relevant information, were then available to the Senate. But the intention of the Senate was clearly to empower the President, who would then have the luxury of time and further studies, to constitute special economic zones in the former Clark Air Base and its extensions, including Camp John Hay. This power to proclaim the other base areas as special economic zones, including all privileged appurtenant thereto, was instead delegated to the President in Section 15 of the law. xxx

Republic Act No. 7227 authorizes the President to delineate Special Economic Zones in the former base areas. True, section 12 of the said law enumerating the tax exemptions and the financial incentives of the Subic Special Economic Zone, is expressly made applicable to the former Subic Bay Naval Base. However, there is no showing that the term "special economic zones", used to denote what the President can establish in John Hay, does not have the same definition and characteristics as the SSEZ. (Emphasis supplied; underscoring in the original) A reading of Section 15 of R.A. No. 7227 does not, however, support this proposition. There is no doubt that under Section 15 (as in Section 12) the President has the power to delineate, by proclamation, the metes and bounds of SEZs which may be created in the other former base lands. However, there is neither an express reference to Section 12 nor to the incentives granted to the Subic SEZ: SECTION 15. Clark and Other Special Economic Zones. Subject to the concurrence by resolution of the local government units directly affected, the President is hereby authorized to create by executive proclamation a Special Economic Zone covering the lands occupied by the Clark military reservations and its contiguous extensions as embraced, covered and defined by the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended, located within the territorial jurisdiction of Angeles City, Municipalities of Mabalacat and Porac, Province of Pampanga, and the Municipality of Capas, Province of Tarlac, in accordance with the policies as herein provided insofar as applicable to the Clark military reservations. The governing body of the Clark Special Economic Zone shall likewise be established by executive proclamation with such powers and functions exercised by the Export Processing Zone Authority pursuant to Presidential Decree No. 66 as amended. The policies to govern and regulate the Clark Special Economic Zone shall be determined upon consultation with the inhabitants of the local government units directly affected which shall be conducted within six (6) months upon approval of this Act. Similarly, subject to the concurrence by resolution of the local government units directly affected, the President shall create other Special Economic Zones, in the base areas of Wallace Air Station in San Fernando, La Union (excluding areas designated for communications, advance warning and radar requirements of the Philippine Air Force to be determined by the Conversion Authority) and Camp John Hay in the City of Baguio.

Upon recommendation of the Conversion Authority, the President is likewise authorized to create Special Economic Zones covering the Municipalities of Morong, Hermosa, Dinalupihan, Castillejos, and San Marcelino. (Emphasis supplied) Respondent-in-intervention CJHDC submits that by authorizing the President to create SEZs "in accordance with the policies as herein provided insofar as applicable," the first paragraph of Section 15 refers to the policies enumerated in Section 12, including exemption from local and national taxes. This allusion to "the policies as herein provided" can by no means be considered an explicit or unequivocal conferment of the tax exemptions and other incentives set forth in Section 12 on other SEZs. Notably, the preceding portions of R.A. No. 7227 make mention of two sets of "policies:" (1) the general "policies" that the law is intended to further, viz: Sec. 2. Declaration of Policies. It is hereby declared the policy of the Government to accelerate the sound and balanced conversion into alternative productive uses of the Clark and Subic military reservations and their extensions (John Hay Station, Wallace Air Station, O'Donnell Transmitter Station, San Miguel Naval Communications Station and Capas Relay Station), to raise funds by the sale of portions of Metro Manila military camps, and to apply said funds as provided herein for the development and conversion to productive civilian use of the lands covered under the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended. It is likewise the declared policy of the Government to enhance the benefits to be derived from said properties in order to promote the economic and social development of Central Luzon in particular and the country in general., and (2) the above-quoted "policies" governing the Subic SEZ. Considering that the subject matter of the first paragraph of Section 15 is the authority of the President to create other SEZs in the former base lands, it stands to reason that the same should be exercised "in accordance with the policies" which provide the rationale for the law as laid down in Section 2 of R.A. No. 7227. In contradistinction, a provision authorizing the President to define the metes and bounds of other SEZs "in accordance with" the tax and financial incentives of the Subic SEZ would be nonsensical. These tax and financial incentives provide neither direction nor guidance to the President in his determination (subject to the concurrence of the affected local government units) of the geographic composition of the SEZs.

Moreover, the third and fourth paragraphs of Section 15 explicitly provide that the "policies to govern and regulate" the John Hay SEZ "shall be determined upon consultation with the inhabitants of the local government units directly affected," thereby implying that the governing policies of the John Hay SEZ, unlike that of the Subic SEZ, were yet to be specified and, thus, not provided for by R.A. No. 7227 itself. In any event, whether it is Section 12 or Section 15 of R.A. No. 7227 which is scrutinized, the result is the same. There is no express extension of the incentives or benefits granted to the Subic SEZ to the other SEZs still to be created via presidential proclamation. As for respondent-in-intervention CJHDC's argument that the President's "power to create Special Economic Zones carries with it the power to provide for tax and financial incentives," it does not lie. It is the legislative branch which has the inherent power not only to select the subjects of taxation but to grant exemptions. Paragraph 4, Section 28 of Article VI of the Constitution is crystal clear: "[n]o law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress."
[16]

Hence, it is only the legislature, as limited by the provisions of the Constitution, which has full power to exempt any person or corporation or class of property from taxation. The Constitution itself may provide for specific tax exemptions or local governments may pass ordinances providing for exemption from local taxes, but, otherwise, it is only the legislative branch which has the power to grant tax exemptions, its power to exempt being as broad as its power to tax.
[17] [18] [19]

Perhaps realizing that R.A. No. 7227 does not contain an express grant of tax exemptions and financial incentives covering the John Hay SEZ, respondents, as a second line of argument, implore the Court to construe the existence of such a grant pursuant to what they claim to be the legislative intent of the law. To this end, they posit that the Court should not apply the deeply-entrenched rule that tax exemptions cannot be implied but must be categorically and unmistakably expressed in a language too clear to be mistaken.
[20] [21]

In this vein, respondent-in-intervention CJHDC, although acknowledging that "the law frowns against exemptions from taxation," nevertheless argues that "[t]he grant of tax exemption privileges to the [John Hay SEZ] was addressed primarily to public respondent BCDA" in order "to achieve its mandate for an accelerated conversion of the former baselands into economically productive uses, at the least cost and exposure to the
[22]

government." Thus, it contends that the Court should "apply, at least by analogy, the principle that strict construction is not applicable where the grantee of the exemption is a political subdivision or instrumentality." The Court is not persuaded. True, it is a recognized principle that the rule on strictissimi juris does not apply in the case of exemptions in favor of a government political subdivision or instrumentality, the rationale for which has been identified as follows:
[23]

"The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers. The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies." (Emphasis supplied; italics in the original)
[24]

However, the foregoing finds no application to the present case. First, there is absolutely nothing in R.A. No. 7227 which can be considered a grant of tax exemption in favor of public respondent BCDA. Rather, the beneficiaries of the tax exemptions and other incentives in Section 12 (the only provision in R.A. No. 7227 which expressly grants tax exemptions) are clearly the business enterprises located within the Subic SEZ. To be sure, nowhere in any of respondents' pleadings is it pretended that the legislature exempted the BCDA from taxation in order to accomplish its mandate. On the contrary, the alleged tax exemptions and financial incentives are plainly asserted to be in favor of privateenterprises doing business in the John Hay SEZ. Second, as noted above, the liberal construction of tax exemptions in favor of the government is premised on their resulting only in a reduction in infragovernmental fund transfers, but not government revenue. Evidently, this rationale does not apply, whether by analogy or otherwise, in favor of private business enterprises, such as respondent-in-intervention CJHDC. Consequently, respondents' arguments for a liberal construction of R.A. 7227 in favor of tax exemptions and incentives to business enterprises in the John Hay SEZ must necessarily fail. As the Court, speaking through Mr.

Justice Vicente V. Mendoza, in the recent case ofPhilippine Long Distance Telephone Company, Inc. v. City of Davao, had occasion to stress:
[25]

. . . Along with the police power and eminent domain, taxation is one of the three necessary attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those containing exemption from taxation, should be strictly construed in favor of the sate. A state cannot be stripped of this most essential power by doubtful words and of this highest attribute of sovereignty by ambiguous language. (Emphasis supplied)
[26]

Necessarily, respondents' other arguments, dependent as they are on a liberal construction of tax exemptions, also fail. Public respondents' argument that tax exemptions are "inherent" in the term "special economic zone" stands the concept on its head and cannot be accepted. The tax exempt character of an SEZ proceeds from the statutory provisions expressly conferring such exemptions, not vice-versa. The tail does not wag the dog. Moreover, a careful scrutiny of the Senate deliberations does not disclose a clear intention on the part of the law making power to make the tax exemptions and financial incentives in Section 12 applicable in the other SEZs. The adoption of a single uniform set of tax exemptions and financial incentives for all SEZs in the former base lands was indeed suggested by Senator Paterno when Section 12 was under consideration in the Senate: xxx Senator Paterno: Thank you Mr. President.
[27]

Now, with respect to "B," Mr. President, on items 1 to 6, what are they supposed to be? Are these policies? Because in my reading, subparagraph, subparagraph "1" and subparagraph "6" refer to activities; namely, shipping and tourism-related; while subparagraphs "2, 3, 4, and 5" represent policies which shall apply within the zone. Senator Shahani: think the intention here really was to specify the activities which should take place within this economic zone. But, on second reading, yes, I think there is a mix-up here of activities and policies. Senator Paterno: Yes. Senator Shahani: Maybe some of these could be transferred to Section 13.

Senator Paterno: Now, No. "1" and No. "6", are these authorizations to engage in these activities, or are they mandates for the special economic zone to engage in these activities? Senator Shahani: Yes, this is an attempt to specify the features, the kind of specific activities which would be unique to the special economic zone of Subic. This is why shipping is given. Senator Paterno: Yes. Then I would propose, Mr. President, that these two activities, namely "1" and "6," be segregated as being applicable to the Subic economic zone, because they will not be applicable, for example, in the Clark economic zone because there would be no shipping in Clark. Senator Shahani: Mr. President, Section 12, refers exclusively to Subic. There is no attempt now in this BCDA to do anything for Clark. I think there is no time. Senator Paterno: Yes. Yet, Mr. President, paragraph "C" authorizes the President of the Philippines to proclaim, delineate and specify the metes and bounds of other special economic zones with particular reference to Clark. We need to set up certain standards which the President would observe in setting up those zones. So I would propose that the policies applicable to all economic zones be specified here, and those which relate only to Subic be put in a standard for the Subic economic zone. Senator Shahani: Mr. President, I thought that this was the special concern of our Colleague from Cavite. I remember quite clearly that last night, some concern was expressed, including from this Representation, that there was no special attention being given to Clark. It think it was also Senator Enrile who said that Clark has specific features; it is landlocked, et cetera. Senator Paterno: Yes. Senator Shahani: So, to show that we are still interested in Clark and its development, and to avoid this very long process of legislating every detail of what a special economic zone should be, I thought it was agreed last night that we should authorize the President to create special economic zones with specific reference to Clark. This is why this appears in this form, Mr. President. Senator Paterno: Yes. Without going into the crafting of the text, Mr. President, it was my thought that, perhaps, there could be a section which

specifies the policies which shall apply to all special economic zones. Then there would be another section which, in effect, will create the Subic economic zone which would refer to those unique activities in Subic. Then there would be another section which would authorize the President to create other special economic zones, with particular reference to Clark, in which special economic zones, the standards set up in the first section would apply. Senator Shahani: I take it that, that is just a matter of reordering this section.

Senator Paterno: Yes. In other words, I would like to suggest that the bill contain the features of any special economic zone, and then another section would contain the features unique to Subic as a special economic zone. (Emphasis supplied)
[28]

However, as respondent CJHDC itself admits, "Senator Paterno's proposal that 'the policies applicable to all special economic zones be specified here (in what would eventually be Section 15) and those which relate only to Subic be put in a standard for the Subic economic zone'was not carried out, as Section 15 as finally passed does not contain an enumeration of policies specific only to non-Subic SEZs."(Underscoring supplied) Instead, as previously noted, Section 15 of R.A. No. 7227 provides that the "policies to govern and regulate" the John Hay SEZ "shall be determined upon consultation with the inhabitants of the local government units directly affected." Significantly, these policies need not be identical to those implemented in the Subic SEZ since there may be real and substantial differences in development priorities, local conditions and other relevant matters, as the consultations may reveal. However, insofar as these policies may include tax exemptions, paragraph 4, Section 28 of Article VI of the Constitution requires that any such exemptions must be in the form of legislation passed with the concurrence of a majority of all the Members of the Congress. Finally, contrary to public respondents' interpretation, the Decision of October 24, 2003 does not "tie the hands" of executive or administrative agencies from implementing any present or future legislation which affords tax or other financial incentives to qualified persons doing business in the John Hay SEZ or elsewhere. The second sentence of Section 3 of Proclamation No. 420 was declared null and void only insofar as it purported to grant, by executive proclamation and without statutory basis, tax exemptions and other financial incentives to business enterprises located in John Hay SEZ.

However, where there is statutory basis for exemptions or incentives, there is nothing to prevent qualified persons from applying for and availing thereof. As stated in the dispositive portion of the decision, Proclamation No. 420, without the invalidated portion, remains valid and effective. WHEREFORE, the motions hereby DENIED with FINALITY. for reconsideration are

G.R. No. 144104

June 29, 2004

LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon City,respondents. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and its hospital building constructed thereon are subject to assessment for purposes of real property tax. The Antecedents The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, 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 outpatients, 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.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land

and the hospital building, respectively.4 On August 25, 1993, the petitioner filed a Claim for Exemption5 from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioners 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 it is a charitable institution and, as such, is exempt from real property taxes. The QC-LBAA rendered judgment dismissing the petition and holding the petitioner liable for real property taxes.6 The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of Quezon City (CBAA, for brevity)7 which ruled that the petitioner was not a charitable institution and that its real properties were not actually, directly and exclusively used for 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 Undaunted, the petitioner filed its petition in this Court contending that: A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES. B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION. The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the 1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it admits paying patients and renders medical services to them, leases portions of the land to private parties, and rents out portions of the hospital to private medical practitioners from which it derives income to be used for operational expenses. The petitioner points out that for the years 1995 to 1999, 100% of its out-patients were charity patients and of the hospitals 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from the government attests to its character as a charitable institution. It contends that the "exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even if a portion of its real estate is leased out to private individuals from whom it derives income, it does not lose its character as a charitable institution, and its exemption from the payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera v. QC-BAA9 to bolster its pose. The petitioner further contends that even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not precluded from seeking tax exemption under the 1987 Constitution. In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The petitioners real property is not exempt from the payment of real estate taxes under P.D. No. 1823 and even under the 1987 Constitution because it failed to prove that it is a charitable institution and that the said property is actually, directly and exclusively used for charitable purposes. The respondents noted that in a newspaper report, it appears that graft charges were filed with the Sandiganbayan against the director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13 square meters of the property in 1990 for only P20,000 a month, when the monthly rental

should beP357,000 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 of paying patients, among other purposes. They aver that the petitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds in the hospital are reserved for indigent patients. The respondents further assert, thus: 13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That before a patient is admitted for treatment in the Center, first impression is that it is pay-patient and required to pay a certain amount as deposit. That even if a patient is living below the poverty line, he is charged with high hospital bills. And, without these bills being first settled, the poor patient cannot be allowed to leave the hospital or be discharged without first paying the hospital bills or issue a promissory note guaranteed and indorsed by an influential agency or person known only to the Center; that even the remains of deceased poor patients suffered the same fate. Moreover, before a patient is admitted for treatment as free or charity patient, one must undergo a series of interviews and must submit all the requirements needed by the Center, usually accompanied by endorsement by an influential agency or person known only to the Center. These facts were heard and admitted by the Petitioner LCP during the hearings before the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent patients, instead of seeking treatment with the Center, they prefer to be treated at the Quezon Institute. Can such practice by the Center be called charitable?10 The Issues The issues for resolution are the following: (a) whether the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real property taxes. The Courts Ruling The petition is partially granted. On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties.11 In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of government.12 It may be applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the improvement and promotion of the happiness of man.13 The word "charitable" is not restricted to relief of the poor or sick.14 The test of a charity and a charitable organization are in law the same. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage.

Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The raison detre 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;
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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 tertiarylevel care for more difficult and problematical cases; Whereas, to achieve this purpose, the Government intends to provide material and financial support towards the establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino people.15 The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus: SECOND: That the purposes for which such corporation is formed are as follows: 1. To construct, establish, equip, maintain, administer and conduct an integrated medical institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung and allied diseases in line with the concern of the government to assist and provide material and financial support in the establishment and maintenance of a lung center primarily to benefit the people of the Philippines and in pursuance of the policy of the State to secure the well-being of the people by providing them specialized health and medical services and by minimizing the incidence of lung diseases in the country and elsewhere. 2. To promote the noble undertaking of scientific research related to the prevention of lung or pulmonary ailments and the care of lung patients, including the holding of a series of relevant congresses, conventions, seminars and conferences; 3. To stimulate and, whenever possible, underwrite scientific researches on the biological, demographic, social, economic, eugenic and physiological aspects of lung or pulmonary diseases and their control; and to collect and publish the findings of such research for public consumption; 4. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or awareness, and the development of fact-finding, information

and reporting facilities for and in aid of the general purposes or objects aforesaid, especially in human lung requirements, general health and physical fitness, and other relevant or related fields; 5. To encourage the training of physicians, nurses, health officers, social workers and medical and technical personnel in the practical and scientific implementation of services to lung patients; 6. To assist universities and research institutions in their studies about lung diseases, to encourage advanced training in matters of the lung and related fields and to support educational programs of value to general health; 7. To encourage the formation of other organizations on the national, provincial and/or city and local levels; and to coordinate their various efforts and activities for the purpose of achieving a more effective programmatic approach on the common problems relative to the objectives enumerated herein; 8. To seek and obtain assistance in any form from both international and local foundations and organizations; and to administer grants and funds that may be given to the organization; 9. To extend, whenever possible and expedient, medical services to the public and, in general, to promote and protect the health of the masses of our people, which has long been recognized as an economic asset and a social blessing; 10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in any and all walks of life, including those who are poor and needy, all without regard to or discrimination, because of race, creed, color or political belief of the persons helped; and to enable them to obtain treatment when such disorders occur; 11. To participate, as circumstances may warrant, in any activity designed and carried on to promote the general health of the community; 12. To acquire and/or borrow funds and to own all funds or equipment, educational materials and supplies by purchase, donation, or otherwise and to dispose of and distribute the same in such manner, and, on such basis as the Center shall, from time to time, deem proper and best, under the particular circumstances, to serve its general and non-profit purposes and objectives;
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13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties, whether real or personal, for purposes herein mentioned; and 14. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the powers herein set forth and to do every other act and thing incidental thereto or connected therewith.16 Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. After all, any person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity.17

As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution.18 In Congregational Sunday School, etc. v. Board of Review,19 the State Supreme Court of Illinois held, thus: [A]n institution does not lose its charitable character, and consequent exemption from taxation, by reason of the fact that those recipients of its benefits who are able to pay are required to do so, where no profit is made by the institution and the amounts so received are applied in furthering its charitable purposes, and those benefits are refused to none on account of inability to pay therefor. The fundamental ground upon which all exemptions in favor of charitable institutions are based is the benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon the state to care for and advance the interests of its citizens.20 As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South Dakota v. Baker:21 [T]he fact that paying patients are taken, the profits derived from attendance upon these patients being exclusively devoted to the maintenance of the charity, seems rather to enhance the usefulness of the institution to the poor; for it is a matter of common observation amongst those who have gone about at all amongst the suffering classes, that the deserving poor can with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects of charity; and that their honest pride is much less wounded by being placed in an institution in which paying patients are also received. The fact of receiving money from some of the patients does not, we think, at all impair the character of the charity, so long as the money thus received is devoted altogether to the charitable object which the institution is intended to further.22 The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust purposes and cannot be diverted to private profit or benefit.23 Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character as a charitable institution simply because the gift or donation is in the form of subsidies granted by the government. As held by the State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt Lake County:24 Second, the government subsidy payments are provided to the project. Thus, those payments are like a gift or donation of any other kind except they come from the government. In both Intermountain Health Careand the present case, the crux is the presence or absence of material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a private benefactor, chose to make up the deficit resulting from the exchange between St. Marks Tower and the tenants by making a contribution to the landlord, just as it would have been irrelevant in Intermountain Health Care if the patients income supplements had come from private individuals rather than the government. Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government rather than private charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such an exemption, as they do here.25

In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its operations. Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.26 As held in Salvation Army v. Hoehn:27 An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and unmistakable terms, or must appear by necessary implication from the language used, for it is a well settled principle that, when a special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be construed strictly against the property owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation . 28 Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the petitioner shall enjoy the tax exemptions and privileges: SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from income and gift taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under Section 30, paragraph (h), of the National Internal Revenue Code, as amended. The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by, or for the Lung Center.29 It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2: It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius. The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is the principle that what is expressed puts an end to that which is implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters.

... The rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation. They are based on the rules of logic and the natural workings of the human mind. They are predicated upon ones own voluntary act and not upon that of others. They proceed from the premise that the legislature would not have made specified enumeration in a statute had the intention been not to restrict its meaning and confine its terms to those expressly mentioned.30 The exemption must not be so enlarged by construction since the reasonable presumption is that the State has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the statute the favor would be intended beyond what was meant.31 Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus: (3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for religious, charitable or educational purposes shall be exempt from taxation.32 The tax exemption under this constitutional provision covers property taxes only.33 As Chief Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes."34 Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160 (otherwise known as the Local Government Code of 1991) as follows: SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: ... (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly, andexclusively used for religious, charitable or educational purposes.35 We note that under the 1935 Constitution, "... all lands, buildings, and improvements used exclusively for charitable purposes shall be exempt from taxation."36 However, under the 1973 and the present Constitutions, for "lands, buildings, and improvements" of the charitable institution to be considered exempt, the same should not only be "exclusively" used for charitable purposes; it is required that such property be used "actually" and "directly" for such purposes.37 In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took effect.38 As this Court held in Province of Abra v. Hernando:39

Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from taxation." The present Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption of "lands, buildings, and improvements," they should not only be "exclusively" but also "actually" and "directly" used for religious or charitable purposes. The Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively."40 If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation.41 The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law.42 Solely is synonymous with exclusively.43 What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.44 The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or nonpaying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for her business enterprise under the business name "Elliptical Orchids and Garden Center." Indeed, the petitioners evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees. Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes.45 On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes. IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City Assessor is hereby DIRECTED to determine, after due hearing, 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.