THIRD DIVISION

G.R. No. 120082 September 11, 1996

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding
Judge of the Regional Trial Court, Branch 20, Cebu City, THE
CITY OF CEBU, represented by its Mayor HON. TOMAS R.
OSMEA, and EUSTAQUIO B. CESA, respondents.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure
question of law are the decision of 22 March 1995 1of the
Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing
the petition for declaratory relief in Civil Case No. CEB-16900
entitled "Mactan Cebu International Airport Authority vs. City of
Cebu", and its order of 4, May 1995 2denying the motion to
reconsider the decision.
We resolved to give due course to this petition for its raises
issues dwelling on the scope of the taxing power of local
government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the
instant petition as follows:
Petitioner Mactan Cebu International Airport Authority
(MCIAA) was created by virtue of Republic Act No. 6958,
mandated to "principally undertake the economical,
efficient and effective control, management and
supervision of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City, . . .
and such other Airports as may be established in the
Province of Cebu . . . (Sec. 3, RA 6958). It is also
mandated to:
a) encourage, promote
and develop international
and domestic air traffic in
the Central Visayas and
Mindanao regions as a
means of making the

regions centers of
international trade and
tourism, and accelerating
the development of the
means of transportation
and communication in the
country; and
b) upgrade the services
and facilities of the
airports and to formulate
internationally acceptable
standards of airport
accommodation and
service.
Since the time of its creation, petitioner MCIAA enjoyed
the privilege of exemption from payment of realty taxes
in accordance with Section 14 of its Charter.
Sec. 14. Tax Exemptions. The
authority shall be exempt from realty
taxes imposed by the National
Government or any of its political
subdivisions, agencies and
instrumentalities . . .
On October 11, 1994, however, Mr. Eustaquio B. Cesa,
Officer-in-Charge, Office of the Treasurer of the City of
Cebu, demanded payment for realty taxes on several
parcels of land belonging to the petitioner (Lot Nos.
913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M,
918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991A), located at Barrio Apas and Barrio Kasambagan,
Lahug, Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as
baseless and unjustified, claiming in its favor the
aforecited Section 14 of RA 6958 which exempt it from
payment of realty taxes. It was also asserted that it is
an instrumentality of the government performing
governmental functions, citing section 133 of the Local
Government Code of 1991 which puts limitations on the
taxing powers of local government units:

Sec. 133. Common Limitations on the

Taxing Powers of Local Government
Units. Unless otherwise provided
herein, the exercise of the taxing powers
of provinces, cities, municipalities, and
barangay shall not extend to the levy of
the following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges
of any kind on the
National Government, its
agencies and
instrumentalities, and
local government units.
(Emphasis supplied)
Respondent City refused to cancel and set aside
petitioner's realty tax account, insisting that the MCIAA
is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of
Sections 193 and 234 of the Local Governmental Code
that took effect on January 1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege.
Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all
persons whether natural or juridical,including
government-owned or controlled corporations, except
local water districts, cooperatives duly registered under
RA No. 6938, non-stock, and non-profit hospitals and
educational institutions, are hereby withdrawn upon the
effectivity of this Code. (Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. . . .

(c) . . .
Except as provided herein, any
exemption from payment of real property
tax previously granted to, or presently
enjoyed by all persons, whether natural
or juridical, including government-owned
or controlled corporations are hereby
withdrawn upon the effectivity of this
Code.
As the City of Cebu was about to issue a warrant of levy
against the properties of petitioner, the latter was
compelled to pay its tax account "under protest" and
thereafter filed a Petition for Declaratory Relief with the
Regional Trial Court of Cebu, Branch 20, on December
29, 1994. MCIAA basically contended that the taxing
powers of local government units do not extend to the
levy of taxes or fees of any kind on an instrumentality of
the national government. Petitioner insisted that while it
is indeed a government-owned corporation, it
nonetheless stands on the same footing as an agency or
instrumentality of the national government. Petitioner
insisted that while it is indeed a government-owned
corporation, it nonetheless stands on the same footing
as an agency or instrumentality of the national
government by the very nature of its powers and
functions.
Respondent City, however, asserted that MACIAA is not
an instrumentality of the government but merely a
government-owned corporation performing proprietary
functions As such, all exemptions previously granted to
it were deemed withdrawn by operation of law, as
provided under Sections 193 and 234 of the Local
Government Code when it took effect on January 1,
1992. 3
The petition for declaratory relief was docketed as Civil Case
No. CEB-16900.
In its decision of 22 March 1995, 4 the trial court dismissed the
petition in light of its findings, to wit:

(a) . . .
xxx xxx xxx

A close reading of the New Local Government Code of

1991 or RA 7160 provides the express cancellation and
withdrawal of exemption of taxes by government owned
and controlled corporation per Sections after the
effectivity of said Code on January 1, 1992, to wit:
[proceeds to quote Sections 193 and 234]
Petitioners claimed that its real properties assessed by
respondent City Government of Cebu are exempted
from paying realty taxes in view of the exemption
granted under RA 6958 to pay the same (citing Section
14 of RA 6958).
However, RA 7160 expressly provides that "All general
and special laws, acts, city charters, decress [sic],
executive orders, proclamations and administrative
regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are
hereby repealed or modified accordingly." ([f], Section
534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer
and state that the tax exemption provided for in RA
6958 creating petitioner had been expressly repealed
by the provisions of the New Local Government Code of
1991.
So that petitioner in this case has to pay the assessed
realty tax of its properties effective after January 1,
1992 until the present.
This Court's ruling finds expression to give impetus and
meaning to the overall objectives of the New Local
Government Code of 1991, RA 7160. "It is hereby
declared the policy of the State that the territorial and
political subdivisions of the State shall enjoy genuine
and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities
and make them more effective partners in the
attainment of national goals. Towards this end, the State
shall provide for a more responsive and accountable
local government structure instituted through a system
of decentralization whereby local government units
shall be given more powers, authority, responsibilities,
and resources. The process of decentralization shall

proceed from the national government to the local

government units. . . . 5
Its motion for reconsideration having been denied by the trial
court in its 4 May 1995 order, the petitioner filed the instant
petition based on the following assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING
TO RULE THAT THE PETITIONER IS
VESTED WITH GOVERNMENT POWERS
AND FUNCTIONS WHICH PLACE IT IN THE
SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING
THAT PETITIONER IS LIABLE TO PAY REAL
PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that
although it is a government-owned or controlled corporation it
is mandated to perform functions in the same category as an
instrumentality of Government. An instrumentality of
Government is one created to perform governmental functions
primarily to promote certain aspects of the economic life of the
people. 6 Considering its task "not merely to efficiently operate
and manage the Mactan-Cebu International Airport, but more
importantly, to carry out the Government policies of promoting
and developing the Central Visayas and Mindanao regions as
centers of international trade and tourism, and accelerating the
development of the means of transportation and
communication in the country," 7 and that it is an attached
agency of the Department of Transportation and
Communication (DOTC), 8 the petitioner "may stand in [sic] the
same footing as an agency or instrumentality of the national
government." Hence, its tax exemption privilege under Section
14 of its Charter "cannot be considered withdrawn with the
passage of the Local Government Code of 1991 (hereinafter
LGC) because Section 133 thereof specifically states that the
taxing powers of local government units shall not extend to the
levy of taxes of fees or charges of any kind on the national
government its agencies and instrumentalities."
As to the second assigned error, the petitioner contends that
being an instrumentality of the National Government,

respondent City of Cebu has no power nor authority to impose

realty taxes upon it in accordance with the aforesaid Section
133 of the LGC, as explained in Basco vs. Philippine
Amusement and Gaming Corporation; 9
Local governments have no power to tax
instrumentalities of the National Government. PAGCOR
is a government owned or controlled corporation with
an original character, PD 1869. All its shares of stock
are owned by the National Government. . . .
PAGCOR has a dual role, to operate and regulate
gambling casinos. The latter joke is governmental,
which places it in the category of an agency or
instrumentality of the Government. Being an
instrumentality of the Government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to
control by a mere Local government.
The states have no power by taxation or otherwise, to
retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal
government. (McCulloch v. Maryland, 4 Wheat 316, 4 L
Ed. 579).
This doctrine emanates from the "supremacy" of the
National Government over local government.
Justice Holmes, speaking for the Supreme Court, make
references to the entire absence of power on the part of
the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state
or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them.
(Antieau Modern Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature of the State can defeat
National policies thru extermination of what local
authorities may perceive to be undesirable activities or

enterprise using the power to tax as "a toll for

regulation" (U.S. v. Sanchez, 340 US 42). The power to
tax which was called by Justice Marshall as the "power
to destroy" (McCulloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the
very entity which has the inherent power to wield it.
(Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore
correctly say that the questioned provisions of the Code do not
contain any distinction between a governmental function as
against one performing merely proprietary ones such that the
exemption privilege withdrawn under the said Code would
apply to allgovernment corporations." For it is clear from
Section 133, in relation to Section 234, of the LGC that the
legislature meant to exclude instrumentalities of the national
government from the taxing power of the local government
units.
In its comment respondent City of Cebu alleges that as local a
government unit and a political subdivision, it has the power to
impose, levy, assess, and collect taxes within its jurisdiction.
Such power is guaranteed by the Constitution 10 and enhanced
further by the LGC. While it may be true that under its Charter
the petitioner was exempt from the payment of realty
taxes, 11 this exemption was withdrawn by Section 234 of the
LGC. In response to the petitioner's claim that such exemption
was not repealed because being an instrumentality of the
National Government, Section 133 of the LGC prohibits local
government units from imposing taxes, fees, or charges of any
kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and
Section 234 thereof does not distinguish between governmentowned corporation, and Section 234 thereof does not
distinguish between government-owned corporation, and
Section 234 thereof does not distinguish between governmentowned or controlled corporations performing governmental and
purely proprietary functions. Respondent city of Cebu urges this
the Manila International Airport Authority is a governmentalowned corporation, 12 and to reject the application of Basco
because it was "promulgated . . . before the enactment and the
singing into law of R.A. No. 7160," and was not, therefore,
decided "in the light of the spirit and intention of the framers of
the said law.

As a general rule, the power to tax is an incident of sovereignty

and is unlimited in its range, acknowledging in its very nature
no limits, so that security against its abuse is to be found only
in the responsibility of the legislature which imposes the tax on
the constituency who are to pay it. Nevertheless, effective
limitations thereon may be imposed by the people through
their Constitutions. 13 Our Constitution, for instance, provides
that the rule of taxation shall be uniform and equitable and
Congress shall evolve a progressive system of taxation. 14So
potent indeed is the power that it was once opined that "the
power to tax involves the power to destroy." 15 Verily, taxation is
a destructive power which interferes with the personal and
property for the support of the government. Accordingly, tax
statutes must be construed strictly against the government and
liberally in favor of the taxpayer. 16But since taxes are what we
pay for civilized society, 17 or are the lifeblood of the nation, the
law frowns against exemptions from taxation and statutes
granting tax exemptions are thus construed strictissimi
juris against the taxpayers and liberally in favor of the taxing
authority. 18 A claim of exemption from tax payment must be
clearly shown and based on language in the law too plain to be
mistaken. 19 Elsewise stated, taxation is the rule, exemption
therefrom is the exception. 20 However, if the grantee of the
exemption is a political subdivision or instrumentality, the rigid
rule of construction does not apply because the practical effect
of the exemption is merely to reduce the amount of money that
has to be handled by the government in the course of its
operations. 21

material consideration of a mutual nature, which then becomes

contractual and is thus covered by the non-impairment clause
of the Constitution. 23
The LGC, enacted pursuant to Section 3, Article X of the
constitution provides for the exercise by local government units
of their power to tax, the scope thereof or its limitations, and
the exemption from taxation.
Section 133 of the LGC prescribes the common limitations on
the taxing powers of local government units as follows:
Sec. 133. Common Limitations on the Taxing Power of
Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
(a) Income tax, except when levied on
banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts,
legacies and other acquisitions mortis
causa, except as otherwise provided
herein

The power to tax is primarily vested in the Congress; however,

in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5,
Article X of the Constitution. 22 Under the latter, the exercise of
the power may be subject to such guidelines and limitations as
the Congress may provide which, however, must be consistent
with the basic policy of local autonomy.

(d) Customs duties, registration fees of

vessels and wharfage on wharves,
tonnage dues, and all other kinds of
customs fees charges and dues except
wharfage on wharves constructed and
maintained by the local government unit
concerned:

There can be no question that under Section 14 of R.A. No.

6958 the petitioner is exempt from the payment of realty taxes
imposed by the National Government or any of its political
subdivisions, agencies, and instrumentalities. Nevertheless,
since taxation is the rule and exemption therefrom the
exception, the exemption may thus be withdrawn at the
pleasure of the taxing authority. The only exception to this rule
is where the exemption was granted to private parties based on

(e) Taxes, fees and charges and other

imposition upon goods carried into or out
of, or passing through, the territorial
jurisdictions of local government units in
the guise or charges for wharfages, tolls
for bridges or otherwise, or other taxes,
fees or charges in any form whatsoever
upon such goods or merchandise;

(f) Taxes fees or charges on agricultural

and aquatic products when sold by
marginal farmers or fishermen;
(g) Taxes on business enterprise certified
to be the Board of Investment as pioneer
or non-pioneer for a period of six (6) and
four (4) years, respectively from the date
of registration;
(h) Excise taxes on articles enumerated
under the National Internal Revenue
Code, as amended, and taxes, fees or
charges on petroleum products;
(i) Percentage or value added tax (VAT)
on sales, barters or exchanges or similar
transactions on goods or services except
as otherwise provided herein;
(j) Taxes on the gross receipts of
transportation contractor and person
engage in the transportation of
passengers of freight by hire and
common carriers by air, land, or water,
except as provided in this code;
(k) Taxes on premiums paid by ways
reinsurance or retrocession;
(l) Taxes, fees, or charges for the
registration of motor vehicles and for the
issuance of all kinds of licenses or
permits for the driving of thereof, except,
tricycles;
(m) Taxes, fees, or other charges on
Philippine product actually exported,
except as otherwise provided herein;
(n) Taxes, fees, or charges, on
Countryside and Barangay Business
Enterprise and Cooperatives duly
registered under R.A. No. 6810 and

Republic Act Numbered Sixty nine

hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative
Code of the Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY
KIND ON THE NATIONAL GOVERNMENT,
ITS AGENCIES AND INSTRUMENTALITIES,
AND LOCAL GOVERNMENT UNITS.
(emphasis supplied)
Needless to say the last item (item o) is pertinent in this case.
The "taxes, fees or charges" referred to are "of any kind",
hence they include all of these, unless otherwise provided by
the LGC. The term "taxes" is well understood so as to need no
further elaboration, especially in the light of the above
enumeration. The term "fees" means charges fixed by law or
Ordinance for the regulation or inspection of business
activity, 24 while "charges" are pecuniary liabilities such as rents
or fees against person or property. 25
Among the "taxes" enumerated in the LGC is real property tax,
which is governed by Section 232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. A
province or city or a municipality within the
Metropolitan Manila Area may levy on an annual ad
valorem tax on real property such as land, building,
machinery and other improvements not hereafter
specifically exempted.
Section 234 of LGC provides for the exemptions from payment
of real property taxes and withdraws previous exemptions
therefrom granted to natural and juridical persons, including
government owned and controlled corporations, except as
provided therein. It provides:
Sec. 234. Exemptions from Real Property Tax. The
following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic
of the Philippines or any of its political
subdivisions except when the beneficial

use thereof had been granted, for

reconsideration or otherwise, to a
taxable person;
(b) Charitable institutions, churches,
parsonages or convents appurtenants
thereto, mosques nonprofits or religious
cemeteries and all lands, building and
improvements actually, directly, and
exclusively used for religious charitable
or educational purposes;
(c) All machineries and equipment that
are actually, directly and exclusively
used by local water districts and
government-owned or controlled
corporations engaged in the supply and
distribution of water and/or generation
and transmission of electric power;
(d) All real property owned by duly
registered cooperatives as provided for
under R.A. No. 6938; and;
(e) Machinery and equipment used for
pollution control and environmental
protection.
Except as provided herein, any
exemptions from payment of real
property tax previously granted to or
presently enjoyed by, all persons
whether natural or juridical, including all
government owned or controlled
corporations are hereby withdrawn upon
the effectivity of his Code.
These exemptions are based on the ownership, character, and
use of the property. Thus;
(a) Ownership Exemptions. Exemptions
from real property taxes on the basis of
ownership are real properties owned by:
(i) the Republic, (ii) a province, (iii) a city,

(iv) a municipality, (v) a barangay, and

(vi) registered cooperatives.
(b) Character Exemptions. Exempted
from real property taxes on the basis of
their character are: (i) charitable
institutions, (ii) houses and temples of
prayer like churches, parsonages or
convents appurtenant thereto, mosques,
and (iii) non profit or religious
cemeteries.
(c) Usage exemptions. Exempted from
real property taxes on the basis of the
actual, direct and exclusive use to which
they are devoted are: (i) all lands
buildings and improvements which are
actually, directed and exclusively used
for religious, charitable or educational
purpose; (ii) all machineries and
equipment actually, directly and
exclusively used or by local water
districts or by government-owned or
controlled corporations engaged in the
supply and distribution of water and/or
generation and transmission of electric
power; and (iii) all machinery and
equipment used for pollution control and
environmental protection.
To help provide a healthy environment in the midst of
the modernization of the country, all machinery and
equipment for pollution control and environmental
protection may not be taxed by local governments.
2. Other Exemptions Withdrawn. All
other exemptions previously granted to
natural or juridical persons including
government-owned or controlled
corporations are withdrawn upon the
effectivity of the Code. 26
Section 193 of the LGC is the general provision on withdrawal
of tax exemption privileges. It provides:

Sec. 193. Withdrawal of Tax Exemption Privileges.

Unless otherwise provided in this code, tax exemptions
or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including
government-owned, or controlled corporations, except
local water districts, cooperatives duly registered under
R.A. 6938, non stock and non profit hospitals and
educational constitutions, are hereby withdrawn upon
the effectivity of this Code.
On the other hand, the LGC authorizes local government units
to grant tax exemption privileges. Thus, Section 192 thereof
provides:
Sec. 192. Authority to Grant Tax Exemption Privileges.
Local government units may, through ordinances
duly approved, grant tax exemptions, incentives or
reliefs under such terms and conditions as they may
deem necessary.
The foregoing sections of the LGC speaks of: (a) the limitations
on the taxing powers of local government units and the
exceptions to such limitations; and (b) the rule on tax
exemptions and the exceptions thereto. The use of exceptions
of provisos in these section, as shown by the following clauses:
(1) "unless otherwise provided herein" in
the opening paragraph of Section 133;
(2) "Unless otherwise provided in this
Code" in section 193;
(3) "not hereafter specifically exempted"
in Section 232; and
(4) "Except as provided herein" in the
last paragraph of Section 234
initially hampers a ready understanding of the sections. Note,
too, that the aforementioned clause in section 133 seems to be
inaccurately worded. Instead of the clause "unless otherwise
provided herein," with the "herein" to mean, of course, the
section, it should have used the clause "unless otherwise
provided in this Code." The former results in absurdity since the

section itself enumerates what are beyond the taxing powers of

local government units and, where exceptions were intended,
the exceptions were explicitly indicated in the text. For
instance, in item (a) which excepts the income taxes "when
livied on banks and other financial institutions", item (d) which
excepts "wharfage on wharves constructed and maintained by
the local government until concerned"; and item (1) which
excepts taxes, fees, and charges for the registration and
issuance of license or permits for the driving of "tricycles". It
may also be observed that within the body itself of the section,
there are exceptions which can be found only in other parts of
the LGC, but the section interchangeably uses therein the
clause "except as otherwise provided herein" as in items (c)
and (i), or the clause "except as otherwise provided herein" as
in items (c) and (i), or the clause "excepts as provided in this
Code" in item (j). These clauses would be obviously
unnecessary or mere surplus-ages if the opening clause of the
section were" "Unless otherwise provided in this Code" instead
of "Unless otherwise provided herein". In any event, even if the
latter is used, since under Section 232 local government units
have the power to levy real property tax, except those
exempted therefrom under Section 234, then Section 232 must
be deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC,
we conclude that as a general rule, as laid down in Section 133
the taxing powers of local government units cannot extend to
the levy of inter alia, "taxes, fees, and charges of any kind of
the National Government, its agencies and instrumentalties,
and local government units"; however, pursuant to Section 232,
provinces, cities, municipalities in the Metropolitan Manila Area
may impose the real property tax except on, inter alia, "real
property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial used thereof
has been granted, for consideration or otherwise, to a taxable
person", as provided in item (a) of the first paragraph of
Section 234.
As to tax exemptions or incentives granted to or presently
enjoyed by natural or juridical persons, including governmentowned and controlled corporations, Section 193 of the LGC
prescribes the general rule, viz., they are withdrawn upon the
effectivity of the LGC, except upon the effectivity of the
LGC, except those granted to local water districts, cooperatives
duly registered under R.A. No. 6938, non stock and non-profit
hospitals and educational institutions, and unless otherwise

provided in the LGC. The latter proviso could refer to Section

234, which enumerates the properties exempt from real
property tax. But the last paragraph of Section 234 further
qualifies the retention of the exemption in so far as the real
property taxes are concerned by limiting the retention only to
those enumerated there-in; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC.
Moreover, even as the real property is owned by the Republic of
the Philippines, or any of its political subdivisions covered by
item (a) of the first paragraph of Section 234, the exemption is
withdrawn if the beneficial use of such property has been
granted to taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the LGC, exemptions from real
property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as
provided in the said section, and the petitioner is, undoubtedly,
a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its charter,
R.A. No. 6958, has been withdrawn. Any claim to the contrary
can only be justified if the petitioner can seek refuge under any
of the exceptions provided in Section 234, but not under
Section 133, as it now asserts, since, as shown above, the said
section is qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in
Section 133 that the taxing powers of the local government
units cannot extend to the levy of:
(o) taxes, fees, or charges of any kind on
the National Government, its agencies,
or instrumentalities, and local
government units.
I must show that the parcels of land in question, which are real
property, are any one of those enumerated in Section 234,
either by virtue of ownership, character, or use of the property.
Most likely, it could only be the first, but not under any explicit
provision of the said section, for one exists. In light of the
petitioner's theory that it is an "instrumentality of the
Government", it could only be within be first item of the first
paragraph of the section by expanding the scope of the terms
Republic of the Philippines" to

embrace . . . . . ."instrumentalities" and "agencies" or

expediency we quote:
(a) real property owned by the Republic
of the Philippines, or any of the
Philippines, or any of its political
subdivisions except when the beneficial
use thereof has been granted, for
consideration or otherwise, to a taxable
person.
This view does not persuade us. In the first place, the
petitioner's claim that it is an instrumentality of the
Government is based on Section 133(o), which expressly
mentions the word "instrumentalities"; and in the second place
it fails to consider the fact that the legislature used the phrase
"National Government, its agencies and instrumentalities" "in
Section 133(o),but only the phrase "Republic of the Philippines
or any of its political subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National
Government" are not interchangeable. The former is boarder
and synonymous with "Government of the Republic of the
Philippines" which the Administrative Code of the 1987 defines
as the "corporate governmental entity though which the
functions of the government are exercised through at the
Philippines, including, saves as the contrary appears from the
context, the various arms through which political authority is
made effective in the Philippines, whether pertaining to the
autonomous reason, the provincial, city, municipal or barangay
subdivision or other forms of local government." 27 These
autonomous regions, provincial, city, municipal or barangay
subdivisions" are the political subdivision. 28
On the other hand, "National Government" refers "to the entire
machinery of the central government, as distinguished from the
different forms of local Governments." 29 The National
Government then is composed of the three great departments
the executive, the legislative and the judicial. 30
An "agency" of the Government refers to "any of the various
units of the Government, including a department, bureau, office
instrumentality, or government-owned or controlled
corporation, or a local government or a distinct unit
therein;" 31 while an "instrumentality" refers to "any agency of

the National Government, not integrated within the department

framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy; usually
through a charter. This term includes regulatory agencies,
chartered institutions and government-owned and controlled
corporations". 32
If Section 234(a) intended to extend the exception therein to
the withdrawal of the exemption from payment of real property
taxes under the last sentence of the said section to the
agencies and instrumentalities of the National Government
mentioned in Section 133(o), then it should have restated the
wording of the latter. Yet, it did not Moreover, that Congress did
not wish to expand the scope of the exemption in Section
234(a) to include real property owned by other
instrumentalities or agencies of the government including
government-owned and controlled corporations is further borne
out by the fact that the source of this exemption is Section
40(a) of P.D. No. 646, otherwise known as the Real Property Tax
Code, which reads:
Sec 40. Exemption from Real Property Tax. The
exemption shall be as follows:
(a) Real property owned
by the Republic of the
Philippines or any of its
political subdivisions and
any government-owned
or controlled corporations
so exempt by is
charter: Provided,
however, that this
exemption shall not apply
to real property of the
above mentioned entities
the beneficial use of
which has been granted,
for consideration or
otherwise, to a taxable
person.
Note that as a reproduced in Section 234(a), the phrase "and
any government-owned or controlled corporation so exempt by

its charter" was excluded. The justification for this restricted

exemption in Section 234(a) seems obvious: to limit further tax
exemption privileges, specially in light of the general provision
on withdrawal of exemption from payment of real property
taxes in the last paragraph of property taxes in the last
paragraph of Section 234. These policy considerations are
consistent with the State policy to ensure autonomy to local
governments 33 and the objective of the LGC that they enjoy
genuine and meaningful local autonomy to enable them to
attain their fullest development as self-reliant communities and
make them effective partners in the attainment of national
goals. 34 The power to tax is the most effective instrument to
raise needed revenues to finance and support myriad activities
of local government units for the delivery of basic services
essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.
It may also be relevant to recall that the original reasons for the
withdrawal of tax exemption privileges granted to governmentowned and controlled corporations and all other units of
government were that such privilege resulted in serious tax
base erosion and distortions in the tax treatment of similarly
situated enterprises, and there was a need for this entities to
share in the requirements of the development, fiscal or
otherwise, by paying the taxes and other charges due from
them. 35
The crucial issues then to be addressed are: (a) whether the
parcels of land in question belong to the Republic of the
Philippines whose beneficial use has been granted to the
petitioner, and (b) whether the petitioner is a "taxable person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible
Assets. All existing public airport facilities, runways,
lands, buildings and other properties, movable or
immovable, belonging to or presently administered by
the airports, and all assets, powers, rights, interests and
privileges relating on airport works, or air operations,
including all equipment which are necessary for the
operations of air navigation, acrodrome control towers,
crash, fire, and rescue facilities are hereby transferred
to the Authority: Provided however, that the operations
control of all equipment necessary for the operation of
radio aids to air navigation, airways communication, the

10

approach control office, and the area control center

shall be retained by the Air Transportation Office. No
equipment, however, shall be removed by the Air
Transportation Office from Mactan without the
concurrence of the authority. The authority may assist in
the maintenance of the Air Transportation Office
equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City
and the "Mactan International AirPort in the Province of
Cebu", 36 which belonged to the Republic of the Philippines,
then under the Air Transportation Office (ATO). 37
It may be reasonable to assume that the term "lands" refer to
"lands" in Cebu City then administered by the Lahug Air Port
and includes the parcels of land the respondent City of Cebu
seeks to levy on for real property taxes. This section involves a
"transfer" of the "lands" among other things, to the petitioner
and not just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the Philippines.

Accordingly, the position taken by the petitioner is untenable.

Reliance on Basco vs. Philippine Amusement and Gaming
Corporation 39 is unavailing since it was decided before the
effectivity of the LGC. Besides, nothing can prevent Congress
from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject
to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged
decision and order of the Regional Trial Court of Cebu, Branch
20, in Civil Case No. CEB-16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.

This "transfer" is actually an absolute conveyance of the

ownership thereof because the petitioner's authorized capital
stock consists of, inter alia "the value of such real estate owned
and/or administered by the airports." 38 Hence, the petitioner is
now the owner of the land in question and the exception in
Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a
"taxable person" under its Charter. It was only exempted from
the payment of real property taxes. The grant of the privilege
only in respect of this tax is conclusive proof of the legislative
intent to make it a taxable person subject to all taxes, except
real property tax.
Finally, even if the petitioner was originally not a taxable
person for purposes of real property tax, in light of the forgoing
disquisitions, it had already become even if it be conceded to
be an "agency" or "instrumentality" of the Government, a
taxable person for such purpose in view of the withdrawal in
the last paragraph of Section 234 of exemptions from the
payment of real property taxes, which, as earlier adverted to,
applies to the petitioner.

11

opportunities for graft should be excised from the public system. Builtin checks should be zealously observed so that the ingenious and
shrewd cannot circumvent them and the audacious cannot violate
them with impunity.
Statement of the Case
Before us is a petition for certiorari under Rule 65 of the Rules of
Court
seeking
to
set
aside
the
Ombudsmans
amended
Resolution[2] dated October 28, 1993, which dismissed from
government service Petitioners Callanta, Delos-Reyes and Concon and
suspended the other petitioners from holding office for three (3)
months without pay. Also challenged is the ombudsmans Order [3] dated
April 18, 1994, denying petitioners motion for reconsideration and
urgent motion to stop the execution of the amended Resolution.
The Facts
The parties do not dispute the findings of fact of the deputy
ombudsman[4] for the Visayas, as approved by the ombudsman and
which this Court finds substantiated by the records. The pertinent
portions are as follows:
[G.R. Nos. 115253-74. January 30, 1998]
ANTONIO P. CALLANTA, GILBERTO M. DELOS REYES, CESAR Q.
CONCON,
ALMICAR
EDIRA,[1] JACINTO
PAHAMTANG,
ANTONIO V. ABELLANA, APOLINARIO SALARES, JR. and
SHIRLEY PALMERO, petitioners, vs. OFFICE OF THE
OMBUDSMAN
and
CITY
GOVERNMENT
OF
CEBU,respondents.

It is alleged that a general revision of assessment was

conducted by the Office of the City Assessor in 1988 and
sometime thereafter. Notices of assessment together with the
new tax declarations were subsequently sent to the property
owners. Thereafter, respondents, without the authority of the
Local Board of Assessment Appeals, reassessed the values of
certain properties, in contravention of Sec. 30 of P.D. 464. The
said assessment resulted in the reduction of assessed values of
the properties x x x.

DECISION
PANGANIBAN, J.:
May officials and employees of the Office of the City Assessor
reduce the new assessed values of real properties upon requests of the
affected property owners? To forestall the practice of initially setting
unreasonably high reassessment values only to eventually change
them to unreasonably lower values upon requests of property owners,
the law gives no such authority to the city assessor or his
subalterns. Seemingly innocuous occasions for mischief and veiled

xxxxxxxxx
The extent of participation of the individual respondents in the
adjustments [reductions] referred to above, could be
summarized as follows, to wit:
1. Antonio P. Callanta
approved and ordered the adjustments of the
revised assessments reducing both the market

12

and assessed values of real properties under

Tax Declaration Nos. x x x.
2. Ma. Almicar Edera [, Jacinto Pahamtang,
Segundino Lucero, Antonio V. Abellana, Nicolas
Abarri and Apolinario Salares, Jr.]
- conducted the adjustments of the revised
assessments reducing both the market and
assessed values of real properties under Tax
Declaration Nos. x x x.
3. Gilberto delos Reyes [and Cesar Q. Concon]
- approved for and in behalf of the City
Assessor the adjustments of the revised
assessments reducing both the market and
assessed values of real properties under Tax
Declaration Nos. x x x.
xxxxxxxxx
10. Shirley Palmero
- recommended the approval of the
adjustment of the revised assessment
reducing both the market and assessed value
of real property under Tax Declaration No.
GR-04-028-05093 and conducted similar
aforesaid adjustments on real properties
under Tax Declaration Nos. x x x.[5]
In several similarly worded letter-complaints dated December 19,
1991, the City of Cebu simultaneously filed criminal and administrative
charges against the above-enumerated officers and staff of the City
Assessors Office for violations of Section 106 of the Real Property Tax
Code[,] for gross negligence or willful under-assessment of real
properties within the citys taxing jurisdiction and for violation of Sec. 3
(e) of R.A. 3019, otherwise known as the Anti-Graft and Corrupt
Practices Act[,] for the act of causing undue injury to the City
Government by giving private persons unwarranted benefits,
advantages or preferences in the discharge of their official and
administrative functions through manifest partiality, evident bad faith
or gross inexcusable negligence by reassessing the real properties of

taxpayers without any authority whatsoever, thereby resulting in the

reduction of tax assessments to the prejudice of the city government x
x x. Specifically, the administrative charges were for
dishonesty and/or serious irregularities in the performance of
duties/public functions. The deputy ombudsman summarized the
defenses of petitioners in this wise:
Respondents [herein petitioners], in their joint counteraffidavit, denied the charges filed against them. They
explained that the acts complained of were done within the
bounds of their official duties and functions, citing as their
legal basis, Sec. 22 of P.D. 464. That Sec. 30 of P.D. 464 which
is the basis of the complaints does not prohibit the Assessor
from either correcting from whatever error or flaw he and his
deputies may have made.
Respondents further alleged that they have not derived any
benefit from the adjustments nor caused injury to any party
particularly the City Government of Cebu. They explained that
the general revision of real property assessments for the City
of Cebu has not been completed nor has the City Assessor
certified its completion to the Secretary of Justice, thus taxes
under these revised tax declarations are not yet due, has [sic]
not yet accrued, are not yet collectible and therefore, cannot
serve as basis for alleged injury.[6]
The deputy ombudsman, ruling purely on the administrative
aspect of the cases, held in the assailed amended Resolution that while
the city assessor had not yet submitted a certification to the secretary
of finance stating that the general revision of property assessments
has been completed, thus forestalling the effectivity of [the]
assessments and the accrual of taxes thereunder, the city government
of Cebu already acquired a vested interest on the taxes by reason of
the property owners failure to question the same to the Local Board of
Assessment Appeals (LBAA) within sixty (60) days from receipt of their
notices of assessment, as provided under Sec. 30 [7] of PD 464, as
amended. He opined that approval by the secretary of finance is not
necessary for the assessments to take effect, and the taxes thereunder
to accrue and become payable. In addition, even if no law expressly
prohibits the local assessor or his authorized deputies from making
corrections or adjustments in assessments, the unrestricted exercise of
such authority in all stages of the appraisal and assessment process
would open the floodgates to corruption. Besides, the questioned
assessments were done pursuant to the general revision; hence,
requests for readjustment are effectively petitions for reappraisal and

13

reassessment which are not allowed under the law. Section 30 of PD

464, as amended, provides the remedy for questioning assessments of
real properties and the reassessments requested by the property
owners and granted by the assessor is not included therein. The
deputy ombudsman thus concluded that the unauthorized and
improper corrections/adjustments made by petitioners resulting in
decreased fair market values of the real properties involved adversely
affected the city government. Such acts allegedly constituted willful or
gross negligence amounting to intentional violation and gross
disregard of Sec. 106[8] of PD 464, as amended.
Finding that the readjustments were made pursuant to the direct
orders of Petitioner Antonio P. Callanta, who was then officer-in-charge
of the Office of the City Assessor, and of Petitioners Gilberto delos
Reyes and Cesar Concon who acted on behalf of Callanta in approving
the reduced assessments, the deputy ombudsman resolved that the
three violated Sec. 4, par. (c)[9] of RA 6713 (the Code of Conduct and
Ethical Standards for Public Officials and Employees) for performing
acts contrary to law, specifically PD 464, amounting to gross neglect of
duty and/or grave misconduct. The penalty of dismissal with forfeiture
of accrued benefits was meted upon them. As regards Petitioners
Edira, Pahamtang, Lucero, Abellana, Abarri, Salares Jr. and Palmero, the
deputy ombudsman found them guilty only of negligence in the
performance of their functions for making the adjustments without
taking into account the revised assessments previously made. The
penalty of suspension for three (3) months without pay was imposed
on them.
Ombudsman Conrado M. Vasquez approved the findings and
recommendations of the deputy ombudsman for the Visayas on
December 8, 1993. Petitioners filed a motion for reconsideration as
well as a motion to stop the execution of the ombudsmans decision by
the city government of Cebu. Both motions were denied for lack of
merit.[10]
Hence, this petition.[11]
Issues
Petitioners present the following assignment of errors:
First - The Ombudsman gravely erred in resolving that the
assessor acted illegally and in grave misconduct by

adjusting/correcting the valuations of the tax declarations

subject of the complaints.
Second - It is gravely erroneous for both respondents to assume
that taxes for the subject tax declarations had accrued and
become payable, thereby making petitioners liable for causing
undue injury to the city government of Cebu.
Third - The Ombudsman manifestly overlooked certain relevant
facts not disputed by the parties and which if properly
considered would justify a different conclusion.
Fourth - It is both gravely erroneous and a grave abuse in the
exercise of discretion for the Ombudsman to hold liable the rest
of the petitioners aside from Mr. Callanta, the city assessor who
alone promulgated the act/policy.
Fifth - The Ombudsman and Mayor Osmea [of Cebu City] had
clearly acted with undue haste amounting to grave abuse of
discretion and violation of existing laws and regulations in
effecting the dismissal of herein petitioners.[12]
In his Memorandum[13] dated March 18, 1997, the ombudsman
encapsulates the issues, which we adopt, as follows:
Whether or not petitioners violated the law by their acts of
accommodating requests for reconsideration of the revised
assessments;
In the affirmative, whether or not the violations were
injurious/prejudicial to Cebu City; and Whether or not the
acts of petitioners constitute grave misconduct and/or
negligence which warrants [sic] their
dismissal/suspension from service.
The Courts Ruling
The petition is partly meritorious.
First Issue: Authority of the City Assessor to Reconsider Real
Property Assessments

14

Petitioners anchor the validity of their acts upon the absence of a

specific provision of law expressly prohibiting the assessor from
making adjustments or corrections in the assessment of real
properties, and upon the long-standing practice of the city assessors
office in making such adjustments/corrections believed in good faith to
be sanctioned under Sec. 22, PD 464 [14](now Sec. 220 of RA 7160),
which reads:
Sec. 22. Valuation of Real Property. Upon the discovery of real
property or during the general revision of property
assessments as provided in Section twenty-one of this Code or
at any time when requested by the person in whose name the
property is declared, the provincial or city assessor or his
authorized deputy shall make an appraisal and assessment in
accordance with Section five hereof of the real property listed
and described in the declaration irrespective of any previous
assessment or taxpayers valuation thereon: Provided,
however, That the assessment of real property shall not be
increased oftener once every five years in the absence of new
improvements increasing the value of said property or of any
change in its use, except as otherwise provided in this Code.
Public respondents, on the other hand, insist that petitioners have
no legal authority to act upon requests for reconsideration or appeals
of property owners, a power which is explicitly vested upon the LBAA
under Sec. 30 of the Real Property Tax Code, as amended, which
provides:
Sec. 30. Local Board of Assessment Appeals. Any owner who is
not satisfied with the action of the provincial or city assessor in
the assessment of his property may, within sixty days from the
date of receipt by him of the written notice of assessment as
provided in this Code, appeal to the Board of Assessment
Appeals of the province or city, by filing with it a petition under
oath using the form prescribed for the purpose, together with
the copies of the tax declarations and such affidavit or
documents submitted in support of the appeal.
We find no merit in the contentions of petitioners. Enlightening is
the following disquisition by the counsel[15] for the ombudsman on the
above-cited legal provisions:
The instances referred to [under Sec. 22] are as follows:

1.) upon the discovery of real property;

2.) during the general revision of property
assessments as provided in Section 21 of the Code;
and
3.) at anytime [sic] when requested by the person in
whose name the property is declared.
It is not disputed that the assessment/valuation involved
herein were conducted by virtue of the 1988 general revision
of property assessments under No. 2 instance above.
After an assessment has been conducted, the assessor shall
within thirty days issue a written notice of such new or revised
assessment to the person in whose name the property is
declared. (Section 27, PD 464). If the owner is not satisfied
with the action of the assessor in the assessment of his
property, he may appeal within sixty days from receipt of the
notice of assessment to the Local Board of Assessment
Appeals pursuant to Section 30 of P.D. 464 which provides:
xxxxxxxxx
Under the aforecited procedure, the issuance of a notice of assessment
by the local assessor shall be his last action on a particular
assessment. On the side of the property owner, it is this last action
which gives him [the] right to appeal to the Local Board of Assessment
Appeals. The above procedure also, does not grant the property owner
the remedy of filing a motion for reconsideration before the local
assessor.
The act of herein petitioners in providing the corresponding notices of
assessment the chance for the property owners concerned to file a
motion for reconsideration and for acting on the motions filed is not in
accordance with law and in excess of their authority and therefore
constitutes ultra vires acts.[16]
Applying the above, we agree with the following conclusions of the
deputy ombudsman:
x x x The appraisal and assessment done pursuant to the 1988
general revision work were within the purview of the second
instance (i.e. during the general revision x x x as set forth in

15

said Sec. 22[)]. But to make the same appraisal and

assessment upon the request of the property owners who were
not satisfied with the result of the first valuation of their
property is grossly out of context in the application of the third
instance allowed by Sec. 22. [W]hat the property owners
involved were actually asking were practically a reappraisal
and reassessment of the properties (because an appraisal and
assessment had already been made under the second instance
and their request was prompted by the receipt of the written
notice of such valuation), the allowance for which is nowhere
to be discerned in the provisions of Sec. 22 x x x.[17]
To repeat, Sec. 22 clearly provides three (3) occasions when
assessments of real properties may be made by the local assessor. In
the case at bar, the second instance gave rise to the revised assessed
values for which the property owners subsequently sought
reconsideration. Sec. 30 of the same Code is equally clear that the
aggrieved owners should have brought their appeals before the
LBAA. Unfortunately, despite the advice to this effect contained in their
respective notices of assessment, the owners chose to bring their
requests for a review/readjustment before the city assessor, a remedy
not sanctioned by the law. To allow this procedure would indeed invite
corruption in the system of appraisal and assessment. It conveniently
courts a graft-prone situation where values of real property may be
initially set unreasonably high, and then subsequently reduced upon
the request of a property owner. In the latter instance, allusions of a
possible covert, illicit trade-off cannot be avoided, and in fact can
conveniently take place. Such occasion for mischief must be prevented
and excised from our system.
In this case, based on a list [18] of properties submitted by
petitioners comparing their (1) previous assessed values (old values),
(2) assessed values under the general revision (revised values), and (3)
the unauthorized adjusted values (unauthorized values), the Court
observes that the old values of some properties were increased by
more than 1,000% (or 10 times) in the general revision, but were
reduced to only about half under the unauthorized adjustments. [19] The
large discrepancies seem to indicate a tendency to overvalue initially
and thereafter to reduce the increases upon request of the property
owner affected. To avoid this dubious, suspicious, bribable and
compromising situation, the law itself specifically provided an appellate
body -- the LBAA -- before which property owners may seek
relief. Neither habit nor good faith can amend this appellate procedure
provided under the law.

Indeed, the long-standing practice adverted to by petitioners does

not justify a continuance of their acts. We cannot sanction such
compromising situations. Henceforth, whenever the local assessor
sends a notice to the owner or lawful possessor of real property of its
revised assessed value, the former shall thereafter no longer have any
jurisdiction to entertain any request for a review or readjustment. The
appropriate forum where the aggrieved party may bring his appeal is
the LBAA, as provided by law.
Second Issue: Injury or Prejudice to the
City Government of Cebu
In order to determine whether the city government of Cebu was
prejudiced by the acts of petitioners, we need to determine the date
when the revised assessments became due and payable.
Petitioners argue that at the time the complaint was filed, the
general revision of property values undertaken by their office was not
yet finished or completed for the entire city; hence, the revised values
were not yet effective and payments thereon were not yet due and
payable. No certification has yet been submitted to the secretary of
finance as required under Sec. 23 of PD 464. Therefore, it was
premature for the city government of Cebu to claim prejudice or injury
caused by the questioned readjustments.
Public respondents, on the other hand, aver that the city
government acquired a vested interest in the taxes accruing from the
revised values, because such values became final and effective upon
the property owners failure to appeal to the LBAA within the
reglementary period provided by law.
The following provisions of PD 464, which is the law applicable to
the instant case, are relevant in determining when the revised
assessments on real properties became effective:
Sec. 23. Certification of Revised Values to the Secretary of
Finance. -- When the provincial or city assessor shall have
finished a general revision of property assessments for any
province, municipality or city, he shall so certify to the
Secretary of Finance and the assessments shall become
effective and taxes shall accrue and be payable thereunder in
accordance with the provisions of this Code.

16

Sec. 24. Date of Effectivity of Assessment or Reassessment.

-- All assessments or reassessments made after the first day of
January of any year shall take effect on the first day of January
of the succeeding year: x x x. [underscoring ours]
Petitioners solely invoke Sec. 23 and ignore Sec. 24. This Court
believes both sections should be construed together. While, at first
glance, Sec. 23 seems to impose the certification to the secretary of
finance as a condition sine qua non before the revised values may
become effective, the second part of the section, which we
underscored above, gives a contrary understanding. We hold that the
dominant provision is Sec. 24, the specific provision on the effectivity
of assessments or reassessments. This section is clear and
unequivocal. The assessments take effect on the first day of January of
the succeeding year after the revision is made. While Sec. 23 requires
the local assessor to certify to the finance secretary that the general
revision has been finished, such certification is, however, not the
operative act for the effectivity of the new assessments. This
interpretation is bolstered by the fact that under the Local Government
Code of 1991,[20] Title Two, Book II of which has replaced the Real
Property Tax Code, there is no longer any provision requiring such
certification.
The general revision of property values was commenced by the
city assessor of Cebu in 1988. Subsequently, the notices of the new
assessments and the new tax declarations were sent to the property
owners. The nature of an assessment has been explained this wise:
An assessment fixes and determines the tax liability of a
taxpayer. As soon as it is served, an obligation arises on the
part of the taxpayer concerned to pay the amount assessed
and demanded.[21]
In the same vein, we have said that the assessment is deemed made
when the notice to this effect is released, mailed or sent to the
taxpayer for the purpose of giving effect to said assessment.[22]
With respect to real property taxes, the obligation to pay arises on
the
first
day
of
January
of
the
year
following
the
assessment. Corollarily, on the same date, the right of the local
government to collect said taxes also arises. And where the taxpayer
fails to question such assessment within the reglementary period
provided by law, the local governments right becomes absolute [23] upon
the expiration of such period with respect to that taxpayers property.

Thus, petitioners unauthorized reduction of the assessed values

ineluctably resulted in the local governments deprivation of the
corresponding revenues. Lost or reduced revenues undeniably
translate into damages or injury within the contemplation of the
law. The city government of Cebu, therefore, had every legal right to
feel aggrieved and to institute this proceeding against petitioners.
Third Issue: Penalties Imposed Too Harsh
Under the Circumstances
Lastly, petitioners contend that the city assessor alone should be
held responsible for the acts questioned, since, as head of the office,
he laid down the policies and issued the orders, while his deputies and
the employees under him merely followed his instructions. In the
instant controversy, the other petitioners acted only upon the orders of
Petitioner Callanta, which did not appear to be unlawful or erroneous
on its face. They aver that they merely followed in good faith a
procedure long practised by the office. They deny acting with evident
bad faith or gross negligence, since they honestly believed that they
had the authority to act on the requests for reconsideration. This is
bolstered by the absence of any findings of corruption on their part.
These averments of petitioners are impressed with some merit. In
grave misconduct, the elements of corruption, clear intent to violate
the law or flagrant disregard of established rule must be manifest.
[24]
From the evidence on record, we do not find any of these
elements. In the words of the deputy ombudsman himself:
No proof, however, can be obtained from the evidence
presented that would strongly indicate that private
respondents knowingly induced or caused the respondent
public officers to commit the offense defined in Sec. 3 (e), R.A.
3019 as amended, nor is there any sufficient showing that said
private respondents had directly or indirectly given any gift,
present, share, percentage or benefit to the respondents [sic]
public officers or any other person in connection with the
questioned transaction subject of the instant cases. x x x[25]
Without evidence showing that petitioners received any gift, money or
other payoff or that they were induced by offers of such, we cannot
impute any taint of direct corruption to the questioned acts of
petitioners.

17

Any indication of intent to violate the law or of flagrant disregard

of established rule is meanwhile negated by the petitioners belief in
good faith that their acts were sanctioned under the third instance
provided in Sec. 22 of PD 464, as buttressed by the long-standing
adherence of local assessors to the questioned procedure.
Gross negligence, on the other hand, is flagrant and palpable
disregard or breach of duty. It is the conscious pursuit of a course of
conduct which would naturally and reasonably cause injury. [26] As
discussed above, we can hardly characterize the acts of petitioners as
grossly negligent. Where the charges on which the removal of the
public officer is sought are misconduct in office, gross negligence,
corruption, etc, the ground for dismissal should be established.
But Petitioners Callanta, Delos Reyes and Concon, as public
officers occupying exalted positions in the civil service, must, in
accordance with the Constitution,[27] and the Ethical Standards Law,
exemplify the ideals of integrity, efficiency, and particularly proficiency
in the law. They must ever be prudent to act always in accordance with
law, and not to perform or authorize legally doubtful acts that may
stain the integrity of their office. Their act alone of initially authorizing
multifold increases in the assessed values, only to scale them down to
as much as fifty per cent upon requests of the affected property
owners, is already indicative of misconduct or malfeasance, if not
incompetence in their offices, for which they should be
penalized.Considering that they are senior officials who had failed to
live up to the standards and ideals expected of their rank and stature,
Petitioners Callanta, Delos Reyes, and Concon are hereby imposed the
penalty of suspension from office for one (1) year.[28]
The defense of the other petitioners that they were merely
following the orders of their superiors does not totally exculpate them
from liability. They should likewise be aware of the limits of the
functions of their office. Public officials and employees are required to
follow only the lawful orders of their superiors which are issued within
the cope of their authority.[29] In our jurisdiction, the rule of law, and not
of men, governs. Nowhere in our statutes is blind obedience required of
junior personnel to the commands and directives of their superiors. In
indiscreetly following the orders of their superiors, Petitioners Edira,
Pahamtang, Abellana, Salares, Jr., and Palmero had breached their
accountability to the public. They deserve to be reprimanded.

The Court notes that the solicitor generals Manifestation and

Motion[30] dated September 20, 1994, which was adverse to the
ombudsman. The chief government lawyer thus declined to file a
comment on the formers behalf. Hence, the ombudsman had to defend
his findings and conclusions in the assailed Resolution through his own
counsel. We must commend the chief graft-buster for his vigilance and
effort to close gaps that provide clandestine opportunities for
corruption. His drive to eliminate existing systems of procedure in
government that covertly allow graft and corrupt practices -- which he
describes as predominantly in the form of leeway to bargain -- is
exemplary. Similar approaches to curb and arrest the most serious and
prevalent problem in the bureaucracy are imperative. Indeed, what we
need now is not only to punish the wrongdoers or reward the
outstanding civil servants, but also to plug the hidden gaps and
potholes of corruption as well as to insist on strict compliance with
existing legal procedures in order to abate any occasion for graft or
circumvention of the law.
WHEREFORE, the petition is PARTLY GRANTED. The challenged
amended Resolution is hereby Modified as follows:. Petitioners Antonio
P. Callanta, Gilberto M. delos Reyes and Cesar Q. Concon are
SUSPENDED for one (1) year; while Petitioners Almicar Edira, Jacinto
Pahamtang, Antonio V. Abellana, Apolinario Salares Jr. and Shirley
Palmero REPRIMANDED.All petitioners are WARNED that a repetition of
the same or similar acts in the future will be dealt with more severely.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno,
Vitug, Kapunan, Mendoza, Francisco, and Martinez, concur.

Epilogue

18

Rural Electric Cooperatives Association, Inc. (PHILRECA). Petitioner

PHILRECA is an association of 119 electric cooperatives throughout the
country. Petitioners Agusan del Norte Electric Cooperative, Inc.
(ANECO), Iloilo I Electric Cooperative, Inc. (ILECO I) and Isabela I
Electric Cooperative, Inc. (ISELCO I) are non-stock, non-profit electric
cooperatives organized and existing under P.D. No. 269, as amended,
and registered with the National Electrification Administration (NEA).
Under P.D. No. 269, as amended, or the National Electrification
Administration Decree, it is the declared policy of the State to provide
the total electrification of the Philippines on an area coverage basis the
same being vital to the people and the sound development of the
nation.[1] Pursuant to this policy, P.D. No. 269 aims to promote,
encourage and assist all public service entities engaged in supplying
electric service, particularly electric cooperatives by giving every
tenable support and assistance to the electric cooperatives coming
within the purview of the law.[2] Accordingly, Section 39 of P.D. No. 269
provides for the following tax incentives to electric cooperatives:

[G.R. No. 143076. June 10, 2003]

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC.

(PHILRECA);
AGUSAN
DEL
NORTE
ELECTRIC
COOPERATIVE, INC. (ANECO); ILOILO I ELECTRIC
COOPERATIVE, INC. (ILECO I); and ISABELA I ELECTRIC
COOPERATIVE, INC. (ISELCO I), petitioners, vs. THE
SECRETARY, DEPARTMENT OF INTERIOR AND LOCAL
GOVERNMENT, and THE SECRETARY, DEPARTMENT OF
FINANCE, respondents.
DECISION
PUNO, J.:
This is a petition for Prohibition under Rule 65 of the Rules of Court
with prayer for the issuance of a temporary restraining order seeking
to annul as unconstitutional sections 193 and 234 of R.A. No. 7160
otherwise known as the Local Government Code.
On May 23, 2000, a class suit was filed by petitioners in their own
behalf and in behalf of other electric cooperatives organized and
existing under P.D. No. 269 who are members of petitioner Philippine

SECTION 39. Assistance to Cooperatives; Exemption from Taxes,

Imposts, Duties, Fees; Assistance from the National Power Corporation.
Pursuant to the national policy declared in Section 2, the Congress
hereby finds and declares that the following assistance to cooperative
is necessary and appropriate:
(a) Provided that it operates in conformity with the purposes and
provisions of this Decree, cooperatives (1) shall be permanently
exempt from paying income taxes, and (2) for a period ending on
December 31 of the thirtieth full calendar year after the date of a
cooperative's organization or conversion hereunder, or until it shall
become completely free of indebtedness incurred by borrowing,
whichever event first occurs, shall be exempt from the payment
(a) of all National Government, local government and
municipal taxes and fees, including franchise, filing,
recordation, license or permit fees or taxes and any fees,
charges, or costs involved in any court or administrative
proceeding in which it may be a party, and (b) of all duties or
imposts on foreign goods acquired for its operations, the period
of such exemption for a new cooperative formed by consolidation, as
provided for in Section 29, to begin from as of the date of the
beginning of such period for the constituent consolidating cooperative
which was most recently organized or converted under this Decree:
Provided, That the Board of Administrators shall, after consultation with
the Bureau of Internal Revenue, promulgate rules and regulations for
the proper implementation of the tax exemptions provided for in this
Decree.

19

.[3]

On July 25, 2000 we issued a Temporary Restraining Order.[5]

From 1971 to 1978, in order to finance the electrification projects

envisioned by P.D. No. 269, as amended, the Philippine Government,
acting through the National Economic Council (now National Economic
Development Authority) and the NEA, entered into six (6) loan
agreements with the government of the United States of America
through the United States Agency for International Development
(USAID) with electric cooperatives, including petitioners ANECO, ILECO
I and ISELCO I, as beneficiaries. The six (6) loan agreements involved a
total amount of approximately US$86,000,000.00. These loan
agreements are existing until today.

We note that the instant action was filed directly to this Court, in
disregard of the rule on hierarchy of courts. However, we opt to take
primary jurisdiction over the present petition and decide the same on
its merits in view of the significant constitutional issues raised by the
parties dealing with the tax treatment of cooperatives under existing
laws and in the interest of speedy justice and prompt disposition of the
matter.

The loan agreements contain similarly worded provisions on the

tax application of the loan and any property or commodity acquired
through the proceeds of the loan. Thus, Section 6.5 of A.I.D. Loan No.
492-H-027 dated November 15, 1971 provides:

The pertinent parts of Sections 193 and 234 of the Local

Government Code provide:

Section 6.5. Taxes and Duties. The Borrower covenants and agrees that
this Loan Agreement and the Loan provided for herein shall be free
from, and the Principal and interest shall be paid to A.I.D. without
deduction for and free from, any taxation or fees imposed under any
laws or decrees in effect within the Republic of the Philippines or any
such taxes or fees so imposed or payable shall be reimbursed by the
Borrower with funds other than those provided under the Loan. To the
extent that (a) any contractor, including any consulting firm, any
personnel of such contractor financed hereunder, and any property or
transactions relating to such contracts and (b) any commodity
procurement transactions financed hereunder, are not exempt from
identifiable taxes, tariffs, duties and other levies imposed under laws in
effect in the country of the Borrower, the Borrower and/or Beneficiary
shall pay or reimburse the same with funds other than those provided
under the Loan.[4]
Petitioners contend that pursuant to the provisions of P.D. No. 269,
as amended, and the above-mentioned provision in the loan
agreements, they are exempt from payment of local taxes, including
payment of real property tax. With the passage of the Local
Government Code, however, they allege that their tax exemptions
have been invalidly withdrawn. In particular, petitioners assail Sections
193 and 234 of the Local Government Code on the ground that the said
provisions discriminate against them, in violation of the equal
protection clause. Further, they submit that the said provisions are
unconstitutional because they impair the obligation of contracts
between the Philippine Government and the United States
Government.

I
There is No Violation of the Equal Protection Clause

Section 193. Withdrawal of Tax Exemption Privileges.Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned and controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, nonstock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
.
Section 234. Exemptions from real property tax.The following are
exempted from payment of the real property tax:
.
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and
.
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all persons
whether natural or juridical, including all government-owned and
controlled corporations are hereby withdrawn upon effectivity of this
Code.[6]
Petitioners argue that the above provisions of the Local
Government Code are unconstitutional for violating the equal

20

protection clause. Allegedly, said provisions unduly discriminate

against petitioners who are duly registered cooperatives under P.D. No.
269, as amended, and not under R.A. No. 6938 or the Cooperative
Code of the Philippines. They stress that cooperatives registered under
R.A. No. 6938 are singled out for tax exemption privileges under the
Local Government Code. They maintain that electric cooperatives
registered with the NEA under P.D. No. 269, as amended, and electric
cooperatives registered with the Cooperative Development Authority
(CDA) under R.A. No. 6938 are similarly situated for the following
reasons: a) petitioners are registered with the NEA which is a
government agency like the CDA; b) petitioners, like CDA-registered
cooperatives, operate for service to their member-consumers; and c)
prior to the enactment of the Local Government Code, petitioners, like
CDA-registered cooperatives, were already tax-exempt.[7] Thus,
petitioners contend that to grant tax exemptions from local
government taxes, including real property tax under Sections 193 and
234 of the Local Government Code only to registered cooperatives
under R.A. No. 6938 is a violation of the equal protection clause.
We are not persuaded. The equal protection clause under the
Constitution means that no person or class of persons shall be
deprived of the same protection of laws which is enjoyed by other
persons or other classes in the same place and in like circumstances.
[8]
Thus, the guaranty of the equal protection of the laws is not violated
by a law based on reasonable classification. Classification, to be
reasonable, must (1) rest on substantial distinctions; (2) be germane to
the purposes of the law; (3) not be limited to existing conditions only;
and (4) apply equally to all members of the same class.[9]
We hold that there is reasonable classification under the Local
Government Code to justify the different tax treatment between
electric cooperatives covered by P.D. No. 269, as amended, and
electric cooperatives under R.A. No. 6938.
First, substantial distinctions exist between cooperatives under
P.D. No. 269, as amended, and cooperatives under R.A. No. 6938.
These distinctions are manifest in at least two material respects which
go into the nature of cooperatives envisioned by R.A. No. 6938 and
which characteristics are not present in the type of cooperative
associations created under P.D. No. 269, as amended.

[A] duly registered association of persons with a common

bond of interest, who have voluntarily joined together to
achieve a lawful common or social economic end, making
equitable contributions to the capital required and
accepting a fair share of the risks and benefits of the
undertaking in accordance with universally accepted
cooperative principles.[10]
The above definition provides for the following elements of a
cooperative: a) association of persons; b) common bond of interest; c)
voluntary association; d) lawful common social or economic end; e)
capital contributions; f) fair share of risks and benefits; g) adherence to
cooperative values; and g) registration with the appropriate
government authority.[11]
The importance of capital contributions by members of a
cooperative under R.A. No. 6938 was emphasized during the Senate
deliberations as one of the key factors which distinguished electric
cooperatives under P.D. No. 269, as amended, from electric
cooperatives under the Cooperative Code. Thus:
Senator Osmea. Will this Code, Mr. President, cover electric
cooperatives as they exist in the country today and are administered
by the National Electrification Administration?
Senator Aquino. That cannot be answered with a simple yes or no,
Mr. President. The answer will depend on what provisions we will
eventually come up with. Electric cooperatives as they exist today
would not fall under the term cooperative as used in this bill
because the concept of a cooperative is that which adheres
and practices certain cooperative principles. .
.

a. Capital Contributions by Members

Senator Aquino. To begin with, one of the most important

requirements, Mr. President, is the principle where members bind
themselves to help themselves. It is because of their
collectivity that they can have some economic benefits. In this
particular case [cooperatives under P.D. No. 269], the government is
the one that funds these so-called electric cooperatives.

A cooperative under R.A. No. 6938 is defined as:

.
Senator Aquino. That is why in Article III we have the following
definition:

21

A cooperative is an association of persons with a common bond of

interest who have voluntarily joined together to achieve a common
social or economic end, making equitable contributions to the capital
required.
In this particular case [cooperatives under P.D. No. 269], Mr.
President, the members do not make substantial contribution
to the capital required. It is the government that puts in the
capital, in most cases.
.
Senator Osmea. Under line 6, Mr. President, making equitable
contributions to the capital required would exclude electric
cooperatives [under P.D. No. 269]. Because the membership does not
make equitable contributions.
Senator Aquino. Yes, Mr. President. This is precisely what I mean, that
electric cooperatives [under P.D. No. 269] do not qualify in the spirit of
cooperatives. That is the reason why they should be eventually
assessed whether they intend to comply with the cooperatives or not.
Because, if after giving them a second time, they do not comply, then,
they should not be classified as cooperatives.
Senator Osmea. Mr. President, the measure of their qualifying as
a cooperative would be the requirement that a member of the
electric cooperative must contribute a pro rata share of the
capital of the cooperative in cash to be a cooperative.[12]
Nowhere in P.D. No. 269, as amended, does it require cooperatives
to make equitable contributions to capital. Petitioners themselves
admit that to qualify as a member of an electric cooperative under P.D.
No. 269, only the payment of a P5.00 membership fee is required
which is even refundable the moment the member is no longer
interested in getting electric service from the cooperative or will
transfer to another place outside the area covered by the cooperative.
[13]
However, under the Cooperative Code, the articles of cooperation of
a cooperative applying for registration must be accompanied with the
bonds of the accountable officers and a sworn statement of the
treasurer elected by the subscribers showing that at least twenty-five
per cent (25%) of the authorized share capital has been subscribed
and at least twenty-five per cent (25%) of the total subscription has
been paid and in no case shall the paid-up share capital be less than
Two thousand pesos (P2,000.00).[14]

b. Extent of Government Control over Cooperatives

Another principle adhered to by the Cooperative Code is
the principle of subsidiarity. Pursuant to this principle, the government
may only engage in development activities where cooperatives do not
posses the capability nor the resources to do so and only upon the
request of such cooperatives.[15] Thus, Article 2 of the Cooperative
Code provides:
Art. 2. Declaration of Policy. It is the declared policy of the State to
foster the creation and growth of cooperatives as a practical vehicle for
prompting self-reliance and harnessing people power towards the
attainment of economic development and social justice. The State shall
encourage the private sector to undertake the actual formation and
organization to cooperatives and shall create an atmosphere that is
conducive to the growth and development of these cooperatives.
Towards this end, the Government and all its branches, subdivisions,
instrumentalities and agencies shall ensure the provision of technical
guidance, financial assistance and other services to enable said
cooperatives to develop into viable and responsive economic
enterprises and thereby bring about a strong cooperative movement
that is free from any conditions that might infringe upon the autonomy
or organizational integrity of cooperatives.
Further, the State recognizes the principle of subsidiarity
under which the cooperative sector will initiate and regulate
within its own ranks the promotion and organization, training
and research, audit and support services relating to
cooperatives with government assistance where necessary.[16]
Accordingly, under the charter of the CDA, or the primary
government agency tasked to promote and regulate the institutional
development of cooperatives, it is the declared policy of the State that:
[g]overnment assistance to cooperatives shall be free from
any restriction and conditionality that may in any manner infringe
upon the objectives and character of cooperatives as provided in this
Act.The State shall, except as provided in this Act, maintain the
policy of noninterference in the management and operation of
cooperatives.[17]
In contrast, P.D. No. 269, as amended by P.D. No. 1645, is replete
with provisions which grant the NEA, upon the happening of certain

22

events, the power to control and take over the management and
operations of cooperatives registered under it. Thus:
a) the NEA Administrator has the power to designate, subject to
the confirmation of the Board of Administrators, an Acting
General Manager and/or Project Supervisor for a cooperative
where vacancies in the said positions occur and/or when the
interest of the cooperative or the program so requires, and to
prescribe the functions of the said Acting General Manager
and/or Project Supervisor, which powers shall not be
nullified, altered or diminished by any policy or
resolution of the Board of Directors of the cooperative
concerned;[18]
b) the NEA is given the power of supervision and control over
electric cooperatives and pursuant to such powers, NEA may
issue orders, rules and regulations motu propio or upon
petition of third parties to conduct referenda and other similar
actions in all matters affecting electric cooperatives;[19]
c) No cooperative shall borrow money from any source without the
approval of the Board of Administrators of the NEA;[20] and
d) The management of a cooperative shall be vested in
Board, subject to the supervision and control
NEA which shall have the right to be represented and
participate in all Board meetings and deliberations and
approve all policies and resolutions.[21]

its
of
to
to

The extent of government control over electric cooperatives

covered by P.D. No. 269, as amended, is largely a function of the role of
the NEA as a primary source of funds of these electric cooperatives.
It is crystal clear that NEA incurred loans from various sources to
finance the development and operations of the electric
cooperatives. Consequently, amendments to P.D. No. 269 were
primarily geared to expand the powers of the NEA over the electric
cooperatives to ensure that loans granted to them would be repaid to
the government. In contrast, cooperatives under R.A. No. 6938 are
envisioned
to
be self-sufficient
and
independent organizations with
minimal
government
intervention or regulation.
To be sure, the transitory provisions of R.A. No. 6938 are indicative
of the recognition by Congress of the fundamental distinctions between
electric cooperatives organized under P.D No. 269, as amended, and
cooperatives under the new Cooperative Code. Article 128 of the
Cooperative Code provides that all cooperatives registered under
previous laws shall be deemed registered with the CDA upon

submission of certain requirements within one year. However,

cooperatives created under P.D. No. 269, as amended, are given three
years within which to qualify and register with the CDA, after which,
provisions of P.D. No. 1645 which expand the powers of the NEA over
electric cooperatives, would no longer apply.[22]
Second, the classification of tax-exempt entities in the Local
Government Code is germane to the purpose of the law. The
Constitutional mandate that every local government unit shall enjoy
local autonomy, does not mean that the exercise of power by local
governments is beyond regulation by Congress. Thus, while each
government unit is granted the power to create its own sources of
revenue, Congress, in light of its broad power to tax, has the discretion
to determine the extent of the taxing powers of local government
units consistent with the policy of local autonomy.[23]
Section 193 of the Local Government Code is indicative of the
legislative intent to vest broad taxing powers upon local government
units and to limit exemptions from local taxation to entities specifically
provided therein. Section 193 provides:
Section 193. Withdrawal of Tax Exemption Privileges.Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned and controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, nonstock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.[24]
The above provision effectively withdraws exemptions from local
taxation enjoyed by various entities and organizations upon effectivity
of the Local Government Code except for a) local water districts;
b) cooperatives duly registered under R.A. No. 6938; and c)
non-stock
and
non-profit
hospitals
and
educational
institutions. Further, with respect to real property taxes, the Local
Government Code again specifically enumerates entities which are
exempt therefrom and withdraws exemptions enjoyed by all other
entities upon the effectivity of the code. Thus, Section 234 provides:
SEC. 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof had been
granted for consideration or otherwise, to a taxable person;

23

(b) Charitable institutions, churches, parsonages or convents

appurtenant thereto, mosques, nonprofit or religious cemeteries and all
lands, buildings and improvements actually, directly, and exclusively
used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including all government-owned
or controlled corporations are hereby withdrawn upon the effectivity of
this Code.[25]
In Mactan Cebu International Airport Authority v. Marcos,
this Court held that the limited and restrictive nature of the tax
exemption privileges under the Local Government Code is consistent
with the State policy to ensure autonomy of local governments and the
objective of the Local Government Code to grant genuine and
meaningful autonomy to enable local government units to attain their
fullest development as self-reliant communities and make them
effective partners in the attainment of national goals. The obvious
intention of the law is to broaden the tax base of local government
units to assure them of substantial sources of revenue.
[26]

While we understand petitioners predicament brought about by

the withdrawal of their local tax exemption privileges under the Local
Government Code, it is not the province of this Court to go into
the wisdom of legislative enactments. Courts can only interpret laws.
The principle of separation of powers prevents them from re-inventing
the laws.
Finally, Sections 193 and 234 of the Local Government Code
permit reasonable classification as these exemptions are not limited to
existing conditions and apply equally to all members of the same class.
Exemptions from local taxation, including real property tax, are
granted to all cooperatives covered by R.A. No. 6938 and such

exemptions exist for as long as the Local Government Code and the
provisions therein on local taxation remain good law.
II
There is No Violation of the Non-Impairment Clause
It is ingrained in jurisprudence that the constitutional prohibition
on the impairment of the obligation of contracts does not prohibit
every change in existing laws. To fall within the prohibition, the change
must not only impair the obligation of the existing contract, but the
impairment must be substantial.[27] What constitutes substantial
impairment was explained by this Court in Clemons v. Nolting:[28]
A law which changes the terms of a legal contract between parties,
either in the time or mode of performance, or imposes new conditions,
or dispenses with those expressed, or authorizes for its satisfaction
something different from that provided in its terms, is law which
impairs the obligation of a contract and is therefore null and void.
Moreover, to constitute impairment, the law must affect a change in
the rights of the parties with reference to each other and not with
respect to non-parties.[29]
Petitioners insist that Sections 193 and 234 of the Local
Government Code impair the obligations imposed under the six (6)
loan agreements executed by the NEA as borrower and USAID as
lender. All six agreements contain similarly worded provisions on the
tax treatment of the proceeds of the loan and properties and
commodities acquired through the loan. Thus:
Section 6.5. Taxes and Duties. The Borrower covenants and agrees that
this Loan Agreement and the Loan provided for herein shall be
free from, and the Principal and interest shall be paid to A.I.D.
without deduction for and free from, any taxation or fees
imposed under any laws or decrees in effect within the Republic of the
Philippines or any such taxes or fees so imposed or payable shall be
reimbursed by the Borrower with funds other than those provided
under the Loan. To the extent that (a) any contractor, including
any consulting firm, any personnel of such contractor financed
hereunder, and any property or transactions relating to such
contracts and (b) any commodity procurement transactions
financed hereunder, are not exempt from identifiable taxes,
tariffs, duties and other levies imposed under laws in effect in
the country of the Borrower, the Borrower and/or Beneficiary
shall pay or reimburse the same with funds other than those
provided under the Loan.[30]

24

Petitioners contend that the withdrawal by the Local Government

Code of the tax exemptions of cooperatives under P.D. No. 269, as
amended, is an impairment of the tax exemptions provided under the
loan agreements. Petitioners argue that as beneficiaries of the loan
proceeds, pursuant to the above provision, [a]ll the assets
of petitioners, such as lands, buildings, distribution lines acquired
through the proceeds of the Loan Agreements are tax exempt.[31]
We hold otherwise.
A plain reading of the provision quoted above readily shows that it
does not grant any tax exemption in favor of the borrower or the
beneficiary either on the proceeds of the loan itself or the properties
acquired through the said loan. It simply states that the loan proceeds
and the principal and interest of the loan, upon repayment by the
borrower, shall be without deduction of any tax or fee that may
be payable under Philippine law as such tax or fee will be
absorbed by the borrower with funds other than the loan
proceeds. Further, the provision states that with respect to any
payment made by the borrower to (1) any contractor or any personnel
of such contractor or any property transaction and (2) any commodity
transaction using the proceeds of the loan, the tax to be paid, if
any, on such transactions shall be absorbed by the borrower
and/or beneficiary through funds other than the loan proceeds.
Beyond doubt, the import of the tax provision in the loan
agreements cited by petitioners is twofold: (1) the borrower is entitled
to receive from and is obliged to pay the lender the principal amount of
the loan and the interest thereon in full, without any deduction of
the tax component thereof imposed under applicable
Philippine law and any tax imposed shall be paid by the
borrower with funds other than the loan proceeds and (2) with
respect to payments made to any contractor, its personnel or any
property or commodity transaction entered into pursuant to the loan
agreement and with the use of the proceeds thereof, taxes payable
under the said transactions shall be paid by the borrower and/or
beneficiary with the use of funds other than the loan proceeds.
The quoted provision does not purport to grant any tax exemption in
favor of any party to the contract, including the beneficiaries thereof.
The provisions simply shift the tax burden, if any, on the transactions
under the loan agreements to the borrower and/or beneficiary of the
loan. Thus, the withdrawal by the Local Government Code under
Sections 193 and 234 of the tax exemptions previously enjoyed by
petitioners does not impair the obligation of the borrower, the lender or
the beneficiary under the loan agreements as in fact, no tax exemption
is granted therein.

III

Conclusion
Petitioners lament the difficulties they face in complying with the
implementing rules and regulations issued by the CDA for the
conversion of electric cooperatives under P.D. No. 269, as amended, to
cooperatives under R.A. No. 6938. They allege that because of the
cumbersome legal and technical requirements imposed by the
Omnibus Rules and Regulations on the Registration of Electric
Cooperatives under R.A. No. 6938, petitioners cannot register and
convert as stock cooperatives under the Cooperative Code.[32]
The Court understands the plight of the petitioners. Their remedy,
however, is not judicial. Striking down Sections 193 and 234 of the
Local Government Code as unconstitutional or declaring them
inapplicable to petitioners is not the proper course of action for them to
obtain their previous tax exemptions. The language of the law and the
intention of its framers are clear and unequivocal and courts have no
other duty except to uphold the law. The task to re-examine the rules
and guidelines on the conversion of electric cooperatives to
cooperatives under R.A. No. 6938 and provide every assistance
available to them should be addressed by the proper authorities of
government. This is necessary to encourage the growth and viability of
cooperatives as instruments of social justice and economic
development.
WHEREFORE, the instant petition is DENIED and the temporary
restraining order heretofore issued is LIFTED.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Vitug, Panganiban, Quisumbing, YnaresSantiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, CarpioMorales, Callejo, Sr., and Azcuna, JJ.,concur.

[G.R. No. 143214. November 11, 2004]

PHILIPPINE PORTS AUTHORITY, petitioner, vs. THE CITY OF

25

ILOILO; ROMEO MANIKAN, in his capacity as Treasurer of Iloilo

City; FRANKLIN CORDERO, JR., in his capacity as Assessor of
Iloilo City, respondents.

The respondent city was the only winning bidder at the public
auction conducted by the City Treasurer and the Assessor.
Consequently, the said properties were sold to it, and, conformably
with Section 76 of Presidential Decree (P.D.) No. 464, a certificate of
sale over the properties was executed in its favor.

On November 16, 1990, the City Treasurer sent a Notice of Right to

Redeem to the petitioner advising it that it had only until October 30,
1991 within which to redeem the properties. The petitioner forthwith
CALLEJO, SR., J.:
filed its complaint against the respondents, the City of Iloilo, its City
Treasurer and its Assessor with the Regional Trial Court (RTC) of Iloilo
On October 9, 1990, the respondent City of Iloilo sent a Notice of
City, Branch 36, for the nullification of the assessment and the sale
Sale of Delinquent Real Properties to petitioner Philippine Ports
with a prayer for a temporary restraining order and/or a writ of
Authority (PPA) for non-payment of real property taxes covering its
preliminary injunction. In its complaint, the petitioner alleged, inter
facilities and edifices at the Iloilo port for the years 1985-1989, to wit:
alia, that the properties belonged to the Bureau of Customs and/or the
national government; hence, the properties were exempt from the
Tax Dec. No.
Kind of Property
payment of realty taxes. To support its argument, the petitioner cited
Assessment
Section 25 of P.D. No. 857, Section 40(a) of P.D. No. 464 and Section
1(e) of Executive Order (E.O.) No. 93 issued on December 17, 1986.
DECISION

56325

61745

61747

59949

61741

61742

61744

Warehouse
Building (Shed)

Residential House

Building

Building

Building

Building

In their answer to the complaint, the respondents alleged that the

P 81,369.26
petitioners exemption had already been withdrawn under P.D. No. 1931
which took effect on June 11, 1984. Consequently, the sale of the
petitioners properties at public auction was in accord with law.
5,793.22
On October 22, 1992, the trial court rendered judgment in favor of
the respondents and ordered the dismissal of the complaint. The
decision was elevated to the Court of Appeals via a petition for review,
which rendered judgment affirming the decision of the RTC on
1,754.68
September 15, 1999. In its Decision,[2] the appellate court ruled that
since the petitioner had acquired the properties, it was liable for realty
taxes due thereon. The petitioners motion for reconsideration of the
13,959.42
said decision was denied by the appellate court; hence, the instant
petition for review on certiorari for the reversal thereof.
The petitioner contends that the subject properties are owned by
10,294.10
the Republic of the Philippines. It avers that while under Section 30 of
P.D. No. 857, the said properties were transferred to the petitioner, the
Republic of the Philippines retained ownership over the same. It claims
that while it administers and operates the port of Iloilo, it does so for
9,998.86
the benefit of the general public and not for taxable persons. As such,
the said properties are exempt from realty taxes under Section 40 of
P.D. No. 464. The petitioner further asserts that P.D. No. 1931 and E.O.
2,821.41
No. 93 have no application to properties owned by the Republic of the
Philippines.
In their comment on the petition, the respondents aver that by
virtue of P.D. No. 857 issued on December 23, 1975, the petitioner

26

became the owner of the subject properties. They point out that the
petitioner even declared the properties for taxation purposes under its
name. The respondents, likewise, posit that the exemption on realty
taxes in favor of the petitioner had effectively been withheld under P.D.
No. 1931, and that the petitioner cannot invoke P.D. No. 464 because
the subject properties are being leased to taxable private persons. The
respondents appended to their comment the tax declarations on the
properties under the name of the petitioner.
The petition has no merit.

Petitioner PPA Became the Owner

Of the Port Facilities and
Appurtenances under P.D. No. 857

When P.D. No. 857 took effect on December 23, 1975, the
petitioner became the owner of the facilities and appurtenances,
conformably to Sections 30 to 33 thereof, to wit:
SEC. 30. Transfer of Existing and Completed Physical Facilities In
accordance with the transitory provisions of this Decree, there shall be
transferred to the Authority all existing and completed public port
facilities, quays, wharves, docks, lands, buildings and other property,
movable or immovable, belonging to those ports declared as Ports
Districts for purposes of this Decree.
SEC. 31. Transfer of Intangible Assets In accordance with the transitory
provisions of this Decree, there shall be transferred to the Authority all
intangible assets, powers, rights, foreshore rights, interests and
privileges belonging to the Bureau of Customs, and Bureau of Public
Works and other agencies relating to port works or port operations,
subject to terms to be arranged by and between the Authority and
agencies concerned. Any disagreement relating to such transfer shall
be elevated to the President for decision.
SEC. 32. Projects in Progress In accordance with the transitory
provisions of this Decree, all ongoing projects relating to the
construction of ports and port facilities shall be continued by the
agency or agencies involved until completion. After completion, such
projects shall be transferred to the Authority in accordance with the
agreement among agencies concerned. Any disagreement relating to
such transfer shall be elevated to the President for decision.

SEC. 33. Transfer of Liabilities and Debts Upon the transfer and
acceptance by the Authority of the existing physical facilities,
intangible assets, and completed projects referred to in the Sections
immediately preceding, all debts, liabilities, and obligations of the
Bureau of Customs, the Bureau of Public Works, and other government
agencies or entities concerned in respect of such physical facilities,
intangible assets and completed projects within the Port Districts shall,
likewise, be transferred to or deemed incurred by the Authority.
Section 40 of the law further provides that any and all other
powers, rights, duties and functions vested in and all properties,
authority or instrumentality pertaining to every matter concerning port
facilities, ports operations, or port works were transferred to and were
vested in the petitioner. These provisions are self-executory, without
need of any other formalities or documentations to implement the
same.
That the petitioner has not been issued any torrens title over the
port and port facilities and appurtenances is of no legal consequence.
A torrens title does not, by itself, vest ownership; it is merely an
evidence of title over real properties.[3] The torrens system does not
create or vest title. It has never been recognized as a mode of
acquiring ownership over real properties.[4]
That the petitioner became the owner of said facilities and
appurtenances is bolstered by the fact that under Article VI, Section
10(b) of P.D. No. 857, the initial paid up capital of the petitioner
consists of the following:
(i) The value of assets (including port facilities, quays, wharves, and
equipment) and such other properties, movable and immovable as
may be contributed by the Government or transferred by the
Government or any of its agencies as valued at the date of such
contribution or transfer and after deducting or taking into account the
loans and other liabilities of the Authority at the time of the takeover of
the assets and other properties.
As we held in Mactan Cebu International Airport Authority v.
Marcos:[5]
It may be reasonable to assume that the term lands refer to lands in
Cebu City then administered by the Lahug Air Port and includes the
parcels of land the respondent City of Cebu seeks to levy on for real
property taxes. This section involves a transfer of the lands, among
other things, to the petitioner and not just the transfer of the beneficial

27

use thereof, with the ownership being retained by the Republic of the
Philippines.
This transfer is actually an absolute conveyance of the ownership
thereof because the petitioners authorized capital stock consists
of, inter alia, the value of such real estate owned and/or administered
by the airports. Hence, the petitioner is now the owner of the land in
question and the exception in Section 234(c) of the LGC is inapplicable.
[6]

The Petitioner is Liable

For Realty Taxes on its
Facilities and Appurtenances
The petitioner cannot escape liability from the payment of realty
taxes by invoking its exemption in Section 40(a) of P.D. No. 464,
[7]
which reads:
SEC. 40. Exemptions from Real Property Tax The exemption shall be as
follows:
a) Real Property owned by the Republic of the Philippines or any of its
political subdivisions and any government-owned corporation so
exempt by its charter, provided, however, that this exemption shall not
apply to real property of the above-named entities the beneficial use of
which has been granted, for consideration or otherwise, to a taxable
person.
The petitioner cannot, likewise, find solace in Section 25 of P.D. No.
857, to wit:
[8]

SEC. 25. Exemption from Realty Taxes The Authority shall be exempt
from the payment of real property taxes imposed by the Republic of
the Philippines, its agencies, instrumentalities or political subdivisions;
Provided, That no tax exemptions shall be extended to any subsidiaries
of the Authority that may be organized; Provided, finally, That
investments in fixed assets shall be deductible for income tax
purposes.
First. Section 1, P.D. No. 1931 which took effect on June 11, 1984,
effectively withdrew the exemption granted to the petitioner, a
government-owned or controlled corporation

Section 1. The provisions of special or general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes,
fees, imports and other charges heretofore granted in favor of
government-owned or controlled corporations including their
subsidiaries, are hereby withdrawn.
Second. Under the last paragraph of Section 234 of Republic Act
No. 7160, otherwise known as the Local Government Code (LGC), the
petitioners exemptions from the real property tax were withdrawn upon
the effectivity of the law. Thus:
SEC. 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof had been
granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, nonprofit or religious cemeteries and all
lands, buildings and improvements actually, directly, and exclusively
used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly-registered cooperatives as provided
for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including all government-owned
or controlled corporations are hereby withdrawn upon the effectivity of
this Code.[9]
Patently then, it was the intention of Congress to withdraw the tax
exemptions granted to or presently enjoyed by all persons, including
government-owned or controlled corporations, upon the effectivity of
the LGC as shown by Section 193 thereof:

28

Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code.
Furthermore, under the repealing clause, Section 534(f) of the
LGC, all general and special laws, acts, decrees, or part or parts thereof
which are inconsistent with any of the provisions of the law were
repealed:
Section 534(f) Repealing Clause. All general and special laws, acts, city
charters, decrees, executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent with any of
the provisions of this code are hereby repealed or modified accordingly.
The clause partakes of the nature of a general repealing
clause because it fails to designate the specific act or acts identified by
number or title that are submitted to be repealed.[10]
Thus, Section 25 of P.D. No. 857 and Section 40 of P.D. No. 464
were repealed by Rep. Act No. 7160. We emphasized the raison
detre for the withdrawal of the exemption in Mactan Cebu International
Airport Authority v. Marcos[11] as follows:
SEC. 40. Exemptions from Real Property Tax. The exemption shall be as
follows:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions and any government-owned or controlled
corporation so exempt by its charter: Provided, however, That this
exemption shall not apply to real property of the above-mentioned
entities the beneficial use of which has been granted, for consideration
or otherwise, to a taxable person.
Note that as reproduced in Section 234(a), the phrase and any
government-owned or controlled corporation so exempt by its charter
was excluded. The justification for this restricted exemption in Section
234(a) seems obvious: to limit further tax exemption privileges,
especially in light of the general provision on withdrawal of tax
exemption privileges in Section 193 and the special provision on
withdrawal of exemption from payment of real property taxes in the
last paragraph of Section 234. These policy considerations are

consistent with the State policy to ensure autonomy to local

governments and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities and make them effective
partners in the attainment of national goals. The power to tax is the
most effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the delivery of
basic services essential to the promotion of the general welfare and
the enhancement of peace, progress, and prosperity of the people. It
may also be relevant to recall that the original reasons for the
withdrawal of tax exemption privileges granted to government-owned
and controlled corporations and all other units of government were
that such privilege resulted in serious tax base erosion and distortions
in the tax treatment of similarly situated enterprises, and there was a
need for these entities to share in the requirements of development,
fiscal or otherwise, by paying the taxes and other charges due from
them.[12]
It is wont to state that even under Section 40 of P.D. No. 464, the
petitioner is considered a taxable person. The bare fact that the port
and its facilities and appurtenances are accessible to the general
public does not exempt it from the payment of real property taxes. It
must be stressed that the said port facilities and appurtenances are
the petitioners corporate patrimonial properties, not for public use, and
that the operation of the port and its facilities and the administration of
its buildings are in the nature of ordinary business. The petitioner is
clothed, under P.D. No. 857, with corporate status and corporate
powers in the furtherance of its proprietary interests:
SEC. 6. Corporate Powers and Duties
a) The corporate duties of the Authority shall be:
(i) To formulate in coordination with the National Economic and
Development Authority a comprehensive and practicable Port
Development plan for the State and to program its implementation,
renew and update the same annually in coordination with other
national agencies.
(ii) To supervise, control, regulate, construct, maintain,
operate, and provide such facilities or services as are
necessary in the ports vested in, or belonging to the
Authority.
(iii) To prescribe rules and regulations, procedures,
and guidelines governing the establishment,

29

construction, maintenance, and operation of all other

ports, including private ports in the country.
(iv) To license, control, regulate, supervise any
construction or structure within any Port District.
(v) To provide services (whether on its own, by contract, or otherwise)
within the Port Districts and the approaches thereof, including but not
limited to --berthing, towing, mooring, moving, slipping, or
docking any vessel;
-loading or discharging any vessel;
-sorting, weighing, measuring, storing, warehousing,
or otherwise handling goods.
(vi) To exercise control of or administer any foreshore rights or leases
which may be vested in the Authority from time to time.
(vii) To coordinate with the Bureau of Lands or any
other government agency or corporation, in the
development of any foreshore area.
(viii) To control, regulate, and supervise pilotage and
the conduct of pilots in any Port District.
(ix) To provide or assist in the provision of training
programs and training facilities for its staff of port
operators and users for the efficient discharge of its
functions, duties and responsibilities.
(x) To perform such acts or provide such services as
may be deemed proper or necessary to carry out and
implement the provisions of this Decree.
b) The corporate powers of the Authority shall be as follows:
(i) To succeed in its corporate name.
(ii) To sue and be sued in such corporate name.
(iii) To adopt, alter, and use a corporate seal which
shall be judicially noticed.
(iv) To adopt, amend, or repeal its by-laws.
(v) To create or alter its own organization or any Port
Management Unit, and staff such an organization or
Port Management Unit with appropriate and qualified
personnel in accordance with what may be deemed
proper or necessary to achieve the objectives of the
Authority.
(vi) To make or enter contracts of any kind or nature
to enable it to discharge its functions under this
Decree.

(vii) To acquire, purchase, own, lease, mortgage, sell,

or otherwise dispose of any land, port facility, wharf,
quay, or property of any kind, whether movable or
immovable.
(viii) To exercise the right of eminent domain, by
expropriating the land or areas surrounding the Port
of harbor, which in the opinion of the Authority, are
vital or necessary for the total development of the
Port District.
(ix) To levy dues, rates, or charges for the use of the
premises, works, appliances, facilities, or for services
provided by or belonging to the Authority, or any
other organization concerned with port operations.
(x) To reclaim, excavate, enclose, or raise any part of
the lands vested in the Authority.
(xi) To dredge or provide dredging services, within a
Port District or elsewhere.
(xii) To acquire any undertaking affording or
intending to afford facilities for the loading and
discharging or warehousing of goods in the Port
Districts.
(xiii) To supply water or bunker for ships.
(xiv) To obtain, insure for or require the insurance of
any property, movable or immovable, belonging to
the Authority and/or goods in the custody of the
Authority.
(xv) To do all such other things and to transact all
such business directly or indirectly necessary,
incidental or conducive to the attainment of the
purposes of the Authority.
(xvi) Generally, to exercise all the powers of a
corporation under the Corporation Law insofar as
they are not inconsistent with the provisions of this
Decree.
The petitioner is even empowered to invest its funds in such
government securities approved by the Board of Directors, and derives
its income from rates, charges or fees for the use by vessels of the port
premises, appliances or equipment.
SEC. 20. Rates and Charges
a) The Authority may impose, fix, prescribe, increase or
decrease such rates, charges or fees for the use of port
premises, works, appliances or equipment belonging to the
Authority and port facilities provided, and for services

30

rendered by the Authority or by any private organization

within a Port District.
Provided, that upon the coming into operation of this
Decree, the rates of storage and arrastre charges in all ports of
the Philippines shall be those now provided under Parts 4 and 5
of Title VII, Book II of the Tariff and Customs Code until such
time when the President of the Philippines upon
recommendation of the Board may order that the revised rates,
charges or fees are in effect.
b) The Authority shall regulate the rates or charges for port
services or port-related services so that taking one year with another,
such rates or charges furnish adequate working capital and produce an
adequate return on the assets of the Authority. In regulating the rates
or charges for individual ports, the Authority shall take into account the
development needs of the ports hinterland.
c) All dues, fees, charges and other sums, imposed and
collected by the Authority shall accrue to the Authority and shall be
disposed of in accordance with the provisions of this Decree.
Clearly then, the petitioner is a profit-earning corporation; hence,
its patrimonial properties are subject to tax.[13]
We reject the petitioners claim that it is exempt from the payment
of real property taxes, considering that it does not use the port
facilities and buildings. This Court overruled a similar submission as
follows:
Under the Real Property Tax Code, real property is classified for
assessment purposes on the basis of actual use, which is defined as
the purpose for which the property is principally or predominantly
utilized by the person in possession of the property.
Petitioner argues that it merely operates and maintains the LRT
system, and that the actual users of the carriageways and terminal
stations are the commuting public. It adds that the public-use
character of the LRT is not negated by the fact that revenue is
obtained from the latters operations.

exclusively for public use. Although petitioner is a public utility, it is

nonetheless profit-earning. It actually uses those carriageways and
terminal stations in its public utility business and earns money
therefrom.
In any event, there is another legal justification for upholding the
assailed CA Decision. Under the Real Property Tax Code, real property
owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned or controlled corporation so
exempt by its charter, provided, however, that this exemption shall not
apply to real property of the abovenamed entities the beneficial use of
which has been granted, for consideration or otherwise, to a taxable
person.[14]
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. No
costs.
SO ORDERED.
CITY ASSESSOR OF CEBU G.R. No. 152904
CITY,
Petitioner,
Present:
QUISUMBING, J., Chairperson,
- versus - CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
ASSOCIATION OF BENEVOLA Promulgated:
DE CEBU, INC.,
Respondent. June 8, 2007
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:

Is a medical arts center built by a hospital to house its doctors a

separate

We do not agree. Unlike public roads which are open for use by
everyone, the LRT is accessible only to those who pay the required
fare. It is, thus, apparent that petitioner does not exist solely for public
service, and that the LRT carriageways and terminal stations are not

commercial

establishment

or

an

appurtenant

to

the

hospital? This is the core issue to be resolved in the instant petition

where petitioner insists on a 35% assessment rate on the building

31

which he considers commercial in nature contrary to respondents

Petitioner City Assessor of Cebu City assessed the CHHMAC

position that it is a special real property entitled to a 10% assessment

building under Tax Declaration (TD) No. 97 GR-04-024-02529 as

rate for purposes of realty tax.

commercial with a market value of PhP 28,060,520 and an assessed

value of PhP 9,821,180 at the assessment level of 35% for commercial
The Case

buildings, and not at the 10% special assessment currently imposed for
CHH and its other separate buildingsthe CHHs Dietary and Records

This Petition for Review on Certiorari[1] under Rule 45 assails the

Departments.

October 31, 2001 Decision[2] of the Court of Appeals (CA) in CA-G.R. SP

Thus, respondent filed its September 15, 1998 letter-petition

No. 62548, which affirmed the January 24, 2000 Decision [3] and October
25, 2000 Resolution[4] of the Central Board of Assessment Appeals
(CBAA); and the March 11, 2002 Resolution [5] of the same court
denying petitioners Motion for Reconsideration.[6] The CBAA upheld the
February 10, 1999 Decision of the Local Board of Assessment Appeals
(LBAA), which overturned the 35% assessment rate of respondent
Cebu City Assessor and ruled that petitioner is entitled to a 10%

with the Cebu City LBAA for reconsideration, asserting that CHHMAC is
part of CHH and ought to be imposed the same special assessment
level of 10% with that of CHH. On September 25, 1998, respondent
formally filed its appeal with the LBAA which was docketed as Case No.
4406, TD No. 97 GR-04-024-02529 entitled Association Benevola de
Cebu, Inc. v. City Assessor.

assessment.
In the September 30, 1998 Order, the LBAA directed petitioner
The Facts

to conduct an ocular inspection of the subject property and to submit a

report

Respondent Association of Benevola de Cebu, Inc. is a nonstock, non-profit organization organized under the laws of the Republic

on

the

scheduled

date

of

hearing. In

the October

7,

1998 hearing, the parties were required to submit their respective

position papers.

of the Philippines and is the owner of Chong Hua Hospital (CHH)

in Cebu City. In the late 1990s, respondent constructed the CHH
Medical Arts Center (CHHMAC). Thereafter, an April 17, 1998 Certificate
of Occupancy[7] was issued to the center with a classification of
Commercial [Clinic].

In its position paper, petitioner argued that CHHMAC is a newly

constructed five-storey building situated about 100 meters away from
CHH and, based on actual inspection, was ascertained that it is not a
part of the CHH building but a separate building which is actually used
as commercial clinic/room spaces for renting out to physicians and,
thus, classified as commercial. Petitioner contended that in turn the

32

medical specialists in CHHMAC charge consultation fees for patients

declaring that the building is entitled to a ten (10)

percent assessment level.

who consult for diagnosis and relief of bodily ailment together with the
ancillary (or support) services which include the areas of anesthesia,
radiology, pathology, and more. Petitioner concluded the foregoing set
up to be ultimately geared for commercial purposes, and thus having
the proper classification as commercial under Building Permit No. B019750087 pursuant to Section 10 of the Local Assessment Regulations
No. 1-92 issued by the Department of Finance (DOF).

On the other hand, respondent contended in its position paper

that CHHMAC building is actually, directly, and exclusively part of CHH
and should have a special assessment level of 10% as provided under
City Tax Ordinance LXX. Respondent asserted that the CHHMAC
building is similarly situated as the buildings of CHH, housing its
Dietary and Records Departments, are completely separate from the
main CHH building and are imposed the 10% special assessment
level. In fine, respondent argued that the CHHMAC, though not actually
indispensable, is nonetheless incidental and reasonably necessary to

In reversing the ruling of petitioner City Assessor of Cebu City,

the LBAA reasoned that it is of public knowledge that hospitals have
plenty of spaces leased out to medical practitioners, which is both an
accepted and desirable fact; thus, respondents claim is not disputed
that such is a must for a tertiary hospital like CHH. The LBAA held that
it is inconsequential that a separate building was constructed for that
purpose pointing out that departments or services of other institutions
and establishments are also not always housed in the same building.

Thus, the LBAA pointed to the fact that respondents Dietary

and Records Departments which are housed in separate buildings were
similarly imposed with CHH the special assessment level of 10%,
ratiocinating in turn that there is no reason therefore why a higher
level would be imposed for CHHMAC as it is similarly situated with the
Dietary and Records Departments of the CHH.

CHHs operations.

The Ruling of the Local Board of Assessment Appeals

On February 10, 1999, the LBAA rendered a Decision, [8] the

dispositive portion of which reads:
WHEREFORE, premises considered, the appealed
decision imposing a thirty five (35) percent
assessment level of TD No. 97 GR-04-024-02529
on the Chong Hua Hospital Medical Arts building is
reversed and set aside and other [sic] one issued

The Ruling of the Central Board of Assessment Appeals

Aggrieved,

petitioner

filed

its March

15,

1999 Notice

of

Appeal[9] and March 16, 1999 Appeal Memorandum[10] before the CBAA
Visayas Field Office which docketed the appeal as CBAA Case No. V-15,
In Re: LBAA Case No. 4406, TD No. 97 GR-04-024-02529 entitled City
Assessor of Cebu City v. Local Board of Assessment Appeals of Cebu
City and Associacion Benevola de Cebu, Inc. On June 3, 1999,
respondent filed its Answer[11] to petitioners appeal.

33

On October 31, 2001, the appellate court rendered the assailed

Subsequently, on January 24, 2000, the CBAA rendered a

Decision[19] which

affirmed

the January

24,

2000 Decision

of

the

Decision[12] affirming in toto the LBAA Decision and resolved the issue

CBAA. It agreed with the CBAA that CHHMAC is part and parcel of CHH

of whether the subject building of CHHMAC is part and parcel of CHH. It

in line with the ruling in Herrera[20] on what the term appurtenant

agreed with the above disquisition of the LBAA that it is a matter of

thereto means. Thus, the CA held that the facilities and utilities of

public knowledge that hospitals lease out spaces to its accredited

CHHMAC are undoubtedly necessary and indispensable for the CHH to

medical practitioners, and in particular it is of public knowledge that

achieve its ultimate purpose.

before the CHHMAC was constructed, the accredited doctors of CHH

were

housed

in

the

main

hospital

building

of

CHH. Moreover,

The CA likewise ruled that the fact that rentals are paid by CHH

citing Herrera v. Quezon City Board of Assessment Appeals [13] later

accredited doctors and medical specialists for spaces in CHHMAC has

applied in Abra Valley College, Inc. v. Aquino,[14] the CBAA held that the

no bearing on its classification as a hospital since CHHMAC serves also

fact that the subject building is detached from the main hospital

as a place for medical check-up, diagnosis, treatment, and care for its

building is of no consequence as the exemption in favor of property

patients as well as a specialized out-patient department of CHH where

used exclusively for charitable or educational purposes is not only

treatment and diagnosis are done by accredited medical specialists in

limited to property actually indispensable to the hospital, but also

their respective fields of anesthesia, radiology, pathology, and more.

extends to facilities which are incidental and reasonably necessary for

the accomplishment of such purposes.

The appellate court also applied Secs. 215 and 216 of the Local
Government Code (Republic Act No. 7160) which classify lands,

Through its October 25, 2000 Resolution,[15] the CBAA denied

petitioners Motion for Reconsideration.[16]

buildings, and improvements actually, directly, and exclusively used for

hospitals

as

special

cases

of

real

property

and

not

as

commercial. Thus, CHHMAC being an integral part of CHH is not

The Ruling of the Court of Appeals

commercial but special and should be imposed the 10% special

assessment, the same as CHH, instead of the 35% for commercial

Not satisfied, petitioner brought before the CA a petition for

establishments.

review[17] under Rule 43 of the Rules of Court, docketed as CA-G.R. SP

No. 62548, ascribing error on the CBAA in dismissing his appeal and in
affirming the February 10, 1999 Decision[18] of the LBAA.

Lastly, the CA pointed out that courts generally will not

interfere in matters which are addressed to the sound discretion of the
government agencies entrusted with the regulation of activities under

34

their special technical knowledge and trainingtheir findings and

main building of CHH, is not an extension nor an integral part of CHH

conclusions are accorded not only respect but even finality.

and thus should not enjoy the 10% special assessment. Petitioner
anchors the classification of CHHMAC as commercial, first, on Sec. 10

Through the assailed March 11, 2002 Resolution,[21] the CA

denied petitioners Motion for Reconsideration.

The Issues

Hence, before us is the instant petition with the solitary issue,

as follows:
WHETHER OR NOT THERE IS SERIOUS ERROR BY
THE COURT OF APPEALS IN AFFIRMING THE
DECISION
OF
THE
CENTRAL
BOARD
OF
ASSESSMENT APPEALS THAT THE NEW BUILDING
CHONG HUA HOSPITAL AND MEDICAL ARTS
CENTER (CHHMAC) IS AN ESSENTIAL PART OF THE
OLD BUILDING KNOWN AS CHONG HUA
HOSPITAL. IN THE NEGATIVE, WHETHER OR NOT
THE NEW BUILDING IS LIABLE TO PAY THE 35%
ASSESSMENT LEVEL. AND WHETHER OR NOT THE
COURT OF APPEALS COULD INTERFERE WITH THE
FINDINGS
OF
THE
CENTRAL
BOARD
OF
ASSESSMENT APPEALS, A GOVERNMENT AGENCY
HAVING SPECIAL TECHNICAL KNOWLEDGE AND
TRAINING ON THE MATTER SUBJECT OF THE
PRESENT CASE.[22]

The Courts Ruling

The petition is devoid of merit.

It is petitioners strong belief that the subject building, CHHMAC,

which is built on a rented land and situated about 100 meters from the

of Local Assessment Regulations No. 1-92 issued by the DOF, which

provides:
SEC. 10. Actual use of Real Property as basis of
Assessment.Real Property shall be classified,
valued and assessed on the basis of its actual use
regardless of where located, whoever owns it, and
whoever uses it. (Sec. 217, R.A. 7160)
A. Actual use refers to the purpose for which the
property is principally or predominantly utilized by
the person in possession of the property. (Sec.
199 (b), R.A. 7160)

Secondly, the result of the inspection on subject building by the

City Assessors inspection team shows that CHHMAC is a commercial
establishment based on the following: (1) CHHMAC is exclusively
intended for lease to doctors; (2) there are neither operating rooms nor
beds for patients; and (3) the doctors renting the spaces earn income
from the patients who avail themselves of their services. Thus,
petitioner argues that CHHMAC is principally and actually used for
lease to doctors, and respondent as owner of CHHMAC derives rental
income from it; hence, CHHMAC was built and is intended for profit and
functions commercially.

Moreover, petitioner asserts that CHHMAC is not part of the

CHH main building as it is exclusively used as private clinics of
physicians who pay rental fees to petitioner.And while the private
clinics might be considered facilities, they are not incidental to nor

35

reasonably

necessary

for

the

accomplishment

of

the

hospitals

purposes as CHH can still function and accomplish its purpose without

medical departments in various medical fields. As aptly pointed out by

respondent:

the existence of CHHMAC. In addition, petitioner contends that

the Abra Valley College, Inc.[23] ruling is not applicable to the instant
case for schools, the subject matter in said case, are already entitled to
special assessment. Besides, petitioner points CHHMAC is not among
the facilities mentioned in said case. Further, petitioner argues that
CHHMAC is not in the same category as nurses homes and housing
facilities for the hospital staff as these are clearly not for profit, that is,
not commercial, and are clearly incidental and reasonably necessary
for the hospitals purposes.

We are not persuaded.

Chong Hua Hospital is a duly licensed tertiary

hospital and is covered by Dept. of Health (DOH)
Adm. Order No. 68-A and the 1989 Revised Rules
and Regulations governing the registration,
licensure and operation of hospitals in the
Philippines. Under Sec. 6, sub-sec. 6.3, it is
mandated by law, that respondent appellee in
order to retain its classification as a TERTIARY
HOSPITAL, must be fully departmentalized and
equipped with the service capabilities needed to
support certified medical specialists and other
licensed physicians rendering services in the field
of
medicine,
pediatrics,
obstetrics
and
gynecology, surgery, and their sub-specialties,
ICCU and ancillary services which is precisely the
function of the Chong Hua Hospital Medical Arts
Center.[24]

A careful review of the records compels us to affirm the

Sec. 6.3, Administrative Order No. (AO) 68-A, Series of 1989,

assailed CA Decision as we find no reversible error for us to reverse or

Revised Rules and Regulations Governing the Registration, Licensure

alter it.

and Operation of Hospitals in thePhilippines pertinently provides:

Chong Hua Hospital Medical Arts Center is an integral part of

Chong Hua Hospital

We so hold that CHHMAC is an integral part of CHH.

It is undisputed that the doctors and medical specialists holding

Tertiary Hospital is fully departmentalized and

equipped
with
the
service
capabilities needed to support certified medical
specialists
and
other
licensed
physicians
rendering services in the field of Medicine,
Pediatrics, Obstetrics and Gynecology, Surgery,
their
subspecialties
and
ancillary
services. (Emphasis supplied.)

clinics in CHHMAC are those duly accredited by CHH, that is, they are
consultants of the hospital and the ones who can treat CHHs patients
confined in it. This fact alone takes away CHHMAC from being

Moreover, AO 68-A likewise provides what clinic service and

medical ancillary service are, thus:

categorized as commercial since a tertiary hospital like CHH is required

by law to have a pool of physicians who comprises the required

36

11.3.2 Clinical ServiceThe medical services to

patients shall be performed by the medical staff
appointed by the governing body of the
institution. x x x
11.3.3 Medical Ancillary ServiceThese are support
services which include Anesthesia Department,
Pathology Department, Radiology Department,
Out-Patient
Department
(OPD),
Emergency
Service, Dental, Pharmacy, Medical Records and
Medical Social Services.

for then respondent would be running a commercial building for lease

only to doctors which would indeed subject the CHHMAC to the
commercial level of 35% assessment.

Moreover, the CHHMAC, being hundred meters away from the

CHH main building, does not denigrate from its being an integral part
of the latter. As aptly applied by the CBAA, the Herrera ruling on what
constitutes property exempt from taxation is indeed applicable in the

Based on these provisions, these physicians holding offices or

instant case, thus:

clinics in CHHMAC, duly appointed or accredited by CHH, precisely

fulfill and carry out their roles in the hospitals services for its patients
through the CHHMAC. The fact that they are holding office in a
separate building, like at CHHMAC, does not take away the essence
and nature of their services vis--vis the over-all operation of the
hospital and the benefits to the hospitals patients. Given what the law
requires, it is clear that CHHMAC is an integral part of CHH.

These accredited physicians normally hold offices within the

premises of the hospital; in which case there is no question as to the
conduct of their business in the ambit of diagnosis, treatment and/or

Moreover, the exemption in favor of property used

exclusively for charitable or educational purposes
is not limited to property actually indispensable
therefore (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are incidental to and
reasonably necessary for the accomplishment of
said purposes, such as, in the case of hospitals, a
school for training nurses, a nurses home,
property use to provide housing facilities for
interns, resident doctors, superintendents, and
other members of the hospital staff, and
recreational facilities for student nurses, interns
and residents (84 C.J.S., 621), such as athletic
fields, including a farm used for the inmates of
the institution (Cooley on Taxation, Vol. 2, p.
1430).[25]

confinement of patients. This was the case before 1998 and before
CHHMAC was built. Verily, their transfer to a more spacious and,
perhaps, convenient place and location for the benefit of the hospitals

Verily, being an integral part of CHH, CHHMAC should be under

the same special assessment level of as that of the former.

patients does not remove them from being an integral part of the
overall operation of the hospital.

Conversely, it would have been different if CHHMAC was also

open for non-accredited physicians, that is, any medical practitioner,

The CHHMAC facility is definitely incidental to and reasonably

necessary for the operations of Chong Hua Hospital

Given our discussion above, the CHHMAC facility, while

seemingly not indispensable to the operations of CHH, is definitely

37

incidental to and reasonably necessary for the operations of the

Thus, the importance of CHHMAC in the operation of CHH

hospital. Considering the legal requirements and the ramifications of

cannot be over-emphasized nor disputed. Clearly, it plays a key role

the medical and clinical operations that have been transferred to the

and provides critical support to hospital operations.

CHHMAC from the CHH main building in light of the accredited

physicians transfer of offices in 1998 after the CHHMAC building was

Charging rentals for the offices used by its accredited

physicians cannot be equated to a commercial venture

finished, it cannot be gainsaid that the services done in CHHMAC are

indispensable and essential to the hospitals operation.

Finally, respondents charge of rentals for the offices and clinics

For one, as found by the appellate court, the CHHMAC facility is

primarily used by the hospitals accredited physicians to perform
medical check-up, diagnosis, treatment, and care of patients. For
another, it also serves as a specialized outpatient department of the
hospital.

confinement

and

surgical

operations

where

hospital

beds

and

operating theaters are required. Generally, confinement is required in

cases

and

where

patient

necessitates

close

monitoring. The usual course is that patients have to be diagnosed,

and

then

treatment

and

follow-up

consultations

follow

or

are

required. Other cases may necessitate surgical operations or other

medical intervention and confinement. Thus, the more the patients,
the more important task of diagnosis, treatment, and care that may or
may not require eventual confinement or medical operation in the
CHHMAC.

venture, which is mainly for profit.

Respondents explanation on this point is well taken. First,

CHHMAC is only for its consultants or accredited doctors and medical
specialists. Second, the charging of rentals is a practical necessity: (1)

Indubitably, the operation of the hospital is not only for

emergency

its accredited physicians occupy cannot be equated to a commercial

to recoup the investment cost of the building, (2) to cover the rentals
for the lot CHHMAC is built on, and (3) to maintain the CHHMAC
building and its facilities. Third, as correctly pointed out by respondent,
it pays the proper taxes for its rental income. And, fourth, if there is
indeed any net income from the lease income of CHHMAC, such does
not inure to any private or individual person as it will be used for
respondents other charitable projects.

Given the foregoing arguments, we fail to see any reason why

the CHHMAC building should be classified as commercial and be
imposed the commercial level of 35% as it is not operated primarily for
profit but as an integral part of CHH. The CHHMAC, with operations
being devoted for the benefit of the CHHs patients, should be accorded
the 10% special assessment.

38

In this regard, we point with approbation the appellate courts

application of Sec. 216 in relation with Sec. 215 of the Local
Government Code on the proper classification of the subject CHHMAC
building as special and not commercial. Secs. 215 and 216 pertinently
provide:
SEC.
215. Classes
of
Real
Property
for
Assessment
Purposes.For
purposes
of
assessment, real property shall be classified as
residential, agricultural, commercial, industrial,
mineral, timberland or special.
xxxx
SEC. 216. Special Classes of Real Property.All
lands, buildings, and other improvements
thereon actually, directly and exclusively
used
for hospitals, cultural or scientific
purposes, and those owned and used by local
water districts, and government-owned or
controlled corporations rendering essential public
services in the supply and distribution of water
and/or generation and transmission of electric
power shall be classified as special. (Emphasis
supplied.)

CITY OF PASIG, REPRESENTED G.R. No. 185023

BY THE CITY TREASURER and
THE CITY ASSESSOR, Petitioner,
- versus REPUBLIC OF THE PHILIPPINES,
REPRESENTED BY THE
PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT, Promulgated:
Respondent. August 24, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

Thus, applying the above provisos in line with City Tax

DECISION

Ordinance LXX of Cebu City, the 10% special assessment should be

imposed for the CHHMAC building which should be classified as special.

CARPIO, J.:
The Case

WHEREFORE, the petition is DENIED for lack of merit and the

October 31, 2001 Decision and March 11, 2002 Resolution of the CA
are hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

This is a petition1 for review on certiorari under Rule 45 of the Rules of

Court. The petition challenges the 17 October 2008 Decision2 of the
Court of Appeals in CA-G.R. SP No. 97498, affirming the 6 November
2006 Decision3 of the Regional Trial Court (RTC), National Capital
Judicial Region, Pasig City, Branch 155, in SCA No. 2901.
The Facts

39

Mid-Pasig Land Development Corporation (MPLDC) owned two parcels

of land, with a total area of 18.4891 hectares, situated in Pasig City.
The properties are covered by Transfer Certificate of Title (TCT) Nos.
337158 and 469702 and Tax Declaration Nos. E-030-01185 and E-03001186 under the name of MPLDC. Portions of the properties are
leased to different business establishments.
In 1986, the registered owner of MPLDC, Jose Y. Campos (Campos),
voluntarily surrendered MPLDC to the Republic of the Philippines.
On 30 September 2002, the Pasig City Assessors Office sent MPLDC
two notices of tax delinquency for its failure to pay real property tax on
the properties for the period 1979 to 2001totaling P256,858,555.86. In
a letter dated 29 October 2002, Independent Realty Corporation (IRC)
President Ernesto R. Jalandoni (Jalandoni) and Treasurer
Rosario Razon informed the Pasig City Treasurer that the tax for the
period 1979 to 1986 had been paid, and that the properties were
exempt from tax beginning 1987.

On 19 December 2005, PCGG filed with the RTC an amended petition

for certiorari, prohibition and mandamus against Pasig City. PCGG
prayed that: (1) the assessments for the payment of real property tax
and penalty be declared void; (2) the warrants of levy on the properties
be declared void; (3) the public auction be declared void; (4) the
issuance of certificates of sale be declared void; (5) Pasig City be
prohibited from assessing MPLDC real property tax and penalty; (6)
Pasig City be prohibited from collecting real property tax and penalty
from MPLDC; (7) Pasig City be ordered to assess the actual occupants
of the properties real property tax and penalty; and (8) Pasig City be
ordered to collect real property tax and penalty from the actual
occupants of the properties.
The RTCs Ruling
In its 6 November 2006 Decision, the RTC granted the petition for
certiorari, prohibition and mandamus. The RTC held:
The primordial issue to be resolved in the present case is
whether or not respondent City of Pasig, through the City
Treasurer and the City Assessor, acted with grave abuse of
discretion amounting to lack or excess of jurisdiction when it
assessed, levied and sold in public auction
the payanig properties for non-payment of real property taxes.

In letters dated 10 July 2003 and 8 January 2004, the Pasig City
Treasurer informed MPLDC and IRC that the properties were not exempt
from tax. In a letter dated 16 February 2004, MPLDC General Manager
Antonio Merelos (Merelos) and Jalandoni again informed the Pasig City
Treasurer that the properties were exempt from tax. In a letter dated
11 March 2004, the Pasig City Treasurer again informed Merelos that
the properties were not exempt from tax.
On 20 October 2005, the Pasig City Assessors Office sent MPLDC a
notice of final demand for payment of tax for the period 1987 to
2005 totaling P389,027,814.48. On the same day, MPLDC
paid P2,000,000 partial payment under protest.
On 9 November 2005, MPLDC received two warrants of levy on the
properties. On 1 December 2005, respondent Republic of the
Philippines, through the Presidential Commission on Good Government
(PCGG), filed with the RTC a petition for prohibition with prayer for
issuance of a temporary restraining order or writ of preliminary
injunction to enjoin petitioner Pasig City from auctioning the properties
and from collecting real property tax.
On 2 December 2005, the Pasig City Treasurer offered the properties
for sale at public auction. Since there was no other bidder, Pasig City
bought the properties and was issued the corresponding certificates of
sale.

However, before dwelling on the merits of the main issue,

certain matters need to be addressed by the Court, to wit:
1.

Does the Court have jurisdiction over the instant petition?

2.

Who owns the so-called payanig properties that were

subjected to payment of real property taxes by respondent?
The Court maintains that it is not precluded from assuming
jurisdiction over the instant amended petition which involves
the legality of the assailed actions by respondent in assessing
and collecting real property tax on the properties owned by the
Republic of the Philippines. It is a jurisprudential doctrine that
the issue is purely legal when the authority of the respondent
to assess and collect real property taxes on the subject
properties is being questioned (Ty vs. Trampe, 250 SCRA 500).
xxxx

40

In the instant proceeding, there is no dispute that the

properties are surrendered ill-gotten wealth of former President
Marcos. As such, the same assumes [sic] a public character and
thus belongs [sic] to the Republic of the Philippines. x x x

ownership over the subject properties belong to petitioner. But

what is more appalling in the instant action is that such abuse
was capriciously committed by respondent City of Pasig against
the sovereign State itself from where that atxing local
government unit derives its very existence. The spring cannot
rise higher than its source.

xxxx

xxxx

Hence, upon the voluntary surrender by Jose Y. Campos, the

controlling owner of Mid-Pasig and Independent Realty
Corporation, of the payanig properties to PCGG, a clear
admission that these properties were part of the ill-gotten
wealth of former President Marcos was already evident. As
such, there was already constructive reconveyance to the
State, which immediately placed thesereconveyed properties
under the control and stewardship of the PCGG as
representative of the Republic of the Philippines. Under such
special circumstance, these voluntary surrendered properties
had already belonged to the State.

In sum, the acts of respondent in assessing real property taxes

on properties owned and controlled by the Republic of the
Philippines, in collecting taxes from Mid-Pasig in lieu of the
actual occupants or beneficial users of certain portions thereof,
and in auctioning said properties in favor of respondent,
followed by the corresponding certificate of sale, are all
unequivocally tainted with grave abuse of discretion amounting
to lack or excess of jurisdiction.
WHEREFORE, in the light of the foregoing, the instant Amended
Petition is hereby GRANTED.

xxxx
Premised on the foregoing, the payanig properties, being part
of the recovered ill-gotten wealth of President Marcos, and
therefore are owned by the State itself, are exempt from
payment of real property taxes. It is only when the beneficial
use of said properties has been granted to a taxable person
that the same may be subject to imposition of real property
tax.
Furthermore, in real estate taxation, the unpaid tax attaches to
the property and is chargeable against the taxable person who
had actual or beneficial use and possession of it regardless of
whether or not he is the owner (Testate Estate of Concordia T.
Lim vs. City of Manila, 182 SCRA 482).

Accordingly, the following acts of respondent are hereby

ANNULLED and SET ASIDE.
1.

the assessment dated September 30, 2002 for the payment

of real property taxes and penalties made by the City of Pasig
on two (2) parcels of land covered by TCT No. 337158 and TCT
No. 469702 registered under the name of Mid-Pasig;

2.

the warrants of levy dated November 8, 2005 issued thereon

by the City of Pasig;

3.

the subsequent public auction sale of subject properties held

on December 2, 2005 followed by the issuance of the
corresponding Certificate of Sale;

In the instant case, the taxable persons being referred to are

the lessees occupying and/or doing business therein and have
beneficial use over portions within the payanig properties.
xxxx
Consequently, there can be no iota of doubt that respondent
City of Pasig abused its discretion by committing the acts
sought to be annulled herein despite knowledge of the fact that

FURTHER, the City of Pasig is hereby PROHIBITED from further:

1.

Assessing real property taxes and penalties charges [sic] on

the said properties;

2.

Collecting said taxes and penalty charges from the State;

41

3.

Disposing or encumbering the subject properties or any

portion thereof;
FURTHER, the City of Pasig is hereby COMMANDED:

1.

To return or effect the refund of the amount of Two Million

Pesos (Php 2,000,000.00) paid under protest by Mid-Pasig Land
Development Corporation on October 20, 2005, or credit the
same amount to any outstanding tax liability that said
corporation may have with the City of Pasig; and

2.

To assess and collect from the actual occupants or beneficial

users of the subject properties, and not from the State,
whatever real property taxes and penalties that may be due on
the respective areas occupied by them.
SO ORDERED.4

Pasig City appealed to the Court of Appeals.

The Court of Appeals Ruling
In its 31 March 2008 Decision,5 the Court of Appeals set aside the RTCs
6 November 2006 Decision. The Court of Appeals held:
We find nothing in PCGGs petition that supports its claim
regarding Pasig Citys alleged grave abuse of discretion. It is
undisputed that the subject parcels of land are registered in the
name of Mid-Pasig, a private entity. Although the government,
through the PCGG have [sic] sequestered Mid-Pasig and all its
assets including the subject parcels of land, the
sequestration per se, did not operate to convert Mid-Pasig and
its properties to public property. The power of the PCGG to
sequester property claimed to be ill-gotten means to place or
cause to be placed under its possession or control said
property, or any building or office wherein any such property
and any records pertaining thereto may be found, including
business enterprises and entities for the purpose of preventing
the destruction, concealment or dissipation of, and otherwise
conserving and preserving the same until it can be determined,
through appropriate judicial proceedings, whether the property
was in truth ill-gotten, i.e., acquired through or as a result of
improper or illegal use of or the conversion of funds belonging
to the Government or any of its branches, instrumentalities,

enterprises, banks or financial institutions, or by taking undue

advantage of official position, authority, relationship,
connection or influence, resulting in unjust enrichment of the
ostensible owner and great damage and prejudice to the State.
x x x As such, prior to a valid court declaration the PCGG
cannot perform acts of strict ownership of [sic] sequestered
property. It is a mere conservator. In view thereof and the fact
that Mid-Pasig and its properties have not been validly declared
by the Sandiganbayan as ill-gotten wealth, the same are not
yet public properties. The PCGG even admitted that the
transfer certificates of title covering the subject parcels of land
in the name of Mid-Pasig have not been cancelled due to an
order of the Sandiganbayan. The trial court also found that the
subject parcels of land are the subject of litigation
between Ortigas and Company Limited Partnership and the
PCGG in Civil Case No. 0093 pending before
the Sandiganbayan. These facts clearly show that
the Sandiganbayan has not validly declared yet that the subject
parcels of land are ill-gotten wealth. If so, they cannot be
claimed yet as properties of the State: they remain properties
of a private entity. Thus, Pasig City through its City Assessor
and City Treasurer did not act with grave abuse of discretion
when it issued real property tax assessment on the subject
parcels of land.
Even admitting that the subject parcels of land are already
owned by the State, we still see no grave abuse of discretion on
the part of Pasig City when it issued the challenged tax
assessment, for it is well settled that the test of exemptions
from taxation is the use of the property for purposes mentioned
in the Constitution. The owner of the property does not matter.
Even if he is not a tax-exempt entity, as long as the property is
being used for religious, charitable or educational purposes, the
property is exempt from tax. Conversely, even if the
government owns the property, if the beneficial use thereof has
been granted, for consideration or otherwise, to a
taxable person, the property is subject to tax. Here, the PCGG
admitted that portions of the subject properties were leased to
private entities engaged in commercial dealings. As well, the
trial court found that lessees occupy different areas of the
subject parcels of land beginning 1992 until 2005. Therefore,
considering that portions of the subject parcels of land are used
for commercial purposes, the duty imposed by law to owners
and administrators of real property to declare the same for tax
purposes and the fact that the tax declarations over the subject
parcels of land are in the name of Mid-Pasig, again, Pasig City

42

did not act with grave abuse of discretion when it issued the
challenged tax assessment.
The foregoing snowball to one conclusion the allegations in
PCGGs petition imputing grave abuse of discretion on the part
of Pasig City, acting through the City Assessor and City
Treasurer, in the assessment and collection of the taxes were
made in order to justify the filing of the petition for certiorari,
prohibition and mandamus with the trial court.
The extraordinary remedies of certiorari, prohibition and
mandamus may be resorted to only when there is no other
plain, available, speedy and adequate remedy in the course of
law. Where administrative remedies are available, petitions for
the issuance of these peremptory writs do not lie in order to
give the administrative body the opportunity to decide the
matter by itself correctly and to prevent unnecessary and
premature resort to courts.
Republic Act No. 7160 or the Local Government Code
of 1991, clearly sets forth the administrative remedies available
to a taxpayer or real property owner who is not satisfied with
the assessment or reasonableness of the real property tax
sought to be collected. The Supreme Court outlined said
remedies, to wit:
Should the taxpayer/real property owner question the
excessiveness or reasonableness of the assessment, Section
252 directs that the taxpayer should first pay the tax due
before his protest can be entertained. There shall be annotated
on the tax receipts the words paid under protest. It is only after
the taxpayer has paid the tax due that he may file a protest in
writing within thirty days from payment of the tax to the
Provincial, City or Municipal Treasurer, who shall decide the
protest within sixty days from receipt. In no case is the local
treasurer obliged to entertain the protest unless the tax due
has been paid.
If the local treasurer denies the protest or fails to act upon it
within the 60-day period provided for in Section 252, the
taxpayer/real property owner may then appeal or directly file a
verified petition with the LBAA within sixty days from denial of
the protest or receipt of the notice of assessment, as provided
in Section 226 of R.A. No. 7160[.]

And, if the taxpayer is not satisfied with the decision of the

LBAA, he may elevate the same to the CBAA, which exercises
exclusive jurisdiction to hear and decide all appeals from the
decisions, orders and resolutions of the Local Boards involving
contested assessments of real properties, claims for tax refund
and/or tax credits or overpayments of taxes. An appeal may be
taken to the CBAA by filing a notice of appeal within thirty days
from receipt thereof.
From the Central Board Assessment Appeals, the dispute may
then be taken to the Court of Tax Appeals by filing a verified
petition for review under Rule 42 of the Revised Rules of Court;
to the Court of tax Appeals en banc; and finally to the Supreme
Court via a petition for review on certiorari pursuant to Rule 45
of the Revised Rules of Court.
We are not convinced with PCGGs stance that their recourse of
filing the petition for certiorari, prohibition and mandamus
before the trial court is proper as they are questioning not
merely the correctness of the tax assessment but the actions of
Pasig City, through its City Assessor and City Treasurer, which
were done in grave abuse of discretion amounting to lack or
excess of jurisdiction.
The well-established rule is that allegations in the complaint
and the character of the relief sought determine the nature of
an action. A perusal of the petition before the trial court plainly
shows that what is actually being assailed is the correctness of
the assessments made by the City Assessor of Pasig City on the
subject parcels of land. PCGG claims, among others, that: 1)
the subject parcels of land are exempt from real property
taxation as they are public property; 2) even if the subject
parcels of land are subject to tax, as the beneficial use thereof
was granted to private persons and entities, only the portion
thereof used for commerce is subject to tax and the users
thereof are the ones liable to pay the tax; and 3) the right of
Pasig City to collect the real property taxes pertaining to 1987
to 1998 has already prescribed. These claims essentially
involve questions of fact, which are improper in a petition for
certiorari, prohibition and mandamus; hence, the petition
should have been brought, at the very first instance, to the
Local Board Assessment Appeals, which has authority to rule on
the objections of any interested party who is not satisfied with
the action of the assessor. Under the doctrine of primacy of
administrative remedies, an error in the assessment must be

43

administratively pursued to the exclusion of ordinary courts

whose decisions would be void for lack of jurisdiction.
Granting that the assessors authority and the legality of the
assessment are indeed an issue, the proper remedy is a suit for
the refund of the real property tax after paying the same under
protest. It must be pointed out that in order for the trial court to
resolve the instant petition, the issues of the correctness of the
tax assessment and collection must also necessarily be dealt
with; hence, a petition for certiorari, prohibition and mandamus
is not the proper remedy. x x x [T]he resolution of the issues
raised in the instant case involve examination and
determination of relevant and material facts, i.e. facts relating
to the ownership of the subject parcels of land, the portion of
the subject parcel of land used for commercial purposes and
the identities of the lessees and the users thereof. Since
resolution of factual issues is not allowed in a petition for
certiorari, prohibition and mandamus, the trial court is
precluded from entertaining the petition.
Finally, Section 252 of the R.A. No. 7160 requires payment
under protest in assailing real property tax assessment. Even
an appeal shall not suspend the collection of the atx assessed
without prejudice to a later adjustment pending the outcome of
the appeal. This principle is consistent with the timehonored principle that taxes are the lifeblood of the nation. But
the PCGG failed to pay the tax assessment prior to questioning
it before the trial court; hence, the trial court should have
dismissed PCGGs petition in line with the Supreme Court
pronouncement that a trial court has no jurisdiction to entertain
a similar petition absent payment under protest.
In conclusion and taking all the foregoing into account, we hold
that the trial court had no jurisdiction to take cognizance and
decide PCGG petition for certiorari, prohibition and mandamus;
the trial court should have dismissed the petition.6
PCGG filed a motion for reconsideration. In its 17 October 2008
Decision, the Court of Appeals reversed itself. The Court of Appeals
held:
At the outset, although as a rule, administrative remedies must
first be exhausted before ersort to judicial action can prosper,
there is a well-settled exception in cases where the controversy
does not involve questions of fact but only of law. We find that

the Republic has shown a cause for the application of the

foregoing exception. Essentially, the Republic has raised a pure
question of law whether or not the City of Pasig has the power
to impose real property tax on the subject properties, which are
owned by the State. It bears stressing that the Republic did not
raise any question concerning the amount of the real property
tax or the determination thereof. Thus, having no plain, speedy,
and adequate remedy in law, the Republic correctly resorted to
judicial action via the petition for certiorari, prohibition, and
mandamus, to seek redress.
We are convinced that the subject properties were not
sequestered by the government so as to amount to a
deprivation of property without due process of law; instead,
they were voluntarily surrendered to the State by Campos, a
self-admitted crony of the then President Marcos. The
relinquishment of the subject properties to the State as illgotten wealth of Marcos, as recognized by the Supreme Court,
makes a judicial declaration that the same were ill-gotten
unnecessary. By virtue of said relinquishment, the State
correctly exercised dominion over the subject properties.
Indubitably, the subject properties, being ill-gotten wealth,
belong to the State. x x x By its nature, ill-gotten wealth is
owned by the State. As a matter of fact, the Republic continues
to exercise dominion over the subject properties.7
Hence, the present petition.
Issues
Pasig City raises as issues that the lower courts erred in granting
PCGGs petition for certiorari, prohibition and mandamus and in
ordering Pasig City to assess and collect real property tax from the
lessees of the properties.
The Courts Ruling
The petition is partly meritorious.
As correctly found by the RTC and the Court of Appeals, the Republic of
the Philippines owns the properties. Campos voluntarily surrendered
MPLDC, which owned the properties, to the Republic of the Philippines.
In Republic of the Philippines v. Sandiganbayan,8 the Court stated:

44

x x x Jose Y. Campos, a confessed crony of former President

Ferdinand E. Marcos, voluntarily surrendered or turned over to
the PCGG the properties, assets and corporations he held in
trust for the deposed President. Among the corporations he
surrendered were the Independent Realty Corporation and the
Mid-Pasig Land Development Corporation.9

disclosures, and his commitment to pay a sum of money as

determined by the Philippine Government, this Commission has
decided and agreed:
xxxx

The antecedent facts are stated by the Solicitor General as

follows:

Undoubtedly, this resolution embodies a compromise

agreement between the PCGG on one hand and Jose Y. Campos
on the other. Hence, in exchange for the voluntary surrender of
the ill-gotten properties acquired by the then President
Ferdinand E. Marcos and his family which were in Jose Campos
control, the latter and his family were given full immunity in
both civil and criminal prosecutions. x x x

xxxx

xxxx

3. Sometime in the later part of August 1987, defendant Jose D.

Campos, Jr., having been served with summons on August 5,
1987, filed with the respondent Court an undated Manifestation
and Motion to Dismiss Complaint with Respect to Jose D.
Campos praying that he be removed as party defendant from
the complaint on the grounds that he had voluntarily
surrendered or turned over any share in his name on [sic] any
of the corporations referred to, aside from disclaiming any
interest, ownership or right thereon to the Government of the
Republic of the Philippines and that he was entitled to the
immunity granted by the Presidential Commission on Good
Government pursuant to Executive Order No. 14, under the
Commissions Resolution dated May 28, 1986 to Mr. Jose Y.
Campos and his family he being a member of the immediate
family of Jose Y. Campos.

By virtue of the PCGGs May 28, 1986 resolution, Jose Campos,

Jr. was given full immunity from both civil and criminal
prosecutions in exchange for the full cooperation of Mr. Jose Y.
Campos to this Commission, his voluntary surrender of the
properties and assets disclosed and declared by him to belong
to deposed President Ferdinand E. Marcos to the Government of
the Republic of the Philippines, his full, complete and truthful
disclosures, and his commitment to pay a sum of money as
determined by the Philippine Government. In addition, Campos,
Jr. had already waived and surrendered to the Republic his
registered equity interest in the
Marcos/Romualdez corporations involved in the civil case.11

In Republic of the Philippines v. Sandiganbayan,10 the Court stated:

xxxx
In the instant case, the PCGG issued a resolution dated May 28,
1986, granting immunity from both civil and criminal
prosecutions to Jose Y. Campos and his family. The pertinent
provisions of the resolution read as follows:
3.0. In consideration of the full cooperation of Mr. Jose Y.
Campos to this Commission, his voluntary surrender of the
properties and assets disclosed and declared by him to belong
to deposed President Ferdinand E. Marcos to the Government of
the Republic of the Philippines, his full, complete and truthful

Even as the Republic of the Philippines is now the owner of the

properties in view of the voluntary surrender of MPLDC by its former
registered owner, Campos, to the State, such transfer does not prevent
a third party with a better right from claiming such properties in the
proper forum. In the meantime, the Republic of the Philippines is the
presumptive owner of the properties for taxation purposes.
Section 234(a) of Republic Act No. 7160 states that properties owned
by the Republic of the Philippines are exempt from real property
tax except when the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person. Thus, the
portions of the properties not leased to taxable entities are exempt
from real estate tax while the portions of the properties leased to
taxable entities are subject to real estate tax. The law imposes the
liability to pay real estate tax on the Republic of the Philippines for the

45

portions of the properties leased to taxable entities. It is, of course,

assumed that the Republic of the Philippines passes on the real estate
tax as part of the rent to the lessees.
In Philippine Fisheries Development Authority v. Central Board of
Assessment Appeals,12 the Court held:
In the 2007 case of Philippine Fisheries Development Authority
v. Court of Appeals, the Court resolved the issue of whether the
PFDA is a government-owned or controlled corporation or an
instrumentality of the national government. In that case, the
City of Iloilo assessed real property taxes on the Iloilo
Fishing Port Complex (IFPC), which was managed and
operated by PFDA. The Court held that PFDA is an
instrumentality of the government and is thus exempt
from the payment of real property tax, thus:
The Court rules that the Authority is not a GOCC
but an instrumentality of the national
government which is generally exempt from
payment of real property tax. However, said
exemption does not apply to the portions of the
IFPC which the Authority leased to private
entities. With respect to these properties, the
Authority is liable to pay property tax.
Nonetheless, the IFPC, being a property of public
dominion cannot be sold at public auction to satisfy the
tax delinquency.
xxxx
This ruling was affirmed by the Court in a subsequent PFDA case
involving the Navotas Fishing Port Complex, which is also managed and
operated by the PFDA. In consonance with the previous ruling, the
Court held in the subsequent PFDA case that the PFDA is a
government instrumentality not subject to real property tax
except those portions of the NavotasFishing Port Complex that
were leased to taxable or private persons and entities for their
beneficial use.
Similarly, we hold that as a government instrumentality, the
PFDA is exempt from real property tax imposed on
the Lucena Fishing Port Complex, except those portions which
are leased to private persons or entities.13 (Emphasis supplied)

In Government Service Insurance System v. City Treasurer of the City

of Manila,14 the Court held:
x x x The tax exemption the property of the Republic or
its instrumentalities carries ceases only if, as stated in
Sec. 234(a) of the LGC of 1991, beneficial use thereof
has been granted, for a consideration or otherwise, to a
taxable person. GSIS, as a government instrumentality, is not
a taxable juridical person under Sec. 133(o) of the LGC. GSIS,
however, lost in a sense that status with respect to
the Katigbak property when it contracted its beneficial
use to MHC, doubtless a taxable person. Thus, the real
estate tax assessment of Php 54,826,599.37 covering
1992 to 2002 over the subject Katigbak property is valid
insofar as said tax delinquency is concerned as assessed
over said property.15 (Emphasis supplied)
In Manila International Airport Authority v. Court of Appeals,16 the Court
held:
x x x Section 234(a) of the Local Government Code
states that real property owned by the Republic loses
its tax exemption only if the beneficial use thereof has
been granted, for consideration or otherwise, to a
taxable person. MIAA, as a government instrumentality, is not
a taxable person under Section 133(o) of the local Government
Code. Thus, even if we assume that the Republic has granted to
MIAA the beneficial use of the Airport Lands and Buildings, such
fact does not make these real properties subject to real estate
tax.
However, portions of the Airport Lands and Buildings
that MIAA leases to private entities are not exempt from
real estate tax. For example, the land area occupied by
hangars that MIAA leases to private corporations is
subject to real estate tax. In such a case, MIAA has
granted the beneficial use of such land area for a
consideration to a taxable person and therefore such
land area is subject to real estate tax.17 (Emphasis
supplied)
In Lung Center of the Philippines v. Quezon City,18 the Court held:

46

x x x While portions of the hospital are used for the treatment

of patients and the dispensation of medical services to them,
whether paying or non-paying, other portions thereof are being
leased to private individuals for their clinics and a canteen.
Further, a portion of the land is being leased to a private
individual for her business enterprise under the business name
Elliptical Orchids and GardenCenter. 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. 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.19 (Emphasis supplied)
Article 420 of the Civil Code classifies as properties of public dominion
those that are intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks,
shores, roadsteads and those that are intended for some public service
or for the development of the national wealth. Properties of public
dominion are not only exempt from real estate tax, they are exempt
from sale at public auction. In Heirs of Mario Malabanan v.
Republic,20 the Court held that, It is clear that property of public
dominion, which generally includes property belonging to the State,
cannot be x x x subject of the commerce of man.21
In Philippine Fisheries Development Authority v. Court of Appeals,22 the
Court held:
x x x [T]he real property tax assessments issued by the City of
Iloilo should be upheld only with respect to the portions leased
to private persons. In case the Authority fails to pay the
real property taxes due thereon, said portions cannot be
sold at public auction to satisfy the tax delinquency.
In Chavez v. Public Estates Authority it was held
that reclaimed lands are lands of the public dominion
and cannot, without Congressional fiat, be subject of a
sale, public or private x x x.
In the same vein, the port built by the State in the Iloilo
fishing complex is a property of the public dominion and

cannot therefore be sold at public auction. Article 420 of

the Civil Code, provides:
Article 420. The following things are property of public
dominion:
1.

Those intended for public use, such as roads,

canals, rivers, torrents, ports and bridges
constructed by the State, banks,
shores, roadsteads, and others of similar
character;

2.

Those which belong to the State, without

being for public use, and are intended for some
public service or for the development of the
national wealth.

The Iloilo fishing port which was constructed by the

State for public use and/or public service falls within the
term port in the aforecited provision. Being a property
of public dominion the same cannot be subject to
execution or foreclosure sale. In like manner, the reclaimed
land on which the IFPC is built cannot be the object of a private
or public sale without Congressional authorization.23 (Emphasis
supplied)
In Manila International Airport Authority,24 the Court held:
x x x [T]he Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State
or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth.

47

The term ports x x x constructed by the Sate includes airports

and seaports. The Airport Lands and Buildings of MIAA are
intended for public use, and at the very least intended for
public service. Whether intended for public use or public
service, the Airport Lands and Buildings are properties of public
dominion. As properties of public dominion, the the Airport
lands and Buildings are owned by the Republic and thus
exempt from real estate tax under Section 234(a) of the Local
Government Code.
xxxx
Under Article 420 of the Civil Code, the Airport Lands and
Buildings of MIAA, being devoted to public use, are properties
of public dominion and thus owned by the State or the Republic
of the Philippines. Article 420 specifically mentions ports
x x x constructed by the State, which includes public airports
and seaports, as properties of public dominion and owned by
the Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands
and Buildings are expressly exempt from real estate tax under
Section 234(a) of the local Government Code. This Court has
also repeatedly ruled that properties of public dominion
are not subject to execution or foreclosure
sale.25 (Emphasis supplied)
In the present case, the parcels of land are not properties of public
dominion because they are not intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads. Neither are they intended for some public
service or for the development of the national wealth. MPLDC leases
portions of the properties to different business establishments. Thus,
the portions of the properties leased to taxable entities are not only
subject to real estate tax, they can also be sold at public auction to
satisfy the tax delinquency.
In sum, only those portions of the properties leased to taxable entities
are subject to real estate tax for the period of such leases. Pasig City
must, therefore, issue to respondent new real property tax
assessments covering the portions of the properties leased to taxable
entities. If the Republic of the Philippines fails to pay the real property
tax on the portions of the properties leased to taxable entities, then
such portions may be sold at public auction to satisfy the tax
delinquency.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court SETS

ASIDE the 17 October 2008 Decision of the Court of Appeals in CA-G.R.
SP No. 97498 and declaresVOID the 30 September 2002 real property
tax assessment issued by Pasig City on the subject properties of MidPasig Land Development Corporation, the 8 November 2005 warrants
of levy on the properties, and the 2 December 2005 auction sale. Pasig
City is DIRECTED to issue to respondent new real property tax
assessments covering only the portions of the properties actually
leased to taxable entities, and only for the period of such leases.
Interests and penalties on such new real property tax assessment shall
accrue only after receipt of such new assessment by respondent. SO
ORDERED.
SECOND DIVISION
G.R. No. 150763

July 2, 2004

RURAL BANK OF MAKATI, INC., ESTEBAN S. SILVA and

MAGDALENA V. LANDICHO, petitioners,
vs.
MUNICIPALITY OF MAKATI and ATTY. VICTOR A. L.
VALERO, respondents.

DECISION
QUISUMBING, J.:
In its decision1 dated July 17, 2001, in CA-G.R. CV No. 58214, the Court
of Appeals affirmed the decision2 dated October 22, 1996 of the
Regional Trial Court of Makati City, Branch 134, in Civil Case No. 912866 dismissing petitioners complaint for recovery of a sum of money
and damages. Petitioners now assail said CA decision as well as the
Resolution3 dated November 9, 2001, which denied their Motion for
Reconsideration.
The facts are as follows:
Sometime in August 1990, Atty. Victor A.L. Valero, then the municipal
attorney of the Municipality of Makati, upon request of the municipal
treasurer, went to the Rural Bank of Makati to inquire about the banks
payments of taxes and fees to the municipality. He was informed,
however, by petitioner Magdalena V. Landicho, corporate secretary of

48

the bank, that the bank was exempt from paying taxes under Republic
Act No. 720, as amended.4
On November 19, 1990, the municipality lodged a complaint with the
Prosecutors Office, charging petitioners Esteban S. Silva, president and
general manager of the bank and Magdalena V. Landicho for violation
of Section 21(a), Chapter II, Article 3 in relation to Sections 105 and
169 of the Metropolitan Tax Code.
On April 5, 1991, an Information docketed as Criminal Case No.
140208, for violation of Municipal Ordinance Nos. 122 and 39 for nonpayment of the mayors permit fee, was filed with the Metropolitan
Trial Court (MeTC) of Makati against petitioners. Another Information,
docketed as Criminal Case No. 140209, for non-payment of annual
business tax, in violation of Metro Manila Commission Ordinance No.
82-03, Section 21(a), Chapter II, Article 3, was likewise filed with the
MeTC.
While said cases were pending with the municipal court, respondent
municipality ordered the closure of the bank. This prompted petitioners
to pay, under protest, the mayors permit fee and the annual fixed tax
in the amount ofP82,408.66.
On October 18, 1991, petitioners filed with the RTC of Makati a
Complaint for Sum of Money and Damages, docketed as Civil Case No.
91-2866. Petitioners alleged that they were constrained to pay the
amount ofP82,408.66 because of the closure order, issued despite the
pendency of Criminal Cases Nos. 140208-09 and the lack of any notice
or assessment of the fees to be paid. They averred that the collection
of the taxes/fees was oppressive, arbitrary, unjust and illegal.
Additionally, they alleged that respondent Atty. Valero had no power to
enforce laws and ordinances, thus his action in enforcing the collection
of the permit fees and business taxes was ultra vires. Petitioners
claimed that the bank lost expected earnings in the amount
of P19,778. Petitioners then assailed the municipal ordinances of
Makati as invalid for want of the requisite publication.
In its Answer, respondent municipality asserted that petitioners
payment of P82,408.66 was for a legal obligation because the payment
of the mayors permit fee as well as the municipal business license was
required of all business concerns. According to respondent, said
requirement was in furtherance of the police power of the municipality
to regulate businesses.

For his part, Atty. Valero filed an Answer claiming that there was no
coercion committed by the municipality, that payment was a legal
obligation of the bank, and that its claim of exemption had no legal
basis. He further alleged that petitioners action was clearly intended
to harass and humiliate him and as counterclaim, he asked for moral
and other damages.
On October 22, 1996, the RTC decided Civil Case No. 91-2866 as
follows:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered dismissing the complaint.
On the counterclaim, the plaintiffs are hereby ordered jointly
and severally to pay to defendant Victor Valero the sum
of P200,000.00 as moral damages and the amount
of P50,000.00 as attorneys fees.
The counterclaim of defendant Municipality is dismissed.
Cost against the plaintiffs.
SO ORDERED.5
In finding for respondents, the RTC ruled that the bank was engaged in
business as a rural bank. Hence, it should secure the necessary permit
and business license, as well as pay the corresponding charges and
fees. It found that the municipality had authority to impose licenses
and permit fees on persons engaging in business, under its police
power embodied under the general welfare clause. Also, the RTC
declared unmeritorious petitioners claim for exemption under Rep. Act
No. 720 since said exemption had been withdrawn by Executive Order
No. 936 and the Rural Bank Act of 1992.7 These statutes no longer
exempted rural banks from paying corporate income taxes and local
taxes, fees and charges. It also found petitioners claim of lack of
publication of MMC Ordinance Nos. 82-03 and Municipal Ordinance No.
122 to be mere allegations unsupported by clear and convincing
evidence.
In awarding damages to Atty. Valero, the RTC found that he had been
maliciously impleaded as defendant. It noted that Atty. Valero, as a
municipal legal officer, was tasked to enforce municipal ordinances. In
short, he was merely an agent of the local chief executive and should
not be faulted for performing his assigned task.

49

Petitioners seasonably moved for reconsideration, but this was denied

by the RTC in its Order dated January 10, 1997.8
Petitioners appealed to the Court of Appeals in CA-G.R. CV No. 58214.
The appellate court sustained the lower court in this wise:
WHEREFORE, premises considered, the appealed decision is
hereby AFFIRMED in toto.
SO ORDERED.

The Court of Appeals found the order of closure of the bank valid and
justified since the bank was operating without any permit and without
having paid the requisite permit fee. Thus, declared the Court of
Appeals, "it is not merely a matter of enforcement and collection of
fees, as the appellants would have it, but a violation of the
municipalitys authority to regulate the businesses operating within its
territory."10
The appellate court also brushed aside petitioners claim that the
general welfare clause is limited only to legislative action. It declared
that the exercise of police power by the municipality was mandated by
the general welfare clause, which authorizes the local government
units to enact ordinances, not only to carry into effect and discharge
such duties as are conferred upon them by law, but also those for the
good of the municipality and its inhabitants. This mandate includes the
regulation of useful occupations and enterprises.

3) .AWARDING MORAL DAMAGES TO APPELLEE VICTOR

VALERO IN THE AMOUNT OF P200,000.00 AND ATTORNEYS
FEES IN THE SUM OF P50,000.00;
4) .NOT AWARDING TO THE APPELLANT BANK, THE AMOUNT
OF P57,854.00 REPRESENTING THE AMOUNT UNJUSTLY AND
ILLEGALLY COLLECTED FROM THE APPELLANT BANK;
5) .NOT AWARDING THE AMOUNT OF P10,413.75 YEARLY
REPRESENTING THE UNREALIZED PROFIT WHICH THE
APPELLANT BANK IS BEING DEPRIVED OF IN THE USE OF THE
AFORESAID AMOUNT PLUS LEGAL INTEREST ALLOWED IN
JUDGMENT FROM THE TIME OF THE EXTRAJUDICIAL DEMAND.
(DEMAND LETTER, DATED OCTOBER 4, 1991, EXHIBIT "O" FOR
THE APPELLANTS);
6) .NOT GRANTING TO APPELLANTS ESTEBAN S. SILVA AND
MAGDALENA LANDICHO MORAL DAMAGES IN THE AMOUNT OF
P15,000.00;
7) .NOT AWARDING TO APPELLANTS, P1,000,000.00
EXEMPLARY DAMAGES; 25% OF THE APPELLANTS CLAIM AS
AND FOR ATTORNEYS FEE AND COSTS OF SUIT.12
Essentially, the following are the relevant issues for our resolution:
1. Whether or not petitioner bank is liable to pay the business
taxes and mayors permit fees imposed by respondent;

Petitioner moved for reconsideration, but the appellate court in its

Resolution11 of November 9, 2001 denied the same.

2. Whether or not the closure of petitioner bank is valid;

Hence, this instant petition alleging that the Honorable Court of

Appeals seriously erred in:

3. Whether or not petitioners are entitled to an award of

unrealized profit and damages;

1) .HOLDING THAT THE CLOSURE BY THE APPELLEE, VICTOR

VALERO, OF THE APPELLANT BANK WAS A LEGITIMATE
EXERCISE OF POLICE POWER BY THE MUNICIPALITY OF MAKATI;
2) .NOT CONSIDERING THE FACT THAT MAKATI ORDINANCE
122 REQUIRING MAYORS PERMIT FOR OPERATION OF AN
ESTABLISHMENT AND MMC ORDINANCE NO. 82-03 WERE
ADMITTED AS NOT PUBLISHED AS REQUIRED IN TAADA, ET
AL., vs. TUVERA, NO. L-63915, DECEMBER 29, 1986 AND THAT
NO TAX ASSESSMENT WAS PRESENTED TO THE BANK;

4. Whether or not respondent Atty. Victor Valero is entitled to

damages.
On the first issue, petitioner bank claims that of the P82,408.66 it paid
under protest, it is actually liable only for the amount of P24,154,
representing taxes, fees and charges due beginning 1987, or after the
issuance of E.O. No. 93. Prior to said year, it was exempt from paying
any taxes, fees, and charges by virtue of Rep. Act No. 720.

50

We find the banks claim for refund untenable now.

Section 14 of Rep. Act No. 720, as amended by Republic Act No.
4106,13 approved on July 19, 1964, had exempted rural banks with net
assets not exceeding one million pesos (P1,000,000) from the payment
of all taxes, charges and fees. The records show that as of December
29, 1986, petitioner banks net assets amounted only
toP745,432.2914 or below the one million ceiling provided for in Section
14 of the old Rural Banking Act. Hence, under Rep. Act No. 720,
petitioner bank could claim to be exempt from payment of all taxes,
charges and fees under the aforementioned provision.
However, on December 17, 1986, Executive Order No. 93 was issued
by then President Corazon Aquino, withdrawing all tax and duty
incentives with certain exceptions. Notably, not included among the
exceptions were those granted to rural banks under Rep. Act No. 720.
With the passage of said law, petitioner could no longer claim any
exemption from payment of business taxes and permit fees.
Now, as to the refund of P57,854 claimed by petitioners allegedly
because of overpayment of taxes and fees, we note that petitioners
have not adequately substantiated their claim. As found by the Court
of Appeals:
As to the computation of the payable fees, the plaintiffsappellants claim an overpayment and pray for a refund. It is not
clearly shown from their argument that such overpayment
exists. And from their initial complaint, they even asked for the
refund of the whole P82,408.66 paid, which complaint was
instituted in 1991. They claim having paid the fees and charges
due since 1991, which is irrelevant, since the P82,408.66 was
paid for the period before 1991, and thus no deduction can be
made for payments after that period. It is not clear where their
computation of P57,854.00 owed them came from, and lacking
solid support, their prayer for a partial refund must fail.
Plaintiffs-appellants have failed to show that the payment of
fees and charges even covered the period before their
exemption was withdrawn.15
Factual findings of the Court of Appeals, which are supported on
record, are binding and conclusive upon this Court. As repeatedly held,
such findings will not be disturbed unless they are palpably
unsupported by the evidence on record or unless the judgment itself is
based on misapprehension of facts.16 Moreover, in a petition for review,

only questions of law are properly raised. On this score, the refund
sought by petitioners could not be entertained much less granted.
Anent the second issue, petitioner bank claims that the closure of
respondent bank was an improper exercise of police power because a
municipal corporation has no inherent but only delegated police power,
which must be exercised not by the municipal mayor but by the
municipal council through the enactment of ordinances. It also assailed
the Court of Appeals for invoking the General Welfare Clause embodied
in Section 1617 of the Local Government Code of 1991, which took
effect in 1992,18 when the closure of the bank was actually done on July
31, 1991.
Indeed the Local Government Code of 1991 was not yet in effect when
the municipality ordered petitioner banks closure on July 31, 1991.
However, the general welfare clause invoked by the Court of Appeals is
not found on the provisions of said law alone. Even under the old Local
Government Code (Batas Pambansa Blg. 337)19 which was then in
effect, a general welfare clause was provided for in Section 7 thereof.
Municipal corporations are agencies of the State for the promotion and
maintenance of local self-government and as such are endowed with
police powers in order to effectively accomplish and carry out the
declared objects of their creation.20 The authority of a local government
unit to exercise police power under a general welfare clause is not a
recent development. This was already provided for as early as the
Administrative Code of 1917.21 Since then it has been reenacted and
implemented by new statutes on the matter. Thus, the closure of the
bank was a valid exercise of police power pursuant to the general
welfare clause contained in and restated by B.P. Blg. 337, which was
then the law governing local government units. No reversible error
arises in this instance insofar as the validity of respondent
municipalitys exercise of police power for the general welfare is
concerned.
The general welfare clause has two branches. The first, known as
the general legislative power, authorizes the municipal council to enact
ordinances and make regulations not repugnant to law, as may be
necessary to carry into effect and discharge the powers and duties
conferred upon the municipal council by law. The second, known as
thepolice power proper, authorizes the municipality to enact
ordinances as may be necessary and proper for the health and safety,
prosperity, morals, peace, good order, comfort, and convenience of the
municipality and its inhabitants, and for the protection of their
property.22

51

In the present case, the ordinances imposing licenses and requiring

permits for any business establishment, for purposes of regulation
enacted by the municipal council of Makati, fall within the purview of
the first branch of the general welfare clause. Moreover, the ordinance
of the municipality imposing the annual business tax is part of the
power of taxation vested upon local governments as provided for
under Section 8 of B.P. Blg. 337,23 to wit:
Sec. 8. Authority to Create Sources of Revenue. (1) Each local
government unit shall have the power to create its own sources
of revenue and to levy taxes, subject to such limitations as may
be provided by law.
...

(p) Ensure that all taxes and other revenues of

the municipality are collected, and that municipal
funds are spent in accordance with law, ordinances and
regulations;
...
(t) Cause to be instituted judicial proceedings in
connection with the violation of ordinances, for the
collection of taxes, fees and charges, and for the
recovery of property and funds of the municipality, and
otherwise to protect the interest of the
municipality; 24 (Emphasis supplied)
...

Implementation of these ordinances is vested in the municipal mayor,

who is the chief executive of the municipality as provided for under the
Local Government Code, to wit:
Sec. 141. Powers and Duties.
(1) The mayor shall be the chief executive of the municipal
government and shall exercise such powers, duties and
functions as provided in this Code and other laws.
(2) He shall:
...
(k) Grant licenses and permits in accordance with
existing laws or municipal ordinances and revokethem
for violation of the conditions upon which they have
been granted;
...
(o) Enforce laws, municipal ordinances and
resolutions and issue necessary orders for their faithful
and proper enforcement and execution;

Consequently, the municipal mayor, as chief executive, was clothed

with authority to create a Special Task Force headed by respondent
Atty. Victor A.L. Valero to enforce and implement said ordinances and
resolutions and to file appropriate charges and prosecute
violators.25 Respondent Valero could hardly be faulted for performing
his official duties under the cited circumstances.
Petitioners contend that MMC Ordinance No. 82-03 and Municipal
Ordinance No. 122 are void for lack of publication. This again raises a
factual issue, which this Court may not look into. As repeatedly held,
this Court is not a trier of facts.26 Besides, both the Court of Appeals
and the trial court found lack of sufficient evidence on this point to
support petitioners claim, thus:
And finally the matter of the lack of publication is once again
alleged by the plaintiffs-appellants, claiming that the matter
was skirted by the trial court. This argument must fail, in the
light of the trial courts squarely finding lack of evidence to
support the allegation of the plaintiffs-appellants. We quote
from the trial courts decision:
The contention that MMC Ordinance No. 82-03 and
Municipal Ordinance No. 122 of Makati are void as they
were not publishced (sic) is untenable. The mere
allegation of the plaintiff is not sufficient to declare said
ordinances void. The plaintiffs failed to adduce clear,
convincing and competent evidence to prove said
Ordinances void. Moreover, in this jurisdiction, an

52

ordinance is presumed to be valid unless declared

otherwise by a Court in an appropriate proceeding
where the validity of the ordinance is directly put in
issue.27
On the issue of the closure of the bank, we find that the bank was not
engaged in any illegal or immoral activities to warrant its outright
closure. The appropriate remedies to enforce payment of delinquent
taxes or fees are provided for in Section 62 of the Local Tax Code, to
wit:
SEC. 62. Civil Remedies. The civil remedies available to
enforce payment of delinquent taxes shall be by distraint of
personal property, and by legal action. Either of these remedies
or both simultaneously may be pursued at the discretion of the
proper authority.
The payment of other revenues accruing to local governments
shall be enforced by legal action.28

in the honest belief that it is exempt from paying taxes and fees. Since
Atty. Valero was the official charged with the implementation of the
ordinances of respondent municipality, he was rightly impleaded as a
necessary party in the case.
WHEREFORE, the assailed Decision dated July 17, 2001, of the Court
of Appeals in CA-G.R. CV No. 58214 is AFFIRMED with MODIFICATIONS,
so that (1) the order denying any claim for refunds and fees allegedly
overpaid by the bank, as well as the denial of any award for damages
and unrealized profits, is hereby SUSTAINED; (2) the order decreeing
the closure of petitioner bank is SET ASIDE; and (3) the award of moral
damages and attorneys fees to Atty. Victor A.L. Valero is DELETED. No
pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Tinga, JJ., concur.
Austria-Martinez, J., on leave.

Said Section 62 did not provide for closure. Moreover, the order of
closure violated petitioners right to due process, considering that the
records show that the bank exercised good faith and presented what it
thought was a valid and legal justification for not paying the required
taxes and fees. The violation of a municipal ordinance does not
empower a municipal mayor to avail of extrajudicial remedies.29 It
should have observed due process before ordering the banks closure.
Finally, on the issue of damages, we agree with both the trial and the
appellate courts that the bank is not entitled to any damages. The
award of moral damages cannot be granted to a corporation, it being
an artificial person that exists only in legal contemplation and cannot,
therefore, experience physical suffering and mental anguish, which can
be experienced only by one having a nervous system.30 There is also
no sufficient basis for the award of exemplary damages. There being
no moral damages, exemplary damages could not be awarded also. As
to attorneys fees, aside from lack of adequate support and proof on
the matter, these fees are not recoverable as a matter of right but
depend on the sound discretion of the courts.31
Under the circumstances of this case, the award of damages to Atty.
Valero is also baseless. We cannot ascribe any illegal motive or malice
to the bank for impleading Atty. Valero as an officer of respondent
municipality. The bank filed the case against respondent municipality

53

Subsequently, Chan passed away and his estate sold the same
property to petitioners Francisco and Joaquin Wong on September 29,
1967. Because the estate of Chan was unable to produce the estate
tax clearance and the owners duplicate of title, petitioners were only
allowed to annotate a notice of adverse claim on TCT No. T-7373
Spouses FRANCISCO and G.R. No. 161748
BETTY WONG and Spouses
JOAQUIN and LOLITA WONG, Petitioners,
-versusCITY OF ILOILO, ROMEO
MANIKAN as City Treasurer
of Iloilo, MELANIE UY and
the ESTATE OF FELIPE UY,
Respondents. Promulgated:
July 3, 2009
x-------------------------------------------------x
RESOLUTION

stating:[2]
Entry No. 40286Notice of Adverse Claim filed by
[petitioners] to protect [their] rights and interest in the
parcel of land described herein in view that the same
[was] acquired by Vicente Chan from C.N. Hodges and
the same [was] also acquired by Joaquin Wong from
Adelfa Remaylon vda. de Chan by purchase for the sum
of P38,500 .[3]

On January 3, 1991, respondent Iloilo City Treasurer Romeo

Manikan issued a general notice of delinquency in the payment of real
estate taxes.[4] It was published in the Visayan Tribune from January 8

CORONA, J.:

to 14, 1991, January 15 to 21, 1991 and January 22 to 28, 1991.[5]

At the center of this controversy is a 184-square meter property

covered by TCT No. T-7373[1] on Valeria Street, Iloilo City owned by
Charles Newton and Jane Linnie Hodges.

Because no one contested the said notice or settled the tax

delinquency of the subject property, the City Treasurer sent the notice
of sale to the last known judicial administrator of the estates of the

On November 3, 1966, the respective estates of the Hodges

spouses sold the property to Vicente Chan. For some reason, however,

Hodges. However, the said notice was returned with the annotation
cannot be located.[6]

Chan was not able to register the property in his name.

54

On September 26, 1991, the property was sold at public

auction wherein respondent Melanie Uy was the highest bidder. On
November 27, 1992, a final bill of sale was issued to her. Consequently,
TCT No. T-7373 was cancelled and TCT No. T-97308 was issued to
Melanie Laserna Uy married to Felipe G. Uy.

On November 8, 1993, petitioners Francisco and Betty Wong

filed a complaint for the annulment of the September 26, 1991 auction
sale and TCT No. T-97308 against respondents the City Government of
Iloilo, City Treasurer Romeo Manikan and the spouses Felipe and
Melanie Uy in the Regional Trial Court (RTC) of Iloilo City, Branch 27.
[7]

They asserted that the tax sale was void since the City Treasurer

discretion of the provincial or city treasurer, by

publication once a week for three consecutive weeks in
a newspaper of general circulation published in the
province or city.
The notice, publication, and announcement by
crier shall state the amount of the taxes, penalties and
costs of sale; the date, hour, and place of sale, the
name of the taxpayer against whom the tax was
assessed; and the kind or nature of property and, if
land, its approximate areas, lot number, and location
stating the street and block number, district or barrio,
municipality and the province or city where the property
to be sold is situated. Copy of the notice shall
forthwith be sent either by registered mail or by
messenger, or through the barrio captain, to the
delinquent taxpayer, at his address as shown in
the tax rolls or property tax record cards of the
municipality or city where the property is
located, or at his residence, if known to said
treasurer
or
barrio
captain: Provided, however, That a return of the
proof of service under oath shall be filed by the
person making the service with the provincial or
city treasurer concerned. (emphasis supplied)

failed to inform them of the tax sale as required by Section 73 of

PD[8] 464[9] which provided:
Section 73. Advertisement of sale of real property at
public auction. After the expiration of the year for which
the tax is due, the provincial or city treasurer shall
advertise the sale at public auction of the entire
delinquent real property, except real property
mentioned in subsection (a) of Section forty hereof, to
satisfy all the taxes and penalties due and the costs of
sale. Such advertisement shall be made by posting a
notice for three consecutive weeks at the main entrance
of the provincial building and of all municipal buildings
in the province, or at the main entrance of the city or
municipal hall in the case of cities, and in a public and
conspicuous place in barrio or district wherein the
property is situated, in English, Spanish and the local
dialect commonly used, and by announcement at least
three market days at the market by crier, and, in the

On September 7, 1994, petitioners Joaquin and Lolita Wong filed a

similar complaint with the RTC of Iloilo City, Branch 31.[10]

In a decision dated March 6, 1998, the RTC upheld the validity

of the tax sale and dismissed the complaints. It reasoned that because
petitioners were not the registered owners of the property, they were
not real parties-in-interest who could assail the validity of the said sale.

Aggrieved,

petitioners

moved

for

reconsideration.

In

resolution dated July 24, 1998 the RTC granted the motion and set

55

aside the March 6, 1998 decision.[11] It noted that no notice of sale was
sent to petitioners who were the legitimate owners of the property.

In a decision dated October 9, 2002,[15] the CA reversed and set

aside the assailed resolutions of the RTC. It reasoned that Section 83 of

Respondents City Government of Iloilo and City Treasurer

PD 464 was inapplicable since the complaints did not protest the
Manikan moved for reconsideration but it was denied in a resolution
assessment made by the local government unit. Thus, such failure did
dated September 22, 1998.[12]
not deprive the RTC of jurisdiction. However, the CA upheld the validity
Thereafter, respondents appealed the July 24, 1998 and

of the tax sale. Under the law, only registered owners are entitled to a

September 22, 1998 resolutions of the RTC to the Court of Appeals

notice of tax sale. Inasmuch as the property remained registered in the

(CA).[13] They argued that the RTC erred in taking cognizance of the

names of the Hodges spouses in TCT No. T-7373, said spouses were the

complaints since petitioners failed to observe the requirements of

only ones entitled to such notice.

Section 83 of PD 464 which provided:

Section 83. Suits assailing validity of tax sale. No court
shall entertain any suit assailing the validity of a
tax sale of real estate under this Chapter until
the taxpayer shall have paid into court the
amount for which the real property was sold,
together with interests of twenty per centum per
annum upon that sum from the date of sale to the
time of instituting suit. The money so paid into court
shall belong to the purchaser at the tax sale if the deed
is declared invalid, but shall be returned to the
depositor if the action fails.
Neither shall any court declare a sale invalid by reason
of irregularities or informalities in the proceedings
committed by the officer charged with the duty of
making sale, or by reason of failure by him to perform
his duties within the time herein specified for their
performance, unless it shall have been proven that such
irregularities, informalities or failure have impaired the
substantial rights of the taxpayer. (emphasis supplied)

Petitioners moved for reconsideration but it was denied.

[16]

Hence, this recourse,[17] petitioners insisting that the CA erred in

upholding the validity of the tax sale.

We deny the petition.

Section 83 of PD 464 states that the RTC shall not entertain any
complaint assailing the validity of a tax sale of real property unless the
complainant deposits with the court the amount for which the said
property was sold plus interest equivalent to 20% per annum from the
date of sale until the institution of the complaint. This provision was

[14]

56

FIRST DIVISION
adopted in Section 267 of the Local Government Code, albeit the
ANGELES CITY,

increase in the prescribed rate of interest to 2% per month.[18]

In this regard, National Housing Authority v. Iloilo City

G.R. No. 166134

Petitioner,

[19]

holds

Present:

- versus -

CORONA, C. J., Chairperso

VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

that the deposit required under Section 267 of the Local Government
Code is a jurisdictional requirement, the nonpayment of which
warrants the dismissal of the action. Because petitioners in this case
did not make such deposit, the RTC never acquired jurisdiction over the

ANGELES CITY ELECTRIC

CORPORATION and
REGIONAL TRIAL COURT
BRANCH 57, ANGELES CITY,
Promulgated:
Respondents.
June 29, 2010
x------------------------------------------------------------------x

complaints.
DECISION

Consequently, inasmuch as the tax sale was never validly

challenged, it remains legally binding.
DEL CASTILLO, J.:
WHEREFORE, the petition is hereby DENIED.

The prohibition on the issuance of a writ of injunction to enjoin the collection

Costs against petitioners.
SO ORDERED.

of taxes applies only to national internal revenue taxes, and not to local
taxes.

This Petition[1] for Certiorari under Rule 65 of the Rules of Court seeks
to set aside the Writ of Preliminary Injunction issued by the Regional Trial
Court (RTC) of Angeles City, Branch 57, in Civil Case No. 11401,
enjoining Angeles City and its City Treasurer from levying, seizing, disposing
and selling at public auction the properties owned by Angeles Electric
Corporation (AEC).
Factual Antecedents

57

On June 18, 1964, AEC was granted a legislative franchise under

Panlungsod of Angeles City enacted on December 23, 1993 Tax Ordinance

Republic Act No. (RA) 4079[2] to construct, maintain and operate an electric

No. 33, S-93, otherwise known as the Revised Revenue Code of Angeles City

light, heat, and power system for the purpose of generating and distributing

(RRCAC).

electric light, heat and power for sale in Angeles City, Pampanga. Pursuant to
Section 3-A thereof,[3] AECs payment of franchise tax for gross earnings from
electric current sold was in lieu of all taxes, fees and assessments.

On February 7, 1994, a petition seeking the reduction of the tax rates

and

a review

of

the

provisions

of

the

RRCAC

was

filed

with

the Sangguniang Panlungsod by Metro Angeles Chamber of Commerce and

On September 11, 1974, Presidential Decree No. (PD) 551 reduced

Industry Inc. (MACCI) of which AEC is a member. There being no action taken

the franchise tax of electric franchise holders. Section 1 of PD 551 provided

by the Sangguniang Panlungsod on the matter, MACCI elevated the

that:

petition[5] to the Department of Finance, which referred the same to the

Bureau of Local Government Finance (BLGF). In the petition, MACCI alleged
SECTION 1. Any provision of law or local ordinance to
the contrary notwithstanding, the franchise tax payable by
all grantees of franchises to generate, distribute and sell
electric current for light, heat and power shall be two percent
(2%) of their gross receipts received from the sale of electric
current and from transactions incident to the generation,
distribution and sale of electric current.

that the RRCAC is oppressive, excessive, unjust and confiscatory; that it was
published only once, simultaneously on January 22, 1994; and that no public
hearings were conducted prior to its enactment. Acting on the petition, the
BLGF issued a First Indorsement[6] to the City Treasurer of Angeles City,
instructing the latter to make representations with the Sangguniang

Such franchise tax shall be payable to the

Commissioner of Internal Revenue or his duly authorized
representative on or before the twentieth day of the month
following the end of each calendar quarter or month as may
be provided in the respective franchise or pertinent
municipal regulation and shall, any provision of the Local Tax
Code or any other law to the contrary notwithstanding, be in
lieu of all taxes and assessments of whatever nature
imposed by any national or local authority on earnings,
receipts, income and privilege of generation, distribution and
sale of electric current.

Panlungsod for the appropriate amendment of the RRCAC in order to ensure

compliance with the provisions of the LGC, and to make a report on the
action taken within five days.

Thereafter, starting July 1995, AEC has been paying the local
franchise tax to the Office of the City Treasurer on a quarterly basis, in
addition to the national franchise tax it pays every quarter to the Bureau of
Internal Revenue (BIR).

On January 1, 1992, RA 7160 or the Local Government Code (LGC) of

1991 was passed into law, conferring upon provinces and cities the power,
among others, to impose tax on businesses enjoying franchise.
accordance

with

the

LGC,

[4]

Proceedings before the City Treasurer

In

the Sangguniang

58

On January 22, 2004, the City Treasurer issued a Notice of

On April 5, 2004, the City Treasurer levied on the real properties of

Assessment[7] to AEC for payment of business tax, license fee and other

AEC.[11] A Notice of Auction Sale[12] was published and posted announcing that

charges for the period 1993 to 2004 in the total amount of P94,861,194.10.

a public auction of the levied properties of AEC would be held on May 7,

Within the period prescribed by law, AEC protested the assessment claiming

2004.

that:
This prompted AEC to file with the RTC, where the petition for
(a)

pursuant to RA 4079, it is exempt from paying local

business tax;

declaratory relief was pending, an Urgent Motion for Issuance of Temporary

Restraining

Order

and/or

Writ

of

Preliminary

Injunction [13] to

enjoin Angeles City and its City Treasurer from levying, annotating the levy,
(b)

since it is already paying franchise tax on business, the

payment of business tax would result in double taxation;

(c)

seizing, confiscating, garnishing, selling and disposing at public auction the

properties of AEC.

the period to assess had prescribed because under

the LGC, taxes and fees can only be assessed and collected
within five (5) years from the date they become due; and

Meanwhile, in response to the petition for declaratory relief filed by

AEC, Angeles City and

its

City

Treasurer

filed

an

Answer

with

Counterclaim[14] to which AEC filed a Reply.[15]

(d)

the assessment and collection of taxes under the

RRCAC cannot be made retroactive to 1993 or prior to its
effectivity.

[8]

After due notice and hearing, the RTC issued a Temporary Restraining
Order (TRO)[16] on May 4, 2004, followed by an Order [17] dated May 24, 2004
granting the issuance of a Writ of Preliminary Injunction, conditioned upon

On February 17, 2004, the City Treasurer denied the protest for lack
of merit and requested AEC to settle its tax liabilities.

[9]

the filing of a bond in the amount of P10,000,000.00. Upon AECs posting of

the required bond, the RTC issued a Writ of Preliminary Injunction on May 28,
2004,[18] which was amended on May 31, 2004 due to some clerical errors.[19]

Proceedings before the RTC

On August 5, 2004, Angeles City and its City Treasurer filed a Motion
Aggrieved, AEC appealed the denial of its protest to the RTC of
Angeles City via a Petition for Declaratory Relief,
11401.

[10]

docketed as Civil Case No.

for Dissolution of Preliminary Injunction and Motion for Reconsideration of the

Order dated May 24, 2004,[20]which was opposed by AEC.[21]
Finding no compelling reason to disturb and reconsider its previous
findings, the RTC denied the joint motion on October 14, 2004.[22]

59

Private respondent AEC on the other hand asserts that there was no grave
Issue

abuse of discretion on the part of the RTC in issuing the writ of preliminary
injunction because it was issued after due notice and hearing, and was

Being a special civil action for certiorari, the issue in the instant case

necessary to prevent the petition from becoming moot. In addition, AEC

is limited to the determination of whether the RTC gravely abused its

claims that the issuance of the writ of injunction was proper since the tax

discretion in issuing the writ of preliminary injunction enjoining Angeles City

assessment issued by the City Treasurer is not yet final, having been

and its City Treasurer from levying, selling, and disposing the properties of

seasonably appealed pursuant to Section 195 [24] of the LGC. AEC likewise

AEC. All other matters pertaining to the validity of the tax assessment and

points out that following the case of Pantoja v. David,[25]proceedings to

AECs tax exemption must therefore be left for the determination of the RTC

invalidate a warrant of distraint and levy to restrain the collection of taxes do

where the main case is pending decision.

not violate the prohibition against injunction to restrain the collection of taxes
because the proceedings are directed at the right of the City Treasurer to

Petitioners Arguments

collect the tax by distraint or levy. As to its tax liability, AEC maintains that it
is exempt from paying local business tax. In any case, AEC counters that the

Petitioners main argument is that the collection of taxes cannot be

issue of whether it is liable to pay the assessed local business tax is a factual

enjoined by the RTC, citing Valley Trading Co., Inc. v. Court of First Instance of

issue that should be determined by the RTC and not by the Supreme Court

Isabela, Branch II,[23] wherein the lower courts denial of a motion for the

via a petition forcertiorari under Rule 65 of the Rules of Court.

issuance of a writ of preliminary injunction to enjoin the collection of a local

tax was upheld. Petitioner further reasons that since the levy and auction of

Our Ruling

the properties of a delinquent taxpayer are proper and lawful acts specifically
allowed by the LGC, these cannot be the subject of an injunctive

We find the petition bereft of merit.

writ. Petitioner likewise insists that AEC must first pay the tax before it can
protest the assessment. Finally, petitioner contends that the tax exemption
claimed by AEC has no legal basis because RA 4079 has been expressly
repealed by the LGC.

The
LGC
does
specifically
prohibit
injunction enjoining
collection of taxes

not
an
the

A principle deeply embedded in our jurisprudence is that taxes being

Private respondents Arguments

the
[26]

lifeblood

of

the

government

should

be

collected

promptly,

without unnecessary hindrance[27] or delay.[28]In line with this principle, the

60

National Internal Revenue Code of 1997 (NIRC) expressly provides that no

taxes are frowned upon. Courts therefore should exercise extreme caution in

court shall have the authority to grant an injunction to restrain the collection

issuing such injunctions.

of any national internal revenue tax, fee or charge imposed by the code.
[29]

An exception to this rule obtains only when in the opinion of the Court of

Tax Appeals (CTA) the collection thereof may jeopardize the interest of the

No
grave
abuse
of
discretion was committed
by the RTC

government and/or the taxpayer.[30]

Section 3, Rule 58, of the Rules of Court lays down the requirements
The situation, however, is different in the case of the collection of

for the issuance of a writ of preliminary injunction, viz:

local taxes as there is no express provision in the LGC prohibiting courts from
issuing an injunction to restrain local governments from collecting
taxes. Thus, in the case of Valley Trading Co., Inc. v. Court of First Instance of
Isabela, Branch II, cited by the petitioner, we ruled that:
Unlike the National Internal Revenue Code, the Local Tax
Code[31] does not contain any specific provision prohibiting
courts from enjoining the collection of local taxes. Such
statutory lapse or intent, however it may be viewed, may
have allowed preliminary injunction where local taxes are
involved but cannot negate the procedural rules and
requirements under Rule 58.[32]

(a) That the applicant is entitled to the relief

demanded, and the whole or part of such relief consists in
restraining the commission or continuance of the acts
complained of, or in the performance of an act or acts, either
for a limited period or perpetually;
(b) That the commission, continuance or nonperformance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or
(c) That a party, court, or agency or a person is
doing, threatening, or attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of
the rights of the applicant respecting the subject of the
action or proceeding, and tending to render the judgment
ineffectual.

In light of the foregoing, petitioners reliance on the above-cited case

to support its view that the collection of taxes cannot be enjoined is
misplaced. The lower courts denial of the motion for the issuance of a writ of
preliminary injunction to enjoin the collection of the local tax was upheld in
that case, not because courts are prohibited from granting such injunction,
but because the circumstances required for the issuance of writ of injunction
were not present.

Nevertheless, it must be emphasized that although there is no

express prohibition in the LGC, injunctions enjoining the collection of local

Two requisites must exist to warrant the issuance of a writ of

preliminary injunction, namely: (1) the existence of a clear and unmistakable
right that must be protected; and (2) an urgent and paramount necessity for
the writ to prevent serious damage.[33]

In issuing the injunction, the RTC ratiocinated that:

It is very evident on record that petitioner[34] resorted
and filed an urgent motion for issuance of a temporary

61

restraining order and preliminary injunction to stop the

scheduled auction sale only when a warrant of levy was
issued and published in the newspaper setting the auction
sale of petitioners property by the City Treasurer, merely few
weeks after the petition for declaratory relief has been
filed, because if the respondent will not be restrained, it will
render this petition moot and academic. To the mind of the
Court, since there is no other plain, speedy and adequate
remedy available to the petitioner in the ordinary course of
law except this application for a temporary restraining order
and/or writ of preliminary injunction to stop the auction sale
and/or to enjoin and/or restrain respondents from levying,
annotating the levy,seizing, confiscating, garnishing, selling
and disposing at public auction the properties of
petitioner, or otherwise exercising other administrative
remedies against the petitioner and its properties, this alone
justifies the move of the petitioner in seeking the injunctive
reliefs sought for.
Petitioner in its petition is questioning the
assessment or the ruling of the City Treasurer on the
business tax and fees, and not the local ordinance
concerned. This being the case, the Court opines that notice
is not required to the Solicitor General since what is involved
is just a violation of a private right involving the right of
ownership
and
possession
of
petitioners
properties. Petitioner, therefore, need not comply with
Section 4, Rule 63 requiring such notice to the Office of the
Solicitor General.
The Court is fully aware of the Supreme Court
pronouncement that injunction is not proper to restrain the
collection of taxes. The issue here as of the moment is the
restraining of the respondent from pursuing its auction sale
of the petitioners properties. The right of ownership and
possession of the petitioner over the properties subject of the
auction sale is at stake.
Respondents assert that not one of the witnesses
presented by the petitioner have proven what kind of right
has been violated by the respondent, but merely mentioned
of an injury which is only a scenario based on speculation
because of petitioners claim that electric power may be
disrupted.

Engr. Abordos testimony reveals and even his

Affidavit Exhibit S showed that if the auction sale will push
thru, petitioner will not only lose control and operation of its
facility, but its employees will also be denied access to
equipments vital to petitioners operations, and since only the
petitioner has the capability to operate Petersville sub
station, there will be a massive power failure or blackout
which will adversely affect business and economy, if not lives
and properties in Angeles City and surrounding communities.
Petitioner, thru its witnesses, in the hearing of the
temporary restraining order, presented sufficient and
convincing evidence proving irreparable damages and injury
which were already elaborated in the temporary restraining
order although the same may be realized only if the auction
sale will proceed. And unless prevented, restrained, and
enjoined, grave and irreparable damage will be suffered not
only by the petitioner but all its electric consumers in
Angeles, Clark, Dau and Bacolor, Pampanga.
The purpose of injunction is to prevent injury and
damage from being incurred, otherwise, it will render any
judgment in this case ineffectual.
As an extraordinary remedy, injunction is calculated
to preserve or maintain the status quo of things and is
generally availed of to prevent actual or threatened acts,
until the merits of the case can be heard (Cagayan de Oro
City Landless Res. Assn. Inc. vs. CA, 254 SCRA 220)
It appearing that the two essential requisites of an
injunction have been satisfied, as there exists a right on the
part of the petitioner to be protected, its right[s] of
ownership and possession of the properties subject of the
auction sale, and that the acts (conducting an auction sale)
against which the injunction is to be directed, are violative of
the said rights of the petitioner, the Court has no other
recourse but to grant the prayer for the issuance of a writ of
preliminary injunction considering that if the respondent will
not be restrained from doing the acts complained of, it will
preempt the Court from properly adjudicating on the merits
the various issues between the parties, and will render moot
and academic the proceedings before this court.[35]

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As a rule, the issuance of a preliminary injunction rests entirely within

had a clear and unmistakable legal right over the properties to be levied and

the discretion of the court taking cognizance of the case and will not be

that it would sustain serious damage if these properties, which are vital to its

interfered with, except where there is grave abuse of discretion committed by

operations, would be sold at public auction. As we see it then, the writ of

the court.[36] For grave abuse of discretion to prosper as a ground

injunction was properly issued.

for certiorari, it must be demonstrated that the lower court or tribunal has
exercised its power in an arbitrary and despotic manner, by reason of passion

A final note. While we are mindful that the damage to a taxpayers

or personal hostility, and it must be patent and gross as would amount to an

property rights generally takes a back seat to the paramount need of the

evasion or to a unilateral refusal to perform the duty enjoined or to act in

State for funds to sustain governmental functions, [40] this rule finds no

contemplation of law.[37] In other words, mere abuse of discretion is not

application in the instant case where the disputed tax assessment is not yet

enough.[38]

due and demandable. Considering that AEC was able to appeal the denial of
its protest within the period prescribed under Section 195 of the LGC, the

Guided by the foregoing, we find no grave abuse of discretion on the

collection of business taxes[41] through levy at this time is, to our mind, hasty,

part of the RTC in issuing the writ of injunction. Petitioner, who has the burden

if not premature.[42] The issues of tax exemption, double taxation, prescription

to prove grave abuse of discretion, [39] failed to show that the RTC acted

and the alleged retroactive application of the RRCAC, raised in the protest of

arbitrarily and capriciously in granting the injunction. Neither was petitioner

AEC now pending with the RTC, must first be resolved before the properties of

able to prove that the injunction was issued without any factual or legal

AEC can be levied. In the meantime, AECs rights of ownership and

justification. In assailing the injunction, petitioner primarily relied on the

possession must be respected.

prohibition on the issuance of a writ of injunction to restrain the collection of

taxes. But as we have already said, there is no such prohibition in the case of

WHEREFORE, the petition is hereby DISMISSED.

local taxes. Records also show that before issuing the injunction, the RTC
conducted a hearing where both parties were given the opportunity to

SO ORDERED.

present their arguments. During the hearing, AEC was able to show that it

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