I.

LOCAL TAXATION
Philippine Petroleum Corp v. Municipality of Pililla
G.R. No. 90776 June 3, 1991
PHILIPPINE PETROLEUM CORPORATION, petitioner,
vs.
MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR NICOMEDES F.
PATENIA, respondent.
PARAS, J.: (2nd Division)
This is a petition for certiorari seeking to annul and set aside: (a) the March 17, 1989 decision * of
the Regional Trial Court, Branch 80, Tanay, Rizal in Civil Case No. 057-T entitled, "Municipality of
Pililla, Rizal, represented by Mayor Nicomedes F. Patenia vs. Philippine Petroleum Corporation",
(PPC for short) upholding the legality of the taxes, fees and charges being imposed in Pililla under
Municipal Tax Ordinance No. 1 and directing the herein petitioner to pay the amount of said taxes,
fees and charges due the respondent: and (b) the November 2, 1989 resolution of the same court
denying petitioner's motion for reconsideration of the said decision.
The undisputed facts of the case are:
Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise engaged in the
manufacture of lubricated oil basestock which is a petroleum product, with its refinery plant situated
at Malaya, Pililla, Rizal, conducting its business activities within the territorial jurisdiction of the
Municipality of Pililla, Rizal and is in continuous operation up to the present (Rollo p. 60). PPC owns
and maintains an oil refinery including forty-nine storage tanks for its petroleum products in Malaya,
Pililla, Rizal (Rollo, p. 12).
Under Section 142 of the National Internal Revenue Code of 1939, manufactured oils and other fuels
are subject to specific tax.
On June 28, 1973, Presidential Decree No. 231, otherwise known as the Local Tax Code was issued
by former President Ferdinand E. Marcos governing the exercise by provinces, cities, municipalities
and barrios of their taxing and other revenue-raising powers. Sections 19 and 19 (a) thereof, provide
among others, that the municipality may impose taxes on business, except on those for which fixed
taxes are provided on manufacturers, importers or producers of any article of commerce of whatever
kind or nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors,
distilled spirits and/or wines in accordance with the schedule listed therein.
The Secretary of Finance issued Provincial Circular No. 26-73 dated December 27, 1973, directed to
all provincial, city and municipal treasurers to refrain from collecting any local tax imposed in old or
new tax ordinances in the business of manufacturing, wholesaling, retailing, or dealing in petroleum
products subject to the specific tax under the National Internal Revenue Code (Rollo, p. 76).

Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued by the Secretary of
Finance instructing all City Treasurers to refrain from collecting any local tax imposed in tax
ordinances enacted before or after the effectivity of the Local Tax Code on July 1, 1973, on the
businesses of manufacturing, wholesaling, retailing, or dealing in, petroleum products subject to the
specific tax under the National Internal Revenue Code (Rollo, p. 79).
Respondent Municipality of Pililla, Rizal, through Municipal Council Resolution No. 25, S-1974
enacted Municipal Tax Ordinance No. 1, S-1974 otherwise known as "The Pililla Tax Code of 1974"
on June 14, 1974, which took effect on July 1, 1974 (Rollo, pp. 181-182). Sections 9 and 10 of the
said ordinance imposed a tax on business, except for those for which fixed taxes are provided in the
Local Tax Code on manufacturers, importers, or producers of any article of commerce of whatever
kind or nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors,
distilled spirits and/or wines in accordance with the schedule found in the Local Tax Code, as well as
mayor's permit, sanitary inspection fee and storage permit fee for flammable, combustible or
explosive substances (Rollo, pp. 183-187), while Section 139 of the disputed ordinance imposed
surcharges and interests on unpaid taxes, fees or charges (Ibid., p. 193).
On March 30, 1974, Presidential Decree No. 426 was issued amending certain provisions of P.D.
231 but retaining Sections 19 and 19 (a) with adjusted rates and 22(b).
On April 13, 1974, P.D. 436 was promulgated increasing the specific tax on lubricating oils, gasoline,
bunker fuel oil, diesel fuel oil and other similar petroleum products levied under Sections 142, 144
and 145 of the National Internal Revenue Code, as amended, and granting provinces, cities and
municipalities certain shares in the specific tax on such products in lieu of local taxes imposed on
petroleum products.
The questioned Municipal Tax Ordinance No. 1 was reviewed and approved by the Provincial
Treasurer of Rizal on January 13, 1975 (Rollo, p. 143), but was not implemented and/or enforced by
the Municipality of Pililla because of its having been suspended up to now in view of Provincial
Circular Nos. 26-73 and 26 A-73.
Provincial Circular No. 6-77 dated March 13, 1977 was also issued directing all city and municipal
treasurers to refrain from collecting the so-called storage fee on flammable or combustible materials
imposed under the local tax ordinance of their respective locality, said fee partaking of the nature of
a strictly revenue measure or service charge.
On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue Code of 1977 was
enacted, Section 153 of which specifically imposes specific tax on refined and manufactured mineral
oils and motor fuels.
Enforcing the provisions of the above-mentioned ordinance, the respondent filed a complaint on April
4, 1986 docketed as Civil Case No. 057-T against PPC for the collection of the business tax from
1979 to 1986; storage permit fees from 1975 to 1986; mayor's permit and sanitary inspection fees
from 1975 to 1984. PPC, however, have already paid the last-named fees starting 1985 (Rollo, p.
74).

After PPC filed its answer, a pre-trial conference was held on August 24, 1988 where the parties thru
their respective counsel, after coming up with certain admissions and stipulations agreed to the
submission of the case for decision based on documentary evidence offered with their respective
comments (Rollo, p. 41).
On March 17, 1987, the trial court rendered a decision against the petitioner, the dispositive part of
which reads as follows:
WHEREFORE, premises considered, this Court hereby renders judgment in favor of
the plaintiffs as against the defendants thereby directing the defendants to 1) pay the
plaintiffs the amount of P5,301,385.00 representing the Tax on Business due from
the defendants under Sec. 9 (A) of the Municipal Tax Ordinance of the plaintiffs for
the period from 1979 to 1983 inclusive plus such amount of tax that may accrue until
final determination of case; 2) to pay storage permit fee in the amount of
P3,321,730.00 due from the defendants under Sec. 10, par. z (13) (b) (1 C) of the
Municipal Tax Ordinance of the plaintiffs for the period from 1975 to 1986 inclusive
plus such amount of fee that may accrue until final determination of case; 3) to pay
Mayor's Permit Fee due from the defendants under Sec. 10, par. (P) (2) of the
Municipal Tax Ordinance of the plaintiffs from 1975 to 1984 inclusive in the amount of
P12,120.00 plus such amount of fee that may accrue until final determination of the
case; and 4) to pay sanitary inspection fee in the amount of P1,010.00 for the period
from 1975 to 1984 plus such amount that may accrue until final determination of case
and 5) to pay the costs of suit.
SO ORDERED. (Rollo, pp. 49-50)
PPC moved for reconsideration of the decision, but this was denied by the lower court in a resolution
of November 2, 1989, hence, the instant petition.
The Court resolved to give due course to the petition and required both parties to submit
simultaneous memoranda (June 21, 1990 Resolution; Rollo, p. 305).
PPC assigns the following alleged errors:
1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE BUSINESS TAX
UNDER SECTION 9 (A) OF THE TAX ORDINANCE IN THE LIGHT OF
PROVINCIAL CIRCULARS NOS. 26-73 AND 26 A-73;.
2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS LIABLE FOR THE
PAYMENT OF STORAGE PERMIT FEE UNDER SECTION 10 Z (13) (b) (1-c) OF
THE TAX ORDINANCE CONSIDERING THE ISSUANCE OF PROVINCIAL
CIRCULAR NO. 6-77;
3. THE RTC ERRED IN FAILING TO HOLD THAT RESPONDENTS COMPUTATION
OF TAX LIABILITY HAS ABSOLUTELY NO BASIS;

4. THE RTC ERRED IN ORDERING THE PAYMENT OF MAYOR'S PERMIT AND

SANITARY INSPECTION FEES CONSIDERING THAT THE SAME HAS BEEN
VALIDLY AND LEGALLY WAIVED BY THE MAYOR;
5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES AND DUTIES NOT
COLLECTED FROM PETITIONER PRIOR TO THE FIVE (5) YEAR PERIOD FROM
THE FILING OF THIS CASE ON APRIL 4, 1986 HAS ALREADY PRESCRIBED.
The crucial issue in this case is whether or not petitioner PPC whose oil products are subject to
specific tax under the NIRC, is still liable to pay (a) tax on business and (b) storage fees, considering
Provincial Circular No. 6-77; and mayor's permit and sanitary inspection fee unto the respondent
Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1.
Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared as contrary to national
economic policy the imposition of local taxes on the manufacture of petroleum products as they are
already subject to specific tax under the National Internal Revenue Code; (b) the above declaration
covers not only old tax ordinances but new ones, as well as those which may be enacted in the
future; (c) both Provincial Circulars (PC) 26-73 and 26 A-73 are still effective, hence, unless and until
revoked, any effort on the part of the respondent to collect the suspended tax on business from the
petitioner would be illegal and unauthorized; and (d) Section 2 of P.D. 436 prohibits the imposition of
local taxes on petroleum products.
PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax ordinances imposing a tax
on business under Section 19 (a) of the Local Tax Code (P.D. No. 231), with regard to
manufacturers, retailers, wholesalers or dealers in petroleum products subject to the specific tax
under the National Internal Revenue Code NIRC, in view of Section 22 (b) of the Code regarding
non-imposition by municipalities of taxes on articles, subject to specific tax under the provisions of
the NIRC.
There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed taxes, fees
and charges is valid especially Section 9 (A) which according to the trial court "was lifted in
toto and/or is a literal reproduction of Section 19 (a) of the Local Tax Code as amended by P.D. No.
426." It conforms with the mandate of said law.
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial Circular Nos.
26-73 and 26 A-73 issued by the Secretary of Finance when Sections 19 and 19 (a), were carried
over into P.D. No. 426 and no exemptions were given to manufacturers, wholesalers, retailers, or
dealers in petroleum products.
Well-settled is the rule that administrative regulations must be in harmony with the provisions of the
law. In case of discrepancy between the basic law and an implementing rule or regulation, the former
prevails (Shell Philippines, Inc. v. Central Bank of the Philippines, 162 SCRA 628 [1988]). As aptly
held by the court a quo:
Necessarily, there could not be any other logical conclusion than that the framers of
P.D. No. 426 really and actually intended to terminate the effectivity and/or

enforceability of Provincial Circulars Nos. 26-73 and 26 A-73 inasmuch as clearly

these circulars are in contravention with Sec. 19 (a) of P.D. 426-the amendatory law
to P.D. No. 231. That intention to terminate is very apparent and in fact it is
expressed in clear and unequivocal terms in the effectivity and repealing clause of
P.D. 426 . . .
Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum
products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426,
wherein the municipality is granted the right to levy taxes on business of manufacturers, importers,
producers of any article of commerce of whatever kind or nature. A tax on business is distinct from a
tax on the article itself. Thus, if the imposition of tax on business of manufacturers, etc. in petroleum
products contravenes a declared national policy, it should have been expressly stated in P.D. No.
436.
The exercise by local governments of the power to tax is ordained by the present Constitution. To
allow the continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be tantamount
to restricting their power to tax by mere administrative issuances. Under Section 5, Article X of the
1987 Constitution, only guidelines and limitations that may be established by Congress can define
and limit such power of local governments. Thus:
Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy . . .
Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from collecting the
so-called storage fee on flammable or combustible materials imposed in the local tax ordinance of
their respective locality frees petitioner PPC from the payment of storage permit fee.
The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation and
keeping in storage of any flammable, combustible or explosive substances. Inasmuch as said
storage makes use of tanks owned not by the municipality of Pililla, but by petitioner PPC, same is
obviously not a charge for any service rendered by the municipality as what is envisioned in Section
37 of the same Code.
Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit fee is a permit fee
allowed under Section 36 of the amended Code.
As to the authority of the mayor to waive payment of the mayor's permit and sanitary inspection fees,
the trial court did not err in holding that "since the power to tax includes the power to exempt thereof
which is essentially a legislative prerogative, it follows that a municipal mayor who is an executive
officer may not unilaterally withdraw such an expression of a policy thru the enactment of a tax." The
waiver partakes of the nature of an exemption. It is an ancient rule that exemptions from taxation are
construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority (Esso
Standard Eastern, Inc. v. Acting Commissioner of Customs, 18 SCRA 488 [1966]). Tax exemptions
are looked upon with disfavor (Western Minolco Corp. v. Commissioner of Internal Revenue, 124

SCRA 121 [1983]). Thus, in the absence of a clear and express exemption from the payment of said
fees, the waiver cannot be recognized. As already stated, it is the law-making body, and not an
executive like the mayor, who can make an exemption. Under Section 36 of the Code, a permit fee
like the mayor's permit, shall be required before any individual or juridical entity shall engage in any
business or occupation under the provisions of the Code.
However, since the Local Tax Code does not provide the prescriptive period for collection of local
taxes, Article 1143 of the Civil Code applies. Said law provides that an action upon an obligation
created by law prescribes within ten (10) years from the time the right of action accrues. The
Municipality of Pililla can therefore enforce the collection of the tax on business of petitioner PPC
due from 1976 to 1986, and NOT the tax that had accrued prior to 1976.
PREMISES CONSIDERED, with the MODIFICATION that business taxes accruing PRIOR to 1976
are not to be paid by PPC (because the same have prescribed) and that storage fees are not also to
be paid by PPC (for the storage tanks are owned by PPC and not by the municipality, and therefore
cannot be a charge for service by the municipality), the assailed DECISION is hereby AFFIRMED.
SO ORDERED.

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.
DECISION
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[1] of 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[2]denying the motion to reconsider the decision.
We resolved to give due course to this petition for it raises issues dwelling on the
scope of the taxing power of local government units and the limits of tax exemption
privileges of 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, x x
x and such other airports as may be established in the Province of Cebu x x x (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 x x x.
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 991-A),
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 exempts 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:
Section 133. Common Limitations on the Taxing Powers of Local Government Units.
-- Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:

a)

xxx
xxx

o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units. (underscoring supplied)
Respondent City refused to cancel and set aside petitioners 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 Government Code that took effect on January 1, 1992:
Section 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, nonstock and non-profit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code. (underscoring supplied)
xxx

Section 234.
(a)

Exemptions from Real Property Taxes. x x x

xxx
xxx

(e)

xxx

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 by the very nature of its
powers and functions.

Respondent City, however, asserted that MCIAA 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 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 onJanuary 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, decrees [sic], executive orders, proclamations and administrative regulations,
or part of 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 Courts 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. Toward 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. x x x[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 governmentowned 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 or 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 charter, PD 1869. All of its shares of stock are owned by the National
Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into

execution the powers vested in the federal government. (McCulloch v.Maryland, 4

Wheat 316, 4 L Ed. 579)
This doctrine emanates from the supremacy of the National Government over local
governments.
Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in
such a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional
Law, Vol. 2, p. 140)
Otherwise, mere creatures 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 tool for regulation (U.S. v. Sanchez, 340 US 42). The power to
tax which was called by Justice Marshall as the power to destroy (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the
very entity which has the inherent power to wield it. (underscoring 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 government
corporation performing governmental functions as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the said Code
would apply to all government 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 powers of the local government units.
In its comment, respondent City of Cebu alleges that as a local 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 petitioners 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 government-owned
or controlled corporations performing governmental and purely proprietary
functions. Respondent City of Cebu urges this Court to apply by analogy its ruling that
the Manila International Airport Authority is a government-owned corporation, [12] and to
reject the application of Basco because it was promulgated . . . before the enactment
and the signing 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.[14] So 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 rights of the people
and takes from them a portion of their property for the support of the
government. Accordingly, tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer.[16] But 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 taxpayer and liberally in favor of the taxing authority. [18] A claim of
exemption from tax payments 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]
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.
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 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 exemptions 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;

(d)

Customs duties, registration fees of vessel 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;

(e)

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

(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;
(g)

Taxes on business enterprises certified to by the Board of Investments as

pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from
the date of registration;

(h)

Excise taxes on articles enumerated under the National Internal Revenue

Code, as amended, and taxes, fees or charges on petroleum products;

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar

transactions on goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land
or water, except as provided in this Code;
(k)

Taxes on premiums paid by way of reinsurance or retrocession;

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of
all kinds of licenses or permits for the driving thereof, except, tricycles;
(m)
Taxes, fees, or other charges on Philippine products actually exported,
except as otherwise provided herein;
(n)

Taxes, fees, or charges, on Countryside and Barangay Business Enterprises

and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered
Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the
Cooperatives Code of the Philippines respectively; and

(o)

TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL

GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL
GOVERNMENT UNITS. (emphasis supplied)

Needless to say, the last item (item o) is pertinent to 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 light of the above enumeration. The term fees means
charges fixed by law or ordinance for the regulation or inspection of business or activity,

[24]

while charges are pecuniary liabilities such as rents or fees against persons 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 an annual ad valorem tax on real
property such as land, building, machinery, and other improvements not hereafter
specifically exempted.
Section 234 of the 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
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.
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 directly and exclusively used for religious,
charitable or educational purposes; (ii) all machineries and equipment actually,
directly and exclusively used 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 institutions, 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 speak 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 or provisos in these
sections, 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 are explicitly indicated in the next. For instance, in item (a) which excepts
income taxes when levied on banks and other financial institutions; item (d) which
excepts wharfage on wharves constructed and maintained by the local government unit
concerned; and item (1) which excepts taxes, fees and charges for the registration and
issuance of licenses 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 provided
in this Code in item (j). These clauses would be obviously unnecessary or mere
surplusages 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 Sections 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 on the
National Government, its agencies and instrumentalities, and local government units;
however, pursuant to Section 232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, real
property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person, as provided in 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 government-owned and controlled corporations, Section 193
of the LGC prescribes the general rule, viz., they are withdrawn 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 insofar as real property
taxes are concerned by limiting the retention only to those enumerated therein; all
others not included in the enumeration lost the privilege upon the effectivity of the
LGC. Moreover, even as to real property 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 a
taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity
of the LGC, exemptions from payment of 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 Sections 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.
It 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 none exists. In light of the petitioners theory that it is an
instrumentality of the Government, it could only be within the first item of the first
paragraph of the section by expanding the scope of the term Republic of the
Philippines to embrace its instrumentalities and agencies. For expediency, we
quote:

(a) real property owned by the Republic 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 petitioners 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 subdivisions in Section 234(a).
The terms Republic of the Philippines and National Government are not
interchangeable. The former is broader and synonymous with Government of the
Republic of the Philippines which the Administrative Code of 1987 defines as the
corporate governmental entity through which the functions of government are exercised
throughout the Philippines, including, save as the contrary appears from the context, the
various arms through which political authority is made affective in the Philippines,
whether pertaining to the autonomous regions, the provincial, city, municipal or
barangay subdivisions or other forms of local government. [27] These autonomous

regions, provincial, city, municipal or barangay subdivisions are the political

subdivisions.[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 governmentowned 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. 464,
otherwise known as The Real Property Tax Code, which reads:

SEC. 40.
follows:

Exemptions from Real Property Tax. The exemption shall be as

(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[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 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.[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 petitioners 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,
aerodrome 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
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.
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. [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 foregoing 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.
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., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

[1]

Rollo, 27-29. Per Judge Ferdinand J. Marcos.

Id., 30-31.
[3]
Rollo, 10-13.
[4]
Supra note 1.
[5]
Rollo, 28-29.
[6]
Citing Gonzales vs. Hechanova, 118 Phil. 1065 [1963].
[7]
Citing Section 3, R.A. No. 6958.
[8]
Citing Section 2, Id.
[9]
197 SCRA 52 [1991].
[10]
Section 5, Article X, 1987 Constitution.
[11]
Section 14, R.A. No. 6958.
[12]
Manila International Airport Authority (MIAA) vs. Commission on Audit, 238 SCRA 714 [1994].
[13]
COOLEY on Constitutional Law, 4th ed. [1931], 62.
[14]
Section 28(1), Article VI, 1987 Constitution.
[15]
Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat, 316, 4 L ed. 579, 607. Later Justice
Holmes brushed this aside by declaring in Panhandle Oil Co. vs. Mississippi (277 U.S. 218) that "the
power to tax is not the power to destroy while this Court sits." Justice Frankfurter in Graves vs. New York
(306 U.S. 466) also remarked that Justice Marshall's statement was a "mere flourish or rhetoric" and a
product of the "intellectual fashion of the times" to indulge in "a free case of absolutes." (See SINCO,
Philippine Political Law [1954], 577-578).
[16]
AGPALO, RUBEN E., Statutory Construction [1990 ed.], 216. See also SANDS, DALLAS C., Statutes
and Statutory Construction, vol. 3 [1974] 179.
[2]

[17]

Justice Holmes in his dissent in Compania General vs. Collector of Internal Revenue, 275 U.S. 87, 100
[1927].
[18]
AGPALO, op cit., 217; SANDS, op cit., 207.
[19]
SINCO, op cit., 587.
[20]
SANDS, op cit., 207.
[21]
Maceda vs. Macaraig, Jr. 197 SCRA 771, 799 [1991], citing 2 COOLEY on the Law on Taxation, 4th
ed. [1927], 1414, and SANDS, op cit., 207.
[22]
CRUZ, ISAGANI A., Constitutional Law [1991], 84.
[23]
Id., 91-92; SINCO, op cit., 587.
[24]
Section 131(l), Local Government Code of 1991.
[25]
Section 131(g), Id.
[26]
PIMENTEL, AQUILINO JR., The Local Government Code of 1991 - The Key to National Development
[1933], 329.
[27]
Section 2(1), Introductory Provisions, Administrative Code of 1987.
[28]
Section 1, Article X, 1987 Constitution.
[29]
Section 2(2), introductory Provisions, Administrative Code of 1987.
[30]
Bacani vs. National Coconut Corporation, 100 Phil. 468, 472 [1956].
[31]
Section 2(4), Introductory Provisions, Administrative Code of 1987.
[32]
Section 2(10), Id., Id.
[33]
Section 25, Article II, and Section 2, Article X, Constitution.
[34]
Section 2(a), Local Government Code of 1991.
[35]
P.D. No. 1931.
[36]
Section 3, R.A. No. 6958.
[37]
Section 18, Id.
[38]
Section 9(b), Id.
[39]
Supra note 9.

NPC v. City of Cabanatuan

THIRD DIVISION

[G.R. No. 149110. April 9, 2003]

NATIONAL
POWER
CORPORATION, petitioner,
CABANATUAN, respondent.

vs. CITY

OF

DECISION
PUNO, J.:

This is a petition for review of the Decision and the Resolution of the Court of
Appeals dated March 12, 2001 and July 10, 2001, respectively, finding petitioner
National Power Corporation (NPC) liable to pay franchise tax to respondent City of
Cabanatuan.
[1]

[2]

[3]

Petitioner is a government-owned and controlled corporation created under

Commonwealth Act No. 120, as amended. It is tasked to undertake the development
[4]

of hydroelectric generations of power and the production of electricity from nuclear,

geothermal and other sources, as well as, the transmission of electric power on a
nationwide basis. Concomitant to its mandated duty, petitioner has, among others, the
power to construct, operate and maintain power plants, auxiliary plants, power stations
and substations for the purpose of developing hydraulic power and supplying such
power to the inhabitants.
[5]

[6]

For many years now, petitioner sells electric power to the residents of Cabanatuan
City, posting a gross income of P107,814,187.96 in 1992. Pursuant to section 37 of
Ordinance No. 165-92, the respondent assessed the petitioner a franchise tax
amounting to P808,606.41, representing 75% of 1% of the latters gross receipts for the
preceding year.
[7]

[8]

[9]

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government, refused to pay the tax assessment. It argued that the respondent has no
authority to impose tax on government entities. Petitioner also contended that as a nonprofit organization, it is exempted from the payment of all forms of taxes, charges,
duties or fees in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
[10]

[11]

Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties,
Fees, Imposts and Other Charges by Government and Governmental
Instrumentalities.- The Corporation shall be non-profit and shall devote all its return
from its capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of
this Act, the Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees
in any court or administrative proceedings in which it may be a party, restrictions and
duties to the Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage
fees on import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in
the generation, transmission, utilization, and sale of electric power.
[12]

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City,
demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to
25% of the amount of tax, and 2% monthly interest. Respondent alleged that
petitioners exemption from local taxes has been repealed by section 193 of Rep. Act
No. 7160, which reads as follows:
[13]

[14]

Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in

this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
On January 25, 1996, the trial court issued an Order dismissing the case. It ruled
that the tax exemption privileges granted to petitioner subsist despite the passage of
Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law
and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193
of Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3)
local governments have no power to tax instrumentalities of the national government.
Pertinent portion of the Order reads:
[15]

The question of whether a particular law has been repealed or not by a subsequent
law is a matter of legislative intent. The lawmakers may expressly repeal a law by
incorporating therein repealing provisions which expressly and specifically cite(s) the
particular law or laws, and portions thereof, that are intended to be repealed. A
declaration in a statute, usually in its repealing clause, that a particular and specific
law, identified by its number or title is repealed is an express repeal; all others are
implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because it
fails to identify the act or acts that are intended to be repealed. It is a well-settled rule
of statutory construction that repeals of statutes by implication are not favored. The
presumption is against inconsistency and repugnancy for the legislative is presumed to
know the existing laws on the subject and not to have enacted inconsistent or
conflicting statutes. It is also a well-settled rule that, generally, general law does not
repeal a special law unless it clearly appears that the legislative has intended by the
latter general act to modify or repeal the earlier special law. Thus, despite the passage
of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the Supreme Court in
the case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52,
where it was held that:

Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stocks are owned by the National
Government. xxx 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 mere local government.
Like PAGCOR, NPC, being a government owned and controlled corporation with an
original charter and its shares of stocks owned by the National Government, is beyond
the taxing power of the Local Government. Corollary to this, it should be noted here
that in the NPC Charters declaration of Policy, Congress declared that: xxx (2) the
total electrification of the Philippines through the development of power from all
services to meet the needs of industrial development and dispersal and needs of rural
electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions. (underscoring supplied). To allow
plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal
of this government instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing
power is limited to that which is provided for in its charter or other statute. Any grant
of taxing power is to be construed strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that
the plaintiff could not impose the subject tax on the defendant.
[16]

On appeal, the Court of Appeals reversed the trial courts Order on the ground that
section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the
exemptions granted to the petitioner. It ordered the petitioner to pay the respondent
city government the following: (a) the sum of P808,606.41 representing the franchise
tax due based on gross receipts for the year 1992, (b) the tax due every year thereafter
based in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25%
of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense.
[17]

[18]

[19]

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of
Appeals Decision. This was denied by the appellate court, viz:

The Court finds no merit in NPCs motion for reconsideration. Its arguments
reiterated therein that the taxing power of the province under Art. 137 (sic) of the
Local Government Code refers merely to private persons or corporations in which
category it (NPC) does not belong, and that the LGC (RA 7160) which is a general
law may not impliedly repeal the NPC Charter which is a special lawfinds the
answer in Section 193 of the LGC to the effect that tax exemptions or incentives

granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations except local water districts xxx are
hereby withdrawn. The repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED.

[20]

In this petition for review, petitioner raises the following issues:

A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A

PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX
AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL
GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO
PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPCS
EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE
PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF
A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE
CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT
AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD
PREVAIL OVER THE LOCAL GOVERNMENT CODE.
[21]

It is beyond dispute that the respondent city government has the authority to issue
Ordinance No. 165-92 and impose an annual tax on businesses enjoying a franchise,
pursuant to section 151 in relation to section 137 of the LGC, viz:

Sec. 137. Franchise Tax.- Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20)
of one percent (1%) of the capital investment. In the succeeding calendar year,
regardless of when the business started to operate, the tax shall be based on the gross
receipts for the preceding calendar year, or any fraction thereof, as provided
herein. (emphasis supplied)
xxx

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the
city, may levy the taxes, fees, and charges which the province or municipality may
impose: Provided, however, That the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for
the province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes.
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the
respondent city government. It contends that sections 137 and 151 of the LGC in
relation to section 131, limit the taxing power of the respondent city government to
private entities that are engaged in trade or occupation for profit.
[22]

Section 131 (m) of the LGC defines a franchise as a right or privilege, affected
with public interest which is conferred upon private persons or corporations, under
such terms and conditions as the government and its political subdivisions may impose
in the interest of the public welfare, security and safety. From the phraseology of this
provision, the petitioner claims that the word private modifies the terms persons and
corporations. Hence, when the LGC uses the term franchise, petitioner submits that
it should refer specifically to franchises granted to private natural persons and to private
corporations. Ergo, its charter should not be considered a franchise for the purpose
of imposing the franchise tax in question.
[23]

On the other hand, section 131 (d) of the LGC defines business as trade or
commercial activity regularly engaged in as means of livelihood or with a view to profit.
Petitioner claims that it is not engaged in an activity for profit, in as much as its charter
specifically provides that it is a non-profit organization. In any case, petitioner argues
that the accumulation of profit is merely incidental to its operation; all these profits are
required by law to be channeled for expansion and improvement of its facilities and
services.
[24]

Petitioner also alleges that it is an instrumentality of the National Government, and

as such, may not be taxed by the respondent city government. It cites the doctrine
in Basco vs. Philippine Amusement and Gaming Corporation where
this Court held that local governments have no power to tax instrumentalities of the
National Government, viz:
[25]

[26]

Local governments have no power to tax instrumentalities of the National

Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and

actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by a mere local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in
any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the supremacy of the National Government over local
governments.
Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in
such a way as to prevent it from consummating its federal responsibilities, or even
seriously burden it from accomplishment of them. (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination
of what local authorities may perceive to be undesirable activities or enterprise using
the power to tax as a tool regulation ( U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the power to destroy (Mc
Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation
of the very entity which has the inherent power to wield it.
[27]

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax
privileges of government-owned or controlled corporations, is in the nature of an implied
repeal. A special law, its charter cannot be amended or modified impliedly by the local
government code which is a general law. Consequently, petitioner claims that its
exemption from all taxes, fees or charges under its charter subsists despite the passage
of the LGC, viz:

It is a well-settled rule of statutory construction that repeals of statutes by implication

are not favored and as much as possible, effect must be given to all enactments of the
legislature. Moreover, it has to be conceded that the charter of the NPC constitutes a
special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory
construction that the enactment of a later legislation which is a general law cannot be
construed to have repealed a special law. Where there is a conflict between a general
law and a special statute, the special statute should prevail since it evinces the
legislative intent more clearly than the general statute.
[28]

Finally, petitioner submits that the charter of the NPC, being a valid exercise of
police power, should prevail over the LGC. It alleges that the power of the local
government to impose franchise tax is subordinate to petitioners exemption from
taxation; police power being the most pervasive, the least limitable and most
demanding of all powers, including the power of taxation.
[29]

The petition is without merit.

Taxes are the lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing
power derives its source from the very existence of the state whose social contract with
its citizens obliges it to promote public interest and common good. The theory behind
the exercise of the power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of the people.
[30]

[31]

[32]

In recent years, the increasing social challenges of the times expanded the scope of
state activity, and taxation has become a tool to realize social justice and the equitable
distribution of wealth, economic progress and the protection of local industries as well
as public welfare and similar objectives. Taxation assumes even greater significance
with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer
vested exclusively on Congress; local legislative bodies are now given direct authority to
levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987
Constitution, viz:
[33]

[34]

Section 5.- Each Local Government unit shall have the power to create its own
sources of revenue, to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments.
This paradigm shift results from the realization that genuine development can be
achieved only by strengthening local autonomy and promoting decentralization of
governance. For a long time, the countrys highly centralized government structure has
bred a culture of dependence among local government leaders upon the national
leadership. It has also dampened the spirit of initiative, innovation and imaginative
resilience in matters of local development on the part of local government
leaders. The only way to shatter this culture of dependence is to give the LGUs a
wider role in the delivery of basic services, and confer them sufficient powers to
generate their own sources for the purpose. To achieve this goal, section 3 of Article X
of the 1987 Constitution mandates Congress to enact a local government code that
will, consistent with the basic policy of local autonomy, set the guidelines and
limitations to this grant of taxing powers, viz:
[35]

Section 3. The Congress shall enact a local government code which shall provide for
a more responsive and accountable local government structure instituted through a
system of decentralization with effective mechanisms of recall, initiative, and
referendum, allocate among the different local government units their powers,

responsibilities, and resources, and provide for the qualifications, election,

appointment and removal, term, salaries, powers and functions and duties of local
officials, and all other matters relating to the organization and operation of the local
units.
To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local
Government Code of 1991 (LGC), various measures have been enacted to promote
local autonomy. These include the Barrio Charter of 1959, the Local Autonomy Act of
1959, the Decentralization Act of 1967 and the Local Government Code of 1983.
Despite these initiatives, however, the shackles of dependence on the national
government remained. Local government units were faced with the same problems that
hamper their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external
sources of income, (c) limited authority to prioritize and approve development projects,
(d) heavy dependence on external sources of income, and (e) limited supervisory
control over personnel of national line agencies.
[36]

[37]

[38]

[39]

[40]

[41]

Considered as the most revolutionary piece of legislation on local autonomy, the

LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base
of LGUs to include taxes which were prohibited by previous laws such as the imposition
of taxes on forest products, forest concessionaires, mineral products, mining operations,
and the like. The LGC likewise provides enough flexibility to impose tax rates in
accordance with their needs and capabilities. It does not prescribe graduated fixed rates
but merely specifies the minimum and maximum tax rates and leaves the determination
of the actual rates to the respective sanggunian.
[42]

[43]

One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the national government from the
coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees
or charges of any kind on the National Government, its agencies and instrumentalities,
this rule now admits an exception, i.e., when specific provisions of the LGC authorize
the LGUs to impose taxes, fees or charges on the aforementioned entities, viz:

Section 133. Common Limitations on the Taxing Powers of the Local Government
Units.- Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
xxx
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units. (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs.
Philippine Amusement and Gaming Corporation relied upon by the petitioner to
support its claim no longer applies. To emphasize, theBasco case was decided prior to
[44]

the effectivity of the LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However, as this Court ruled
in the case ofMactan Cebu International Airport Authority (MCIAA) vs. Marcos,
nothing prevents Congress from decreeing that even instrumentalities or agencies of
the government performing governmental functions may be subject to tax. In enacting
the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of
government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this
Court held that MCIAA, although an instrumentality of the national government, was
subject to real property tax, viz:
[45]

[46]

Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in section 133, the taxing power of local governments
cannot extend to the levy of inter alia, taxes, fees and charges of any kind on the
national government, its agencies and instrumentalities, and local government units;
however, pursuant to section 232, provinces, cities and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, real
property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted for consideration or
otherwise, to a taxable person as provided in the item (a) of the first paragraph of
section 12.
[47]

In the case at bar, section 151 in relation to section 137 of the LGC clearly
authorizes the respondent city government to impose on the petitioner the franchise tax
in question.
In its general signification, a franchise is a privilege conferred by government
authority, which does not belong to citizens of the country generally as a matter of
common right. In its specific sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The former relates to the right to exist
as a corporation, by virtue of duly approved articles of incorporation, or a charter
pursuant to a special law creating the corporation. The right under a primary or general
franchise is vested in the individuals who compose the corporation and not in the
corporation itself. On the other hand, the latter refers to the right or privileges
conferred upon an existing corporation such as the right to use the streets of a
municipality to lay pipes of tracks, erect poles or string wires. The rights under a
secondary or special franchise are vested in the corporation and may ordinarily be
conveyed or mortgaged under a general power granted to a corporation to dispose of its
property, except such special or secondary franchises as are charged with a public use.
[48]

[49]

[50]

[51]

[52]

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the
sense of a secondary or special franchise. This is to avoid any confusion when the word
franchise is used in the context of taxation. As commonly used, a franchise tax is a tax
on the privilege of transacting business in the state and exercising corporate franchises
granted by the state. It is not levied on the corporation simply for existing as a
corporation, upon its property or its income, but on its exercise of the rights or
[53]

[54]

[55]

privileges granted to it by the government. Hence, a corporation need not pay franchise
tax from the time it ceased to do business and exercise its franchise. It is within this
context that the phrase tax on businesses enjoying a franchise in section 137 of the
LGC should be interpreted and understood. Verily, to determine whether the petitioner is
covered by the franchise tax in question, the following requisites should concur: (1) that
petitioner has a franchise in the sense of a secondary or special franchise; and (2) that
it is exercising its rights or privileges under this franchise within the territory of the
respondent city government.
[56]

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by
Rep. Act No. 7395, constitutes petitioners primary and secondary franchises. It serves
as the petitioners charter, defining its composition, capitalization, the appointment and
the specific duties of its corporate officers, and its corporate life span. As its secondary
franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following
powers which are not available to ordinary corporations, viz:
[57]

xxx
(e) To conduct investigations and surveys for the development of water power in any
part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of
waters from lands of riparian owners and from persons owning or interested in waters
which are or may be necessary for said purposes, upon payment of just compensation
therefor; to alter, straighten, obstruct or increase the flow of water in streams or water
channels intersecting or connecting therewith or contiguous to its works or any part
thereof: Provided, That just compensation shall be paid to any person or persons
whose property is, directly or indirectly, adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs,
pipes, mains, transmission lines, power stations and substations, and other works for
the purpose of developing hydraulic power from any river, creek, lake, spring and
waterfall in the Philippines and supplying such power to the inhabitants thereof; to
acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines,
and/or other prime movers, generators and machinery in plants and/or auxiliary plants
for the production of electric power; to establish, develop, operate, maintain and
administer power and lighting systems for the transmission and utilization of its power
generation; to sell electric power in bulk to (1) industrial enterprises, (2) city,
municipal or provincial systems and other government institutions, (3) electric
cooperatives, (4) franchise holders, and (5) real estate subdivisions xxx;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and
otherwise dispose of property incident to, or necessary, convenient or proper to carry

out the purposes for which the Corporation was created: Provided, That in case a right
of way is necessary for its transmission lines, easement of right of way shall only be
sought: Provided, however, That in case the property itself shall be acquired by
purchase, the cost thereof shall be the fair market value at the time of the taking of
such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch,
flume, street, avenue, highway or railway of private and public ownership, as the
location of said works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner
provided by law for instituting condemnation proceedings by the national, provincial
and municipal governments;
xxx
(m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the
reservoirs of plants and/or projects constructed or proposed to be constructed by the
Corporation. Upon determination by the Corporation of the areas required for
watersheds for a specific project, the Bureau of Forestry, the Reforestation
Administration and the Bureau of Lands shall, upon written advice by the
Corporation, forthwith surrender jurisdiction to the Corporation of all areas embraced
within the watersheds, subject to existing private rights, the needs of waterworks
systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt
measures to prevent environmental pollution and promote the conservation,
development and maximum utilization of natural resources xxx
[58]

With these powers, petitioner eventually had the monopoly in the generation and
distribution of electricity. This monopoly was strengthened with the issuance of Pres.
Decree No. 40, nationalizing the electric power industry. Although Exec. Order No.
215 thereafter allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.
[59]

[60]

Petitioner also fulfills the second requisite. It is operating within the respondent city
governments territorial jurisdiction pursuant to the powers granted to it by
Commonwealth Act No. 120, as amended. From its operations in the City of
Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling
both requisites, petitioner is, and ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax
simply because its stocks are wholly owned by the National Government, and its charter
characterized it as a non-profit organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the
exercise by the corporation of a privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the individual stockholders. By virtue
of its charter, petitioner was created as a separate and distinct entity from the National
Government. It can sue and be sued under its own name, and can exercise all the
powers of a corporation under the Corporation Code.
[61]

[62]

To be sure, the ownership by the National Government of its entire capital stock
does not necessarily imply that petitioner is not engaged in business. Section 2 of Pres.
Decree No. 2029 classifies government-owned or controlled corporations (GOCCs)
into those performing governmental functions and those performing proprietary
functions, viz:
[63]

A government-owned or controlled corporation is a stock or a non-stock

corporation, whether performing governmental or proprietary functions, which
is directly chartered by special law or if organized under the general corporation law
is owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding voting capital stock xxx. (emphases supplied)
Governmental functions are those pertaining to the administration of government,
and as such, are treated as absolute obligation on the part of the state to perform while
proprietary functions are those that are undertaken only by way of advancing the
general interest of society, and are merely optional on the government. Included in the
class of GOCCs performing proprietary functions are business-like entities such as the
National Steel Corporation (NSC), the National Development Corporation (NDC), the
Social Security System (SSS), the Government Service Insurance System (GSIS), and
the National Water Sewerage Authority (NAWASA), among others.
[64]

[65]

Petitioner was created to undertake the development of hydroelectric generation of

power and the production of electricity from nuclear, geothermal and other sources, as
well as the transmission of electric power on a nationwide basis. Pursuant to this
mandate, petitioner generates power and sells electricity in bulk. Certainly, these
activities do not partake of the sovereign functions of the government. They are purely
private and commercial undertakings, albeit imbued with public interest. The public
interest involved in its activities, however, does not distract from the true nature of the
petitioner as a commercial enterprise, in the same league with similar public utilities like
telephone and telegraph companies, railroad companies, water supply and irrigation
companies, gas, coal or light companies, power plants, ice plant among others; all of
which are declared by this Court as ministrant or proprietary functions of government
aimed at advancing the general interest of society.
[66]

[67]

A closer reading of its charter reveals that even the legislature treats the character
of the petitioners enterprise as a business, although it limits petitioners profits to
twelve percent (12%), viz:
[68]

(n) When essential to the proper administration of its corporate affairs or necessary
for the proper transaction of its business or to carry out the purposes for which it was
organized, to contract indebtedness and issue bonds subject to approval of the
President upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary to
carry out the business and purposes for which it was organized, or which, from time
to time, may be declared by the Board to be necessary, useful, incidental or auxiliary
to accomplish the said purpose xxx.(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty
percent (60%) of its electricity requirement from the petitioner are likewise imposed the
cap of twelve percent (12%) on profits. The main difference is that the petitioner is
mandated to devote all its returns from its capital investment, as well as excess
revenues from its operation, for expansion while other franchise holders have the
option to distribute their profits to its stockholders by declaring dividends. We do not
see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual
stockholders.
[69]

[70]

We also do not find merit in the petitioners contention that its tax exemptions under
its charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions
must be shown to exist clearly and categorically, and supported by clear legal
provisions. In the case at bar, the petitioners sole refuge is section 13 of Rep. Act No.
6395 exempting from, among others, all income taxes, franchise taxes and realty taxes
to be paid to the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities. However, section 193 of the LGC
withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed
by private and public corporations. Contrary to the contention of petitioner, section 193
of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions
from local taxes. It reads:
[71]

[72]

Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in

this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (emphases supplied)

It is a basic precept of statutory construction that the express mention of one

person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. Not being a local water district, a
cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or
educational institution, petitioner clearly does not belong to the exception. It is therefore
incumbent upon the petitioner to point to some provisions of the LGC that expressly
grant it exemption from local taxes.
[73]

But this would be an exercise in futility. Section 137 of the LGC clearly states that
the LGUs can impose franchise tax notwithstanding any exemption granted by any
law or other special law. This particular provision of the LGC does not admit any
exception. In City Government of San Pablo, Laguna v. Reyes, MERALCOs
exemption from the payment of franchise taxes was brought as an issue before this
Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna. Ruling in favor of the local government in both
instances, we ruled that the franchise tax in question is imposable despite any
exemption enjoyed by MERALCO under special laws, viz:
[74]

[75]

It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of
the LGC to support their position that MERALCOs tax exemption has been
withdrawn. The explicit language of section 137 which authorizes the province to
impose franchise tax notwithstanding any exemption granted by any law or other
special law is all-encompassing and clear. The franchise tax is imposable despite
any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By
stating that unless otherwise provided in this Code, tax exemptions or incentives
granted to or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations except (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals
and educational institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three enumerated entities. It is a basic
precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maximexpressio unius est
exclusio alterius. In the absence of any provision of the Code to the contrary, and we
find no other provision in point, any existing tax exemption or incentive enjoyed by
MERALCO under existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the
LGC the local government unit may now impose a local tax at a rate not
exceeding 50% of 1% of the gross annual receipts for the preceding calendar
based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or
charter is clearly manifested by the language used on (sic) Sections 137 and 193

categorically withdrawing such exemption subject only to the exceptions

enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have been
used. (emphases supplied).
[76]

It is worth mentioning that section 192 of the LGC empowers the LGUs, through
ordinances duly approved, to grant tax exemptions, initiatives or reliefs. But in
enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax
notwithstanding any exemption granted by law or other special law, the respondent
city government clearly did not intend to exempt the petitioner from the coverage
thereof.
[77]

Doubtless, the power to tax is the most effective instrument to raise needed
revenues to finance and support myriad activities of the local government units for the
delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. As this Court observed
in the Mactan case, the original reasons for the withdrawal of tax exemption privileges
granted to government-owned or controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions
in the tax treatment of similarly situated enterprises. With the added burden of
devolution, it is even more imperative for government entities to share in the
requirements of development, fiscal or otherwise, by paying taxes or other charges due
from them.
[78]

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001,
respectively, are hereby AFFIRMED.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

[1]

Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure. See Petition, Rollo, pp.
8-28.

[2]

CA-G.R. CV No. 53297, penned by Assoc. Justice Rodrigo Cosico. See Annex A of the Petition, Rollo,
pp. 30-38.

[3]

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

[4]

Among the amendments to Comm. Act No. 120 are Rep. Act No. 6395 (1971) and Pres. Decree No.
938 (1976).

[5]

Rep. Act No. 6395, sec. 2.

[6]

Id., sec. 3.

[7]

Rollo, p. 41.

[8]

Section 37. Imposition of Tax- Notwithstanding any exemption granted by law or other special law,
there is hereby imposed an annual tax on a business enjoying franchise at a rate of 75% of 1% of
the gross receipts for the preceding year realized within the territorial jurisdiction of Cabanatuan
City.

[9]

Rollo, p. 41.

[10]

Rollo, p. 48. Rep. Act No. 6395, sec. 5. Capital Stock of the Corporation.- The authorized capital stock
of the Corporation is three hundred million pesos divided into three million shares having a par
value of one hundred pesos each, which shares are not to be transferred, negotiated, pledged,
mortgaged, or otherwise given as a security for the payment of any obligation. The said capital
stock has been subscribed and paid wholly by the Government of the Philippines in accordance
with the provisions of Republic Act Numbered Four Thousand Eight Hundred Ninety-Seven.

[11]

Rollo, pp. 52-53.

[12]

Rep. Act No. 6395, sec. 13, as amended by P.D. No. 938.

[13]

Complaint, Records, pp. 1-3. The case was docketed as Civil Case No. 1659-AF and was raffled to
Branch 30 presided by Judge Federico B. Fajardo, Jr.

[14]

The Local Government Code of 1991. The law took effect on January 1, 1992.

[15]

Records, pp. 45-54.

[16]

Records, pp. 52-54.

[17]

Supra note 2.

[18]

Id. at 36-37.

[19]

Id. at 38.

[20]

Rollo, p. 39.

[21]

Petition, pp. 9-10; Rollo, pp. 16-17.

[22]

Rollo, p. 18.

[23]

Petition, p. 11; Rollo, p. 18.

[24]

Ibid.

[25]

Citing the case of Maceda v. Macaraig, 197 SCRA 771, 800 (1991).

[26]

197 SCRA 52 (1991).

[27]

Id. at 64-65.

[28]

Rollo, p. 21.

[29]

Id. at 21-22.

[30]

Commissioner vs. Pineda, 21 SCRA 105, 110 (1967) citing Bull vs. United States, 295 U.S. 247, 15
AFTR 1069, 1073; Surigao Electric Co., Inc. vs. Court of Tax Appeals, 57 SCRA 523 (1974).

[31]

Hong Kong & Shanghai Banking Corp. vs. Rafferty, 19 Phil. 145 (1918); Wee Poco vs. Posadas, 64
Phil. 640 (1937); Reyes vs. Almanzor, 196 SCRA 322, 327 (1991).

[32]

Phil. Guaranty Co., Inc. vs. CIR, 13 SCRA 775, 780 (1965).

[33]

Vitug and Acosta, Tax Law and Jurisprudence, 2nd ed. (2000) at 1.

[34]

Mactan Cebu International Airport Authority vs. Marcos, 261 SCRA 667, 680 (1996) citing Cruz, Isagani
A., Constitutional Law (1991) at 84.

[35]

Pimentel, The Local Government Code of 1991: The Key to National Development (1993) at 2-4.

[36]

Supra note 14.

[37]

Rep. Act No. 2370 (1959).

[38]

Rep. Act No. 2264 (1959).

[39]

Rep. Act No. 5185 (1967).

[40]

B.P. Blg. 337 (1983).

[41]

Sponsorship Remarks of Cong. Hilario De Pedro III, Records of the House of Representatives,
3rd Regular Session (1989-1990), vol. 8, p. 757.

[42]

Pimentel, supra note 20; Brilliantes, Issues and Trends in Local Governance in the Philippines, The
Local Government Code: An Assessment (1999) at 3.

[43]

Supra note 41.

[44]

Supra note 26.

[45]

Supra note 34.

[46]

Id. at 692.

[47]

Id. at 686.

[48]

J.R. S. Business Corp., et al. vs. Ofilada, et al., 120 Phil. 618, 628 (1964).

[49]

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

[50]

Supra note 48.

[51]

Ibid.

[52]

Ibid.

[53]

People v. Knight, 67 N.E. 65, 66, 174 N.Y. 475, 63 L.R.A. 87.

[54]

Tremont & Sufflok Mills v. City of Lowell, 59 N.E. 1007, 178 Mass. 469.

[55]

United North & South Development Co. v. Health, Tex. Civ. App., 78 S.W.2d 650, 652.

[56]

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

[57]

Rep. Act No. 6395, sec. 2 extends NAPOCORs corporate existence for fifty years from and after the
expiration of its present corporate existence.

[58]

Rep. Act No. 6395, sec. 3.

[59]

Establishing Basic Policies for the Electric Power Industry. Issued by former President Ferdinand E.
Marcos on November 7, 1972.

[60]

Amending Presidential Decree No. 40 and Allowing the Private Sector to Generate Electricity. Issued
by former President Corazon C. Aquino on July 10, 1987.

[61]

Rep. Act No. 6395, sec. 3 (d).

[62]

Rep. Act No. 6395, sec. 4 (p) authorizes NAPOCOR to exercise all the powers of a corporation under
the Corporation Law insofar as they are not inconsistent with the provisions of this Act.

[63]

Approved on February 4, 1986.

[64]

Social Security System Employees Association vs. Soriano, 7 SCRA 1016, 1020 (1963).

[65]

See Boy Scouts of the Philippines vs. NLRC,

Incorporated vs. CA, 352 SCRA 334, 350 (2001).

196

SCRA

176,

185

(1991); Shipside

[66]

Rep. Act No. 6395, Sec. 2.

[67]

National Waterworks & Sewerage Authority vs. NWSA Consolidated Unions, 11 SCRA 766, 774 (1964).

[68]

Rep. Act No. 7648, sec. 4. The law, also known as Electric Power Crisis Act, was signed on April 5,
1993.

[69]

Rep. Act No. 6395, sec. 14 reads: Contract with Franchise Holders, Conditions of . The Corporation
shall, in any contract for the supply of electric power to a franchise holder, require as a condition
that the franchise holder, if it receives at least sixty per cent of its electric power and energy from
the Corporation, shall not realize a rate of return of more than twelve per cent annually on a rate
base composed of the sum of its net assets in operation revalued from time to time, plus twomonth operating capital, subject to the non-impairment-of-obligations-of-contracts provision of the
Constitution: Provided, That in determining the rate of return, interest on loans, bonds and other
debts shall not be included as expenses. It shall likewise be a condition in the contract that the
Corporation shall cancel or revoke the contract upon judgment of the Public Service Commission
after due hearing and upon a showing by customers of the franchise holder that household
electrical appliances, have been damaged resulting from deliberate overloading by, or power
deficiency of, the franchise holder. The Corporation shall renew all existing contracts with
franchise holders for the supply of electric power and energy in order to give effect to the
provisions hereof.

[70]

Rep. Act No. 6395, sec. 13.

[71]

Commissioner of Internal Revenue v. Guerrero, 21 SCRA 180 (1967).

[72]

City Government of San Pablo, Laguna v. Reyes, 305 SCRA 353 (1999).

[73]

Commissioner of Customs vs. Court of Tax Appeals, 251 SCRA 42, 56 (1995).

[74]

Supra note 72.

[75]

306 SCRA 750 (1999).

[76]

Supra note 72 at 361-362.

[77]

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.

[78]

Supra note 34 at 690.

City of San Pablo, Laguna v. Reyes

THIRD DIVISION

[G.R. No. 127708. March 25, 1999]

CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF

SAN PABLO, LAGUNA, and THE SANGGUNIANG PANGLUNSOD
OF
SAN
PABLO,
LAGUNA, petitioners,
vs.HONORABLE

BIENVENIDO V. REYES, in his capacity as Presiding Judge, Regional

Trial Court, Branch 29, San Pablo City and the MANILA ELECTRIC
COMPANY, respondents.

SYNOPSIS
This is a petition for review under Rule 45 of the Revised Rules of Court
assailing the decision of the Regional Trial Court of San Pablo City declaring the
imposition of franchise tax under Section 2.09 Article D of Ordinance No.
56, otherwise known as the Revenue Code of the City of San Pablo as ineffective and
void insofar as private respondent is concerned for being violative of Act No. 3648,
Republic Act No. 2340 and PD 551. The RTC also granted private respondents claim
for refund of franchise taxes paid under protest.
Petitioners position was that RA 7160, The Local Government Code of 1991
(LGC), expressly repealed Act No. 3648, RA No. 2340 and PD 551, and that pursuant
to the provisions of Sections 137 and 193 of the Local Government Code, the
province or city now has the power to impose a franchise tax on a business enjoying a
franchise. On the other hand, private respondent invoked the non-impairment clause
of the Constitution to justify its exemption from local tax.
The Supreme Court reversed and set aside the decision of the trial court.
Petitioners correctly relied on the provisions of Sections 137 and 193 of the LGC to
support their position that private respondents exemption has been withdrawn. The
explicit language of Section 137 which authorizes the province to impose franchise
tax notwithstanding any exemption granted by any law or other special law is all
encompassing and clear. The franchise tax is imposable despite any exemption
enjoyed under special laws. Moreover, Section 193 buttresses the withdrawal of
extant tax exemption privileges. Thus, in the absence of any provision of the Code to
the contrary, and which the Court found no other provision in point, private
respondents tax exemption privileges under existing law was clearly intended to be
withdrawn. Reading together Sections 137 and 193 of the LGC, the Court concluded
that under the LGC, the local government unit may now impose a local tax at a rate
not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year
based on the incoming receipts realized within its territorial jurisdiction.

Private respondents invocation of the non-impairment clause of the Constitution

was unavailing. Under the 1935, the 1973 and the 1987 Constitutions, no franchise or
right shall be granted except under the condition that it shall be subject to amendment,
alteration or repeal by the National Assembly when the public interest so requires.
With or without the reservation clause, franchises are subject to alterations through a
reasonable exercise of the police power. They are also subject to alteration by the
power to tax, which like police power cannot be contracted away.
SYLLABUS
1. POLITICAL LAW; PUBLIC CORPORATIONS; LOCAL GOVERNMENT CODE; SECTION 534(f)
THEREOF; PARTAKES OF THE NATURE OF GENERAL REPEALING CLAUSE. -- Section 534 (f),
the repealing clause of the LGC, provides that all general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative regulations or parts thereof which are inconsistent with any
of the provisions of the Code are hereby repealed or modified accordingly. This clause partakes of the nature
of a general repealing clause. It is certainly not an express repealing clause because it fails to designate the
specific act or acts identified by number or title, that are intended to be repealed.
2. ID.; ID.; ID.; SECTION 137 AND 193 THEREOF; TAX EXEMPTION PRIVILEGES CONSIDERED
WITHDRAWN UPON EFFECTIVITY THEREOF; EXCEPTIONS; TAX EXEMPTIONS ENJOYED
BY MERALCO CONSIDERED WITHDRAWN; CASE AT BAR. -- It is our view that petitioners correctly
rely on the provisions of Section 137 and 193 of the LGC to support their position that MERALCO's tax
exemption has been withdrawn. The explicit language of Section 137 which authorizes the province to impose
franchise tax notwithstanding any exemption granted by any law or other special law is well-encompassing and
clear. The franchise tax is imposable despite any exemption enjoyed under special laws. Section 193 buttresses
the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in this Code, tax
exemptions or incentives granted to or presently enjoyed by all persons whether natural or juridical, including
government-owned or controlled corporations except 1) local water districts, 2) cooperatives duly registered
under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the
effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a
basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exlcusio alterius. In the absence of
any provision of the Code to the contrary, and we find no other provision in point, any existing tax exemption
or incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn.
3. ID.; ID.; ID.; ID.; LOCAL GOVERNMENT UNIT ALLOWED TO IMPOSE A LOCAL TAX AT A RATE
NOT EXCEEDING 50% OF 1% OF THE GROSS ANNUAL RECEIPTS. -- Reading together Sections
137 and 193 of the LGC, we conclude that under the LGC the local government unit may now impose a local
tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year based on the
incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges
enjoyed under existing law or charter is clearly manifested by the language used in Sections 137 and 193
categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not
only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax
exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or
privileges. No more unequivocal language could have been used.

4. ID.; ID;; ID.; ID.; PHRASE SHALL BE IN LIEU OF ALL TAXES FOUND IN SPECIAL FRANCHISES
HAVE TO GIVE WAY TO THE PEREMPTORY LANGUAGE THEREOF WITHDRAWING TAX
EXEMPTION PRIVILEGES. -- It is true that the phrase in lieu of all taxes found in special franchises has
been held in several cases to exempt the franchise holder from payment of tax on its corporate franchise
imposed by the Internal Revenue Code, as the charter is in the nature of a private contract and the exemption is
part of the inducement for the acceptance of the franchise, and that the imposition of another franchise tax by
the local authority would constitute an impairment of contract between the government and the corporation.
But these magic words contained in the phrase shall be in lieu of all taxes have to give way to the peremptory
language of the LGC specifically providing for the withdrawal of such exemption privileges. Accordingly
in Mactan Cebu International Airport Authority vs. Marcos, this Court held that Section 193 of the LGC
prescribes the general rule, viz., the tax exemptions or incentives granted to or presently enjoyed by natural or
juridical persons are withdrawn upon the effectivity of the LGC except with respect to those entities expressly
enumerated. In the same vein, We must hold that the express withdrawal upon effectivity of the LGC of all
exemptions only as provided therein, can no longer be invoked by Meralco to disclaim liability for the local
tax.
5. CONSTITUTIONAL LAW; BILL OF RIGHTS; NON-IMPAIRMENT CLAUSE; CANNOT BE
INVOKED TO UPHOLD MERALCO'S EXEMPTION FROM LOCAL TAX; FRANCHISES
SUBJECT TO ALTERATION THROUGH REASONABLE EXERCISE OF THE POLICE POWER
AND THE POWER TO TAX. -- Private respondent's invocation of the non-impairment clause of the
Constitution is accordingly unavaling. The LGC was enacted in pursuance of the constitutional policy to
ensure autonomy to local governments and to enable them to attain fullest development as self-reliant
communities. There is further basis for the conclusion that the non-impairment of contract clause cannot be
invoked to uphold Meralco's exemption from the local tax. Escudero Electric Co. was originally given the
legislative franchise under Act. 3648 to operate an electric light and power system in the City of San Pablo and
nearby municipalities. The term of the franchise under Act No. 3648 is a period of fifty years from the Act's
approval in 1929. The said law provided that the franchise is granted upon the condition that it shall be subject
to amendment, or repeal by the Congress of the United States. Under the 1935, the 1973 and the 1987
Constitutions, no franchise or right shall be granted except under the condition that it shall be subject to
amendment, alteration or repeal by the National Assembly when the public interest so requires. With or
without the reservation clause, franchises are subject to alterations through a reasonable exercise of the police
power; they are also subject to alteration by the power to tax, which like police power cannot be contracted
away.
6. STATUTORY CONSTRUCTION; IN INTERPRETING STATUTORY PROVISIONS ON MUNICIPAL
FISCAL POWERS, DOUBTS SHOULD BE RESOLVED IN FAVOR OF MUNICIPAL
CORPORATIONS. -- The power to tax is primarily vested in 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. The important legal effect of Section
5 is that henceforth, in interpreting statutory provisions on municipal fiscal powers, doubts will have to
resolved in favor of municipal corporations.
7. ID.; GENERAL LAW; CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW BY MERE
IMPLICATION UNLESS INTENT TO REPEAL IS MANIFEST. -- We are mindful of the established rule
that repeals by implication are not favored as laws are presumed to be passed with deliberation and full
knowledge of all laws existing on the subject. A general law cannot be construed to have repealed a special
law by mere implication unless the intent to repeal or alter is manifest and it must be convincingly
demonstrated that the two laws are so clearly repugnant and patently inconsistent that they cannot co-exist.

APPEARANCES OF COUNSEL
Eleno M. Mendoza, Jr. for petitioners.
Quiason Makalintal Barot Torres Ibarra for private respondent.

DECISION
GONZAGA-REYES, J.:

This is a petition under Rule 45 of the Rules of Court to review on a pure question of law
the decision of the Regional Trial Court (RTC) of San Pablo City, Branch 29 in Civil Case No.
SP-4459(96), entitled Manila Electric Company vs. City of San Pablo, Laguna, City Treasurer
of San Pablo Laguna, and the Sangguniang Panglunsod of San Pablo City, Laguna. The RTC
declared the imposition of franchise tax under Section 2.09 Article D of Ordinance No. 56
otherwise known as the Revenue Code of the City of San Pablo as ineffective and void insofar as
the respondent MERALCO is concerned for being violative of Act No. 3648, Republic Act No.
2340 and PD 551. The RTC also granted MERALCOS claim for refund of franchise taxes paid
under protest.
The following antecedent facts are undisputed:
Act No. 3648 granted the Escudero Electric Services Company, a legislative franchise to
maintain and operate an electric light and power system in the City of San Pablo and nearby
municipalities Section 10 of Act No. 3648 provides:

x x x In consideration of the franchise and rights hereby granted, the grantee shall
pay unto the municipal treasury of each municipality in which it is supplying electric
current to the public under this franchise, a tax equal to two percentum of the gross
earnings from electric current sold or supplied under this franchise in each said
municipality. Said tax shall be due and payable quarterly and shall be in lieu of any
and all taxes of any kind, nature or description levied, established or collected by any
authority whatsoever, municipal, provincial or insular, now or in the future, on its
poles, wires, insulators, switches, transformers, and structures, installations,
conductors, and accessories place in and over and under all public property, including
public streets and highways, provincial roads, bridges and public squares, and on its
franchise, rights, privileges, receipts, revenues and profits from which taxes the
grantee is hereby expressly exempted.
Escuderos franchise was transferred to the plaintiff (herein respondent) MERALCO under
Republic Act No. 2340.
Presidential Decree No. 551 was enacted on September 11, 1974. Section 1 thereof provides
the following:

Section 1. Any provision of law or local ordinance to the contrary notwithstanding,

the franchise tax payable by all grantees of franchise 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.
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.
Republic Act No. 7160, otherwise known as the Local Government Code of 1991
(hereinafter referred to as the LGC) took effect on January 1, 1992. The said Code authorizes the
province/city to impose a tax on business enjoying a franchise at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
realized within its jurisdiction.
On October 5, 1992, the Sangguniang Panglunsod of San Pablo City enacted Ordinance No.
56, otherwise known as the Revenue Code of the City of San Pablo. The said Ordinance took
effect on October 30, 1992:[1]
Section 2.09 Article D of said Ordinance provides:

Sec. 2.09. Franchise Tax There is hereby imposed a tax on business enjoying a
franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on account realized during the
preceding calendar year within the city.
Pursuant to the above-quoted Section 2.09, the petitioner City Treasurer sent to private
respondent a letter demanding payment of the aforesaid franchise tax. From 1994 to 1996,
private respondent paid under protest a total amount ofP1,857,711.67.[2]
The private respondent subsequently filed this action before the Regional Trial Court to
declare Ordinance No. 56 null and void insofar as it imposes the franchise tax upon private
respondent MERALCO[3] and to claim for a refund of the taxes paid.
The Court ruled in favor of MERALCO and upheld its argument that the LGC did not
expressly or impliedly repeal the tax exemption/incentive enjoyed by it under its charter. The
dispositive portion of the decision reads:

WHEREFORE, the imposition of a franchise tax under Sec. 2.09 Article D of

Ordinance No. 56 otherwise known as the Revenue Code of the City of San Pablo, is

declared ineffective and null and void insofar as the plaintiff MERALCO is concerned
for being violative of Republic Act No. 2340, PD 551, and Republic Act No. 7160 and
the defendants are ordered to refund to the plaintiff the amount of ONE MILLION
EIGHT HUNDRED FIFTY SEVEN THOUSAND SEVEN HUNDRED ELEVEN &
67/100 (P1,857,711.67) and such other amounts as may have been paid by the plaintiff
under said Revenue Ordinance No. 56 after the filing of the complaint. [4]
SO ORDERED.
Its motion for reconsideration having been denied by the trial court [5] the petitioners filed the
instant petition with this Court raising pure questions of law based on the following grounds:

I. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT ACT NO.

3648, REPUBLIC ACT NO. 2340 AND PRESIDENTIAL DECREE NO. 551 AS
AMENDED, INSOFAR AS THEY GRANT TAX INCENTIVES, PRIVILEGES
AND IMMUNITIES TO PRIVATE RESPONDENT, HAVE NOT BEEN
REPEALED BY REPUBLIC ACT NO. 7160.
II. RESPONDENT JUDGE GRAVELY ERRED IN RULING THAT SECTION 193
OF REPUBLIC ACT NO. 7160 HAS NOT WITHDRAWN THE TAX
INCENTIVES, PRIVILEGES AND IMMUNITIES BEING ENJOYED BY THE
PRIVATE RESPONDENT UNDER ACT NO. 3648, REPUBLIC ACT NO. 2340
AND PRESIDENTIAL DECREE NO. 551, AS AMENDED.
III. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT THE
FRANCHISE TAX IN QUESTION CONSTITUTES AN IMPAIRMENT OF THE
CONTRACT BETWEEN THE GOVERNMENT AND THE PRIVATE
RESPONDENT.
Petitioners position is the RA 7160 (LGC) expressly repealed Act No. 3648, Republic Act
No. 2340 and Presidential Decree 551 and that pursuant to the provisions of Sections 137 and
193 of the LGC, the province or city now has the power to impose a franchise tax on a business
enjoying a franchise. Petitioners rely on the ruling in the case of Mactan Cebu International
Airport Authority vs. Marcos[6] where the Supreme Court held that the exemption from real
property tax granted to Mactan Cebu International Airport Authority under its charter has been
withdrawn upon the effectivity of the LGC.
In addition, the petitioners cite in their Memorandum dated December 8, 1997 an
administrative interpretation made by the Bureau of Local Government Finance of the
Department of Finance in its 3 indorsement dated February 15, 1994 to the effect that the earlier
ruling of the Department of Finance that holders of franchise which contain the phrase in lieu of
all taxes proviso are exempt from the payment of any kind of tax is no longer applicable upon
the effectivity of the LGC in view of the withdrawal of tax exemption privileges as provided in
Sections 193 and 234 thereof.
rd

We resolve to reverse the court a quo.

The pivotal issue is whether the City of San Pablo may impose a local franchise tax pursuant
to the LGC upon the Manila Electric Company which pays a tax equal to two percent of its gross
receipts in lieu of all taxes and assessments of whatever nature imposed by any national or local
authority on savings or income.
It is necessary to reproduce the pertinent provisions of the LGC.

Section 137 Franchise Tax Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on business enjoying a franchise, at a
rate not exceeding fifty percent 50% of one percent 1% of the gross annual receipts
for the preceding calendar year based on the incoming receipts, or realized, within its
territorial jurisdiction. xxx
Section 151 Scope of Taxing Powers Except as otherwise provided in this Code,
the city, may levy the taxes, fees, and charges which the province or municipality may
impose: Provided, however, That the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for
the province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes.
Section 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.
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.
Section 534 (f), the repealing clause of the LGC, provides that all general and special laws,
acts, city charters, decrees, executive orders, proclamations and administrative regulations or
parts thereof which are inconsistent with any of the provisions of the Code are hereby repealed or
modified accordingly.
This clause partakes of the nature of a general repealing clause. [7] It is certainly not an
express repealing clause because it fails to designate the specific act or acts identified by number
or title, that are intended to be repealed.[8]

Was there an implied repeal by Republic Act No. 7160 of the MERALCO franchise insofar
as the latter impose a 2% tax in lieu of all taxes and assessments of whatever nature?
We rule affirmatively.
We are mindful of the established rule that repeals by implication are not favored as laws are
presumed to be passed with deliberation and full knowledge of all laws existing on the
subject. A general law cannot be construed to have repealed a special law by mere implication
unless the intent to repeal or alter is manifest [9] and it must be convincingly demonstrated that the
two laws are so clearly repugnant and patently inconsistent that they cannot co-exist.[10]
It is our view that petitioners correctly rely on the provisions of Section 137 and 193 of the
LGC to support their position that MERALCOs tax exemption has been withdrawn. The
explicit language of Section 137 which authorizes the province to impose franchise tax
notwithstanding any exemption granted by any law or other special laws" is all-encompassing
and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
unless otherwise provided in this Code, tax exemptions or incentives granted to or presently
enjoyed by all persons whether natural or juridical, including government-owned or controlled
corporations except 1) local water districts, 2) cooperatives duly registered under R.A. 6938, (3)
non-stock and non-profit hospitals and educational institutions, are withdrawn upon the
effectivity of this code, the obvious import is to limit the exemptions to the three enumerated
entities. It is a basic precept of statutory construction that the express mention of one person,
thing, act, or consequence excludes all others as expressed in the familiar maximexpressio unius
est exlcusio alterius.[11] In the absence of any provision of the Code to the contrary, and we find
no other provision of the Code to the contrary, and we find no other provision in point, any
existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly
intended to be withdrawn.
Reading together Sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar year based on the incoming receipts realized
within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the language used in Section 137 and 193
categorically withdrawing such exemption subject only to the exceptions enumerated. Since it
would be not only tedious and impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC provided for an express, albeit
general, withdrawal of such exemptions or privileges. No more unequivocal language could
have been used.
It is true that the phrase in lieu of all taxes found in special franchises has been held in
several cases to exempt the franchise holder from payment of tax on its corporate franchise
imposed by the Internal Revenue Code, as the charter is in the nature of a private contract and
the exemption is part of the inducement for the acceptance of the franchise, and that the
imposition of another franchise tax by the local authority would constitute an impairment of
contract between the government and the corporation. [12] But these magic words contained in
the phrase shall be in lieu of all taxes. [13] Have to give way to the peremptory language of the
LGC specifically providing for the withdrawal of such exemption privileges.

Accordingly in Mactan Cebu International Airport Authority vs. Marcos,[14] this Court held
that Section 193 of the LGC prescribes the general rule, viz., the tax exemptions or incentives
granted to or presently enjoyed by natural or juridical persons are withdrawn upon the effectivity
of the LGC except with respect to those entities expressly enumerated. In the same vein We
must hold that the express withdrawal upon effectivity of the LGC of all exemptions only as
provided therein, can no longer be invoked by Meralco to disclaim liability for the local tax.
Private respondents further argue that the in lieu of provision contained in PD 551, Act
No. 3648 and RA 2340 does not partake of the nature of an exemption, but is a commutative
tax. This contention was raised but was not upheld in Cagayan Electric Power and Light Co.
Inc. vs. Commissioner of Internal Revenue[15] wherein the Supreme Court stated:

xxx Congress could impair petitioners legislative franchise by making it liable for
income tax from which heretofore it was exempted by virtue of the exemption
provided for in section 3 of its franchise xxx
xxx Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to
income tax all corporate tax payers not expressly exempted therein and in section 27
of the Code, had the effect of withdrawing petitioners exemption from income
tax xxx
Private respondents invocation of the non-impairment clause of the Constitution is
accordingly unavailing. The LGC was enacted in pursuance of the constitutional policy to
ensure autonomy to local governments[16] and to enable them to attain fullest development as selfreliant communities.[17] Thus in Mactan Cebu International Airport Authority vs. Marcos, supra, this Court
pointed out, in upholding the withdrawal of the real estate tax exemption previously enjoyed by
the Mactan Cebu International Airport Authority, as follows:

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 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 or controlled corporations and all other units of government were

that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, 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.[18]
The Court therein concluded that:
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.[19]
The power to tax is primarily vested in 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. [20] Thus
Article X, Section 5 of the Constitution reads:

Section 5 Each Local Government unit shall have the power to create its own
sources of revenue and to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments.
The important legal effect of Section 5 is that henceforth, in interpreting statutory provisions on
municipal fiscal powers, doubts will have to be resolved in favor of municipal corporations.[21]
There is further basis for the conclusion that the non-impairment of contract clause cannot
be invoked to uphold Meralco's exemption from the local tax. Escudero Electric Co. was
originally given the legislative franchise under Act. 3648 to operate an electric light and power
system in the City of San Pablo and nearby municipalities. The term of the franchise under Act
No. 3648 is a period of fifty years from the Acts approval in 1929. The said law provided that
the franchise is granted upon the condition that it shall be subject to amendment, or repeal by the
Congress of the United States.[22] Under the 1935,[23] the 1973[24] and the 1987[25] Constitutions, no
franchise or right shall be granted except under the condition that it shall be subject to
amendment, alteration or repeal by the National Assembly when the public interest so
requires. With or without the reservation clause, franchises are subject to alterations through a
reasonable exercise of the police power; they are also subject to alteration by the power to tax,
which like police power cannot be contracted away.[26]
Finally, while the matter is not of controlling significance, the Court notes that whereas the
original Escudero franchise exempted the franchise holder from all taxes levied or collected
now or in the future[27] this phrase is noticeably omitted in the counterpart provision of P.D. 551
that said omission is intended not to foreclose future taxes may reasonably be deduced by
statutory construction.

WHEREFORE, the instant petition is GRANTED. The decision of the Regional Trial
Court of San Pablo City, appealed from is hereby reversed and set aside and the complaint of
MERALCO is hereby DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Romero, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

[1]

Petitioner for review, p. 3

[2]

Ibid., p. 4 and Respondents Memorandum, p. 3.

[3]

Petition for Review, p. 4 and Respondents Memorandum, p. 4.

[4]

Ibid

[5]

Order of January 10, 1996, p. 41, Rollo

[6]

261 SCRA 667, (1996).

[7]

Ty vs. Trampe, 250 SCRA 500 at 512 (1995).

[8]

Mecano vs. Commission on Audit, 216 SCRA 500 at 504 [1992]; Berces Sr., vs. Guingona, Jr., 241 SCRA 539 at
544 [1995].
[9]

Laguna Lake Development Authority vs. Court of Appeals, 251 SCRA 42 at 56 (1995).

[10]

Villegas vs. Subido, 41 SCRA 190 at 197 (1971); Mecano vs. Commission on Audit, Supra.

[11]

Commissioner of Customs vs. Court of Tax Appeals, 224 SCRA 665 at pp. 669-670, (1993)

[12]

Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA 231; Commissioner of Internal
Revenue vs. Lingayen Gulf Electric Power Co. 164 SCRA 27 at 34 (1988), Province of Misamis Oriental vs.
Cagayan Electric Power and Light Co., Inc., 181 SCRA 38 at 43 (1990).
[13]

Province of Misamis Oriental vs. Cagayan Electric Power and Light Co. Inc. supra, at p. 42.

[14]

Supra.

[15]

138 SCRA 629 at p. 631.

[16]

Section 25, Art. II and 2, Art. X Constitution.

[17]

2(a) Local Government Code of 1991.

[18]

Mactan Cebu International Airport Authority vs. Marcos, p. 690.

[19]

Ibid., p. 692.

[20]

Isagani A. Cruz, Constitutional Law, (1991), at p. 84.

[21]

Bernas, The Constitution of the Philippines, 1st ed. p. 381.

[22]

Act No. 3648, 12.

[23]

Article XIV, 8.

[24]

Article XIV, 5.

[25]

Article XII, 11.

[26]

Bernas, Supra, p. 341.

[27]

10, Act No. 3648.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-52019 August 19, 1988
ILOILO BOTTLERS, INC., plaintiff-appellee,
vs.
CITY OF ILOILO, defendant-appellant.
Efrain B. Trenas for plaintiff-appellee.
Diosdado Garingalao for defendant-appellant.

CORTES, J.:
The fundamental issue in this appeal is whether the Iloilo Bottlers, Inc. which had its bottling plant in
Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5,
series of 1960, as amended, which imposes a municipal license tax on distributors of soft-drinks.
On July 12,1972, Iloilo Bottlers, Inc. filed a complaint docketed as Civil Case No. 9046 with the Court
of First Instance of Iloilo praying for the recovery of the sum of P3,329.20, which amount allegedly
constituted payments of municipal license taxes under Ordinance No. 5 series of 1960, as amended,
that the company paid under protest.
On November 15,1972, the parties submitted a partial stipulation of facts, the material portions of
which state
xxx xxx xxx
2. That plaintiff is engaged in the business of bottling softdrinks under the trade name
of Pepsi Cola And 7-up and selling the same to its customers, with a bottling plant
situated at Barrio Ungca Municipality of Pavia, Iloilo, Philippines and which is outside
the jurisdiction of defendant;
3. That defendant enacted an ordinance on January 11, 1960 known as Ordinance
No. 5, Series of 1960 which ordinance was successively amended by Ordinance No.
28, Series of 1960; Ordinance No. 15, Series of 1964; and Ordinance No. 45, Series
of 1964; which provides as follows:
Section l. Any person, firm or corporation engaged in the distribution, manufacture
or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other soft drinks within
the jurisdiction of the City of Iloilo, shall pay a municipal license tax of ten (P0.10)

centavos for every case of twenty-four bottles; PROVIDED, HOWEVER, that

softdrinks sold to the public at not more than five (P0.05) centavos per bottle shall
pay a tax of one and one half (P0.015) (centavos) per case of twenty four bottles.
Section 1-AFor purposes of this Ordinance, all deliveries and/or dispatches
emanating or made at the plant and all goods or stocks taken out of the plant for
distribution, sale or exchange irrespective (of) where it would take place shall be
covered by the operation of this Ordinance.
4. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a
bottling plant at Muelle Loney Street, Iloilo City, which was doing business under the
name of Seven-up Bottling Company of the Philippines and bottled the soft-drinks
Pepsi-Cola and 7-up; however sometime on September 14,1966, Santiago Syjuco,
Inc., informed all its employees that it (was) closing its Iloilo Plant due to financial
losses and in fact closed the same and later sold the plant to the plaintiff Iloilo
Bottlers, Inc.
5. That thereafter, plaintiff operated the said plant by bottling the soft drinks PepsiCola and 7-up; however, sometime in July 1968, plaintiff closed said bottling plant at
Muelle Loney, Iloilo City, and transferred its bottling operations to its new plant in
Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is outside the
jurisdiction of the City of Iloilo;
6. That from the time of (the) enactment (of the ordinance), the Seven Up Bottling
Company of the Philippines under Santiago Syjuco Inc., had been religiously paying
the defendant City of Iloilo the above- mentioned municipal license tax due therefrom
for bottler because its bottling plant was then still situated at Muelle Loney St., Iloilo
City; but the plaintiff stopped paying the municipal license tax (after) October 21,
1968 (when) it transferred its plant to Barrio Ungca Municipality of Pavia, Iloilo which
is outside the jurisdiction of the City of Iloilo;
7. That sometime on July 31, 1969, the defendant demanded from the plaintiff the
payment of the municipal license tax under the above-mentioned ordinance, a xerox
copy of the said letter is attached to the complaint as Annex "A" and made an integral
part hereof by reference.
8. That plaintiff explained in a letter to the defendant that it could not anymore be
liable to pay the municipal license fee because its bottling plant (was) not anymore
inside the City of Iloilo, and that moreover, since it itself (sold) its own products to its
(customers) directly, it could not be considered as a distributor in line with the
doctrines enunciated by the Supreme Court in the cases of City of Manila vs. Bugsuk
Lumber Co., L- 8255, July 11, 1957; Manila Trading & Supply Co., Inc. vs. City of
Manila L-1 2156, April 29, 1959; Central Azucarera de Don Pedro vs. City of Manila
et al., G.R. No. L7679, September 29,1955; Cebu Portland Cement vs. City of Manila
and City Treasurer of Manila, L-1 4229,July 26,1960. A xerox copy of the said letter is
attached as Annex "B" to the complaint and made an integral part hereof by
reference. As a result of the said letter of the plaintiff, the defendant did not anymore
press the plaintiff to pay the said municipal license tax;
9. That sometime on January 25, 1972, the defendant demanded from the plaintiff
compliance with the said ordinance for 1972 in view of the fact that it was engaged in
distribution of the softdrinks in the City of Iloilo, and it further demanded from the

plaintiff payment of back taxes from the time it transferred its bottling plant to the
Municipality of Pavia, Iloilo;
10. That the plaintiff demurred to the said demand of the defendant raising as its
jurisdiction the reason that its bottling plant is situated outside the City of Iloilo and as
bottler could not be considered as distributor under the said ordinance although it
sells its product directly to the consumer, in line with the jurisprudence enunciated by
the Supreme Court but due to insistence of the defendant, the plaintiff paid on April
20, 1972, the first quarter payment of the municipal licence tax in the sum of
P3,329.20, under protest, and thereafter has been paying defendant every quarter
under protest;
11. That on June l5, 1972,the defendant informed the plaintiff that it must pay all the
taxes due since July, 1968 up to the last quarter of 1971, otherwise it shall be
constrained to cancel the operation of the business of the plaintiff, and because of
this threat, and so as not to occasion disruption of its business operation, the plaintiff
under protest agreed to the payment of the back taxes, on staggered basis, which
was acceded to by the defendant;
12. That as computed by the plaintiff the following are its softdrinks sold in Iloilo City
since it transferred its bottling plant from the City of Iloilo to Barrio Ungca Pavia, Iloilo
in July 1968, to wit:
No. of Cases sold

PEPSI-COLA

49,060

87,660

89,211

88,480

314,411

13. That the plaintiff does not maintain any store or commercial establishment in the
City of Iloilo from which it distributes its products, but by means of a fleet of delivery
trucks, plaintiff distributes its products from its bottling plant at Barrio Ungca
Municipality of Pavia, Iloilo, directly to its customers in the different towns of the
Province of Iloilo as well as the City of Iloilo;

14. That the plaintiff is already paying the National Government a percentage Tax of
71/t, as manufacturer's sales tax on all the softdrinks it manufactures as follows:
O.R. No. 4683995 - January, 1972 Sales P17,222.90
O.R. No. 5614767 - February " " 17,024.81
O.R. No. .5614870 - March " " 17,589.19
O.R. No. 5614891 - April " " 18,726.77
O.R. No. 5614897 - May " " 16,710.99
O.R. No. 5614935 - June " " 14,791.20
O.R. No. 5614967 - July " " 13,952.00
O.R. No. 5614973 - August " " 15,726.16
O.R. No. 56'L4999 - September " " 19,159.54
and is also paying the municipal license tax to the municipality of Pavia, Iloilo in the
amount of P l0,000.00 every year, plus a municipal license tax for engaging in its
business to the municipality of Pavia in its amount of P2,000.00 every year.
xxx xxx xxx
[Rollo, P. 10 (Record on Appeal, pp. 25-31)]
On the basis of the above stipulations, the court a quo rendered on January 26, 1973 a decision in
favor of Iloilo Bottlers, Inc. declaring the Corporation not liable under the ordinance and directing the
City of Iloilo to pay the sum of' P3,329.20. The decision was amended in an Order dated March 15,
1973, so as to include the amounts paid by the company after the filing of the complaint. The City of
Iloilo appealed to the Court of Appeals which certified the case to this Court.
The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of:
1. distribution of soft-drinks
2. manufacture of soft-drinks, and
3. bottling of softdrinks within the territorial jurisdiction of the City of Iloilo.
There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no
longer manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling
under the second or the third type of business. The resolution of this case therefore hinges on
whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even
after it had transferred its bottling plant to Pavia, so as to be within the purview of the ordinance.

Iloilo Bottlers, Inc. disclaims liability on two grounds: First, it contends that since it is not engaged in
the independent business of distributing soft-drinks, but that its activity of selling is merely an
incident to, or is a necessary consequence of its main or principal business of bottling, then it is NOT
liable under the city tax ordinance. Second, it claims that only manufacturers or bottlers having their
plants inside the territorial jurisdiction of the city are covered by the ordinance.
The second ground is manifestly devoid of merit. It is clear from the ordinance that three types of
activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person
engaged in any or all of these activities is subject to the tax.
The first ground, however, merits serious consideration.
This Court has always recognized that the right to manufacture implies the right to sell/distribute the
manufactured products [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, 97
Phil. 627 (1955); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, G.R. No. L-22764, July
28, 1969, 28 SCRA 840, 843.] Hence, for tax purposes, a manufacturer does not necessarily
become engaged in the separate business of selling simply because it sells the products it
manufactures. In certain cases, however, a manufacturer may also be considered as engaged in the
separate business of selling its products.
To determine whether an entity engaged in the principal business of manufacturing, is likewise
engaged in the separate business of selling, its marketing system or sales operations must be
looked into.
In several cases [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, supra; Cebu
Portland Cement Co. v. City of Manila and the City Treasurer, 108 Phil. 1063 (1960); Caltex
(Philippines), Inc. v. City of Manila and Cudiamat, supra], this Court had occasion to distinguish two
marketing systems:
Under the first system, the manufacturer enters into sales transactions and invoices the sales at its
main office where purchase orders are received and approved before delivery orders are sent to the
company's warehouses, where in turn actual deliveries are made. No warehouse sales are made;
nor are separate stores maintained where products may be sold independently from the main office.
The warehouses only serve as storage sites and delivery points of the products earlier sold at the
main office. Under the second system, sales transactions are entered into and perfected at stores or
warehouses maintained by the company. Any one who desires to purchase the product may go to
the store or warehouse and there purchase the merchandise. The stores and warehouses serve as
selling centers.
Entities operating under the first system are NOT considered engaged in the separate business of
selling or dealing in their products, independent of their manufacturing business. Entities operating
under the second system are considered engaged in the separate business of selling.
In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which
went directly to customers in the different places in lloilo province. Sales transactions with customers
were entered into and sales were perfected and consummated by route salesmen. Truck sales were
made independently of transactions in the main office. The delivery trucks were not used solely for
the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were
what were called, until recently, "rolling stores". The delivery trucks were therefore much the same
as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls
under the second category above. That is, the corporation was engaged in the separate business of
selling or distributing soft-drinks, independently of its business of bottling them.

The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing,
manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only
when the acts, privileges or businesses are done or performed within the jurisdiction of said authority
[Commissioner of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R.
Nos. 65773-74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing,
bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the
activities may be taxed in Iloilo City.
As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to
declare the company liable under the tax ordinance.
With the foregoing discussion, it becomes unnecessary to discuss the other issues raised by the
parties.
WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil Case No. 9046
is ordered DISMISSED. No Costs.
SO ORDERED.
Fernan, C.J., Feliciano and Bidin, JJ., concur.
Gutierrez, Jr., J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22814

August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendantsappellees.
Sabido, Sabido and Associates for plaintiff-appellant.
The City Attorney of Butuan City for defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing
plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and
principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the
members of its municipal board and its City Treasurer. Plaintiff seeks to recover the sums paid by

it to the City of Butuan hereinafter referred to as the City and collected by the latter, pursuant to its
Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both series of 1960,
which plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties
submitted the case for decision in the lower court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the
"Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the municipalities
in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and
shipped to the Butuan City warehouse of plaintiff for distribution and sale in the City of
Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was
subsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy of
Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as
Exhibits "A" and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of
P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of
P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January
1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of
P14,177.03 paid under protest and those that if may later on pay until the termination of this
case on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that
the tax imposed is excessive and that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has
prepared a form to be accomplished by the plaintiff for the computation of the tax. A copy of
the form is enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to
July 30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1"
to "D-5". In this Profit and Loss Statement, the defendants claim that the plaintiff is not
entitled to a depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff
will be increased from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of
depreciation which the company claims to be P3,052.62. This is in accordance with the
findings of the representative of the undersigned City Attorney who verified the records of the
plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was
increased to P1.92 which price is uniform throughout the Philippines. Said increase was
made due to the increase in the production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality and illegality
of Ordinance No. 110, as amended of the City of Butuan in their respective memoranda.

xxx

xxx

xxx

1wph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the
purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer
"engaged in selling liquors, imported or local, in the City," of taxes at specified rates. Section 3
prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein
named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term
"consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid
at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed
from the cargo manifest or bill of lading or any other record showing the number of cases of soft
drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7
and 8 specify the surcharge to be added for failure to pay the taxes within the period prescribed and
the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2 and
3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest
or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the
ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within"
the City. Section 10 of the ordinance provides that the revenue derived therefrom "shall be alloted as
follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature
of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory;
(4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the
authority of which it was enacted, is an unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed independently of whether
or not the tax in question, when considered in relation to the sales tax prescribed by Acts of
Congress, amounts to double taxation, on which we need not and do not express any opinion double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part
thereof, the injunction against double taxation found in the Constitution of the United States and of
some States of the Union.1 Then, again, the general principle against delegation of legislative
powers, in consequence of the theory of separation of powers 2 is subject to one well-established
exception, namely: legislative powers may be delegated to local governments to which said
theory does not apply3 in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or
carbonated drinks in the production and sale of which plaintiff is engaged or less than P0.0042
per bottle, is manifestly too small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection, it is
noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was
imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that
the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No.
122, the tax is, however, imposed only upon "any agent and/or consignee of any person,
association, partnership, company or corporation engaged in selling ... soft drinks or carbonated
drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No. 122:

... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a
consignee of agent shall mean any person, association, partnership, company or corporation
who acts in the place of another by authority from him or one entrusted with the business of
another or to whom is consigned or shipped no less than 1,000 cases of hard liquors or soft
drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject
to the tax,unless they are agents and/or consignees of another dealer, who, in the very nature of
things, must be one engaged in business outside the City. Besides, the tax would not be applicable
to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to
him every month. When we consider, also, that the tax "shall be based and computed from the cargo
manifest or bill of lading ... showing the number of cases" not sold but "received" by the
taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks
brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond defendant's authority to impose by express
provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said beverages, it
would still be invalid, as discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same exceeded those made by
said agents or consignees of producers or merchants established outside the City of Butuan, would
be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require
identity or equality under all circumstances, or negate the authority to classify the objects of
taxation.5 The classification made in the exercise of this authority, to be valid, must, however, be
reasonable6 and this requirement is not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies equally all those who
belong to the same class.7
These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose were merely
to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales
thereof by sealers other than agents or consignees of producers or merchants established outside
the City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered
annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan
to refund to plaintiff herein the amounts collected from and paid under protest by the latter, with
interest thereon at the legal rate from the date of the promulgation of this decision, in addition to the
costs, and defendants herein are, accordingly, restrained and prohibited permanently from enforcing
said Ordinance, as amended. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

1wph1.t

Footnotes
De Villata v. Stanley, 32 Phil. 541; City of Manila v. Inter-Island Gas Service, 99 Phil. 847,
854; Syjuco v. Municipality of Paraaque, L-11265, Nov. 27, 1959; City of Bacolod v. Gruet,
L-18290, Jan. 31, 1963.
1

U.S. v. Bull, 15 Phil. 7, 27; Kilbourn v. Thompson, 103 U.S. 168, 26 L. ed. 377.

State v. City of Mankato, 136 N.W. 264; People v. Provinces, 34 Cal. 520; Stoutenburgh v.
Hennick 129 U.S. 141, 32 L. ed. 637.
3

Section 2(i), Republic Act No. 2264; Panaligan v. City of Tacloban, L- 9319, Sept. 27, 1957,
102 Phil. 1162-1163; East Asiatic Co. v. City of Davao, L-16253, August 21, 1962. .
4

Tan Tim Kee v. Court of Tax Appeals, L-18080, April 22, 1963; Nin Bay Mining Co. v.
Municipality of Roxas, L-20125, July 20, 1965. .
5

Felwa v. Salas, L-26511, October 29, 1966; Aleja v. GSIS, L-18529, February 26, 1965;
People v. Solon, L-14864, November 23, 1960; People v. Cayat, 68 Phil. 12; People v. Vera,
65 Phil. 56; Laurel v. Misa, 42 O.G. 2847.
6

Commissioner of Int. Rev. v. Botelho Shipping Corp., L-21633-34, June 29, 1967; ErmitaMalate Hotel & Motel Operators Ass'n. v. City Mayor, L-24693, October 23, 1967; Rafael v.
Embroidery & Apparel Control & Inspection Board, L-19978, September 29, 1967; Meralco v.
Public Utilities Employee Ass'n., 79 Phil. 409. .
7

Viray v. City of Caloocan, L-23118, July 26, 1967; PHILCONSA v. Gimenez, L-23326,
December 18, 1965; Ormoc Sugar Co. v. Treasurer of Ormoc City, L-23794, February 17,
1968.
8

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-24756

October 31, 1968

CITY OF BAGUIO, plaintiff-appellee,

vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.

FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an ordinance 1 of the City of Baguio
imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio
is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real estate dealer with
a property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to
pay under such ordinance the P50 annual fee. That is the principal question. In addition, there has
been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City
Court of Baguio, where the suit originated, a complaint having been filed against him by the City
Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from
the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor
was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the
consent of the Mayor, which for him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid and
subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate dealer.
Hence, this appeal. Assume the validity of such ordinance, and there would be no question about the
liability of defendant-appellant for the above license fee, it being shown in the partial stipulation of
facts, that he was "engaged in the rental of his property in Baguio" deriving income therefrom during
the period covered by the first quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending
the city charter of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and
occupations as may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad enough to justify the
enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable,
considering that even a cursory reading of the above amendment readily discloses that the
enactment of the ordinance in question finds support in the power thus conferred.
Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of
Baguio,3 the effect of the amendatory section insofar as it would expand the previous power vested
by the city charter was clarified in these terms: "Appellants apparently have in mind section 2553,
paragraph (c) of the Revised Administrative Code, which empowers the City of Baguio merely to
impose a license fee for the purpose of rating the business that may be established in the city. The
power as thus conferred is indeed limited, as it does not include the power to levy a tax. But on July
15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its
power to license the power to tax and to regulate. And it is precisely having in view this amendment
that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the
amendment above adverted to empowers the city council not only to impose a license fee but also to
levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as
provided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio,
therefore, has now the power to tax, to license and to regulate provided that the subjects affected be
one of those included in the charter. In this sense, the ordinance under consideration cannot be
considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology
used is of no consequence."
It would be an undue and unwarranted emasculation of the above power thus granted if defendantappellant were to be sustained in his contention that no such statutory authority for the enactment of
the challenged ordinance could be discerned from the language used in the amendatory act. That is
about all that needs to be said in upholding the lower court, considering that the City of Baguio was

not devoid of authority in enacting this particular ordinance. As mentioned at the outset, however,
defendant-appellant likewise alleged procedural missteps and asserted that the challenged
ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now
turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in
the suit for the collection of the real estate dealer's fee from him in the amount of P300. He
contended before the lower court, and it is his contention now, that while the amount of P300 sought
was within the jurisdiction of the City Court of Baguio where this action originated, since the principal
issue was the legality and constitutionality of the challenged ordinance, it is not such City Court but
the Court of First Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently,
on September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v.
Sabillano.4 The plaintiff in that case filed a claim for the payment of his salary before the Justice of
the Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the
defendant Mayor asserted that what was in issue was the enforcement of the decision of the
Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by Us, as what was involved was "an ordinary money
claim" and therefore "within the original jurisdiction of the Justice of the Peace Court where it was
filed, considering the amount involved." Such is likewise the situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license fee
corresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of
the amount involved. The thought that the municipal court lacked jurisdiction apparently was not
even in the minds of the parties and did not receive any consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is
raised, it is the Court of First Instance that should have original jurisdiction on the matter. It does not
admit of doubt, however, that what confers jurisdiction is the amount set forth in the complaint. Here,
the sum sought to be recovered was clearly within the jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance being open to question as a
defense against its enforcement from one adversely affected, the matter should be elevated to the
Court of First Instance. For the City Court could rely on the presumption of the validity of such
ordinance,6 and the mere fact, however, that in the answer to such a complaint a constitutional
question was raised did not suffice to oust the City Court of its jurisdiction. The suit remains one for
collection, the lack of validity being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that the judicial power embraces the
ascertainment of facts and the application of the law, the Constitution as the highest law superseding
any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of
competence to proceed on the matter. In the exercise of such delicate power, however, the
admonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to
any one that the power to declare a legislative enactment void is one which the judge, conscious of
the fallibility of the human judgment, will shrink from exercising in any case where he can
conscientiously and with due regard to duty and official oath decline the responsibility." 7 While it
remains undoubted that such a power to pass on the validity of an ordinance alleged to infringe
certain constitutional rights of a litigant exists, still it should be exercised with due care and
circumspection, considering not only the presumption of validity but also the relatively modest rank
of a city court in the judicial hierarchy.

2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample
statutory authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is
challenged because of the allegation that it imposed double taxation, which is repugnant to the due
process clause, and that it violated the requirement of uniformity. We do not view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes made clear in this
language: "The objection to the taxation as double may be laid down on one side. ... The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling the
amount of a tax, short of confiscation or proceedings unconstitutional on other grounds." 8With that
decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup de grace to the bogey
of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though
that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical
state. In a 1947 decision, however,9 we quoted with approval this excerpt from a leading American
decision:10 "Where, as here, Congress has clearly expressed its intention, the statute must be
sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against double taxation
may not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it
being widely recognized that there is nothing inherently obnoxious in the requirement that license
fees or taxes be exacted with respect to the same occupation, calling or activity by both the state
and the political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this argument based on double taxation.
Now, as to the claim that there was a violation of the rule of uniformity established by the
constitution. According to the challenged ordinance, a real estate dealer who leases property worth
P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over
P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the
above ordinance cannot be assailed as violative of the constitutional requirement of uniformity.
In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect in every place where the subject
may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso.13 Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation; ..." About two years later,
Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la
Fuente14 incorporated the above excerpt in his opinion and continued: "Taking everything into
account, the differentiation against which the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years
later, 15 is that the statute or ordinance in question "applies equally to all persons, firms and
corporations placed in similar situation." This Court is on record as accepting the view in a leading
American case16 that "inequalities which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation."17
It is thus apparent from the above that in much the same way that the plea of double taxation is
unavailing, the allegation that there was a violation of the principle of uniformity is inherently lacking

in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the
above ordinance, it being maintained that the license fees therein imposed "is excessive,
unreasonable and oppressive" and that there is a failure to observe the mandate of equal protection.
A reading of the ordinance will readily disclose their inherent lack of plausibility.
3. That would dispose of all the errors assigned, except the last two, which would predicate a
grievance on the complaint having been started by the City Treasurer rather than the City Mayor of
Baguio. These alleged errors, as was the case with the others assigned, lack merit.
In much the same way that an act of a department head of the national government, performed
within the limits of his authority, is presumptively the act of the President unless reprobated or
disapproved,18 similarly the act of the City Treasurer, whose position is roughly analogous, may be
assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This should
be the case considering that such city official is called upon to see to it that revenues due the City
are collected. When administrative steps are futile and unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be
resorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be met
by condemnation rather than commendation.
So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes
to it from the functional and pragmatic test. If a city treasurer has to await the nod from the city
mayor before a municipal ordinance is enforced, then opportunity exists for favoritism and undue
discrimination to come into play. Whatever valid reason may exist as to why one taxpayer is to be
accorded a treatment denied another, the suspicion is unavoidable that such a manifestation of
official favor could have been induced by unnamed but not unknown consideration. It would not be
going too far to assert that even defendant-appellant would find no satisfaction in such a sad state of
affairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is one
that would do away with such temptation on the part of both taxpayer and public official alike.
WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against
defendant-appellant.
Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.

Footnotes
1

Ordinance No. 218.

Section 2553, paragraph (c), Revised Administrative Code.

91 Phil. 854, 856-857 (1952).

L-20977.

101 Phil. 859 (1957).

U.S. v. Salaveria, 39 Phil. 102 (1918) and Ermita-Malate Hotel Association v. Mayor of
Manila, L-24693, July 31, 1967.
6

Cooley on Constitutional Limitations, Vol. I, 8th ed. 332 (1927).

Fort Smith Lumber Co. v. Arkansas, 251 US 523, 533 (1920).

Wise & Co. v. Meer, 78 Phil. 655.

10

Helmich v. Hellman, 276 US 233 (1928).

11

Punsalan v. Municipal Board of Manila, 95 Phil. 46, 49 (1954).

12

69 Phil. 420 (1940).

13

83 Phil. 852, 862 (1949).

14

88 Phil. 60, 65 (1951).

15

Uy Matias v. City of Cebu, 93 Phil. 300 (1953).

16

Carmichael v. Southern Coal and Coke Co., 301 US 495 (1937).

17

Lutz v. Araneta, 98 Phil. 148, 153 (1955).

18

Villena v. Sec. of the Interior, 67 Phil. 451 (1939).

Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-4376

May 22, 1953

ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants,

vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY
MAYOR, all of the City of Manila, respondents-appellees.
Teotimo A. Roja for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.
BAUTISTA ANGELO, J.:
This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the
Municipal Board of the City of Manila on March 24, 1950.

The Association of Customs Brokers, Inc., which is composed of all brokers and public service
operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said
association, also a public service operator of the trucks in said City, challenge the validity of said
ordinance on the ground that (1) while it levies a so-called property tax it is in reality a license tax
which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends
against the rule of uniformity of taxation; and (3) it constitutes double taxation.
The respondents, represented by the city fiscal, contend on their part that the challenged ordinance
imposes a property tax which is within the power of the City of Manila to impose under its Revised
Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the
rule of uniformity of taxation, nor does it constitute double taxation.
The issues having been joined, the Court of First Instance of Manila sustained the validity of the
ordinance and dismissed the petition. Hence this appeal.
The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority
conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board
the power "to tax motor and other vehicles operating within the City of Manila the provisions of any
existing law to the contrary notwithstanding." It is contended that this power is broad enough to
confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor
vehicles operating within the city limits.
In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the
Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal
corporation to impose tax on motor vehicles operating in any highway in the Philippines. The
pertinent provisions are contained in section 70 (b) which provide in part:
No further fees than those fixed in this Act shall be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the operation
of any motor vehicle by the owner thereof: Provided, however, That nothing in this Act shall
be construed to exempt any motor vehicle from the payment of any lawful and equitable
insular, local or municipal property tax imposed thereupon. . . .
Note that under the above section no fees may be exacted or demanded for the operation of any
motor vehicle other than those therein provided, the only exception being that which refers to the
property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that
sense that it applies to all motor vehicles. In this sense, this provision should be construed as limiting
the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When
section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles
operating within its limit, it can only refers to property tax as a different interpretation would make it
repugnant to the Motor Vehicle Law.
Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a
Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its section 1 it
provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds
of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended

exclusively for the repair, maintenance and improvement of its streets and bridges." Considering the
wording used in the ordinance in the light in the purpose for which the tax is created, can we
consider the tax thus imposed as property tax, as claimed by respondents?
While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities,
the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered
from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a
tax is in its nature an excise, it does not become a property tax because it is proportioned in amount
to the value of the property used in connection with the occupation, privilege or act which is taxed.
Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a
tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a
privilege, or the engaging in an occupation, it will be considered an excise." (26 R. C. L., 35-36.) It
has also been held that
The character of the tax as a property tax or a license or occupation tax must be determined
by its incidents, and from the natural and legal effect of the language employed in the act or
ordinance, and not by the name by which it is described, or by the mode adopted in fixing its
amount. If it is clearly a property tax, it will be so regarded, even though nominally and in
form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons
on account of their business, it will be construed as a license or occupation tax, even though
it is graduated according to the property used in such business, or on the gross receipts of
the business. (37 C.J., 172)
The ordinance in question falls under the foregoing rules. While it refers to property tax and it is
fixed ad valoremyet we cannot reject the idea that it is merely levied on motor vehicles operating
within the City of Manila with the main purpose of raising funds to be expended exclusively for the
repair, maintenance and improvement of the streets and bridges in said city. This is precisely what
the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act,
municipal corporation already participate in the distribution of the proceeds that are raised for the
same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the
Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for
the same purpose. It is for this reason that we believe that the ordinance in question merely imposes
a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above
adverted to.
It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained by our
Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the City
of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private
use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one
registered in another place but occasionally comes to Manila and uses its streets and public
highways. The distinction is important if we note that the ordinance intends to burden with the tax
only those registered in the City of Manila as may be inferred from the word "operating" used therein.
The word "operating" denotes a connotation which is akin to a registration, for under the Motor
Vehicle Law no motor vehicle can be operated without previous payment of the registration fees.
There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a
temporary stay or for short errands, and it cannot be denied that they contribute in no small degree

to the deterioration of the streets and public highway. The fact that they are benefited by their use
they should also be made to share the corresponding burden. And yet such is not the case. This is
an inequality which we find in the ordinance, and which renders it offensive to the Constitution.
Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.
Paras, C.J., Bengzon and Tuason, JJ., concur.
Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-23794

February 17, 1968

ORMOC SUGAR COMPANY, INC., plaintiff-appellant,

vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON.
ESTEBAN C. CONEJOS as Mayor of Ormoc City and ORMOC CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon & Taada for plaintiffappellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4, Series of
1964, imposing "on any and all productions of centrifugal sugar milled at the Ormoc Sugar
Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to
the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on March
20, 1964 for P7,087.50 and on April 20, 1964 for P5,000, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte,
with service of a copy upon the Solicitor General, a complaint 3 against the City of Ormoc as well as
its Treasurer, Municipal Board and Mayor, alleging that the afore-stated ordinance is unconstitutional
for being violative of the equal protection clause (Sec. 1[1], Art. III, Constitution) and the rule of
uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside from being an export tax forbidden
under Section 2287 of the Revised Administrative Code. It further alleged that the tax is neither a
production nor a license tax which Ormoc City under Section 15-kk of its charter and under Section 2
of Republic Act 2264, otherwise known as the Local Autonomy Act, is authorized to impose; and that
the tax amounts to a customs duty, fee or charge in violation of paragraph 1 of Section 2 of Republic
Act 2264 because the tax is on both the sale and export of sugar.

Answering, the defendants asserted that the tax ordinance was within defendant city's power
to enact under the Local Autonomy Act and that the same did not violate the afore-cited
constitutional limitations. After pre-trial and submission of the case on memoranda, the Court of First
Instance, on August 6, 1964, rendered a decision that upheld the constitutionality of the ordinance
and declared the taxing power of defendant chartered city broadened by the Local Autonomy Act to
include all other forms of taxes, licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc. Appellant
alleges the same statutory and constitutional violations in the aforesaid taxing ordinance mentioned
earlier.
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Company, Incorporated, in Ormoc City, a
municipal tax equivalent to one per centum (1%) per export sale to the United States of America and
other foreign countries." Though referred to as a tax on the export of centrifugal sugar produced at
Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the only time the tax
applies is when the sugar produced is exported.
Appellant questions the authority of the defendant Municipal Board to levy such an export tax,
in view of Section 2287 of the Revised Administrative Code which denies from municipal councils the
power to impose an export tax. Section 2287 in part states: "It shall not be in the power of the
municipal council to impose a tax in any form whatever, upon goods and merchandise carried into
the municipality, or out of the same, and any attempt to impose an import or export tax upon such
goods in the guise of an unreasonable charge for wharfage use of bridges or otherwise, shall be
void."
Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave
chartered cities, municipalities and municipal districts authority to levy for public purposes just and
uniform taxes, licenses or fees. Anent the inconsistency between Section 2287 of the Revised
Administrative Code and Section 2 of Republic Act 2264, this Court, in Nin Bay Mining Co. v.
Municipality of Roxas 4 held the former to have been repealed by the latter. And expressing Our
awareness of the transcendental effects that municipal export or import taxes or licenses will have
on the national economy, due to Section 2 of Republic Act 2264, We stated that there was no other
alternative until Congress acts to provide remedial measures to forestall any unfavorable results.
The point remains to be determined, however, whether constitutional limits on the power of
taxation, specifically the equal protection clause and rule of uniformity of taxation, were infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied the equal
protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that the equal protection
clause applies only to persons or things identically situated and does not bar a reasonable
classification of the subject of legislation, and a classification is reasonable where (1) it is based on
substantial distinctions which make real differences; (2) these are germane to the purpose of the
law; (3) the classification applies not only to present conditions but also to future conditions which
are substantially identical to those of the present; (4) the classification applies only to those who
belong to the same class.

A perusal of the requisites instantly shows that the questioned ordinance does not meet them,
for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and
none other. At the time of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true,
was the only sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in
terms applicable to future conditions as well. The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, for
the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to
the tax because the ordinance expressly points only to Ormoc City Sugar Company, Inc. as the
entity to be levied upon.
Appellant, however, is not entitled to interest; on the refund because the taxes were not
arbitrarily collected (Collector of Internal Revenue v. Binalbagan). 6 At the time of collection, the
ordinance provided a sufficient basis to preclude arbitrariness, the same being then presumed
constitutional until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the challenged ordinance is
declared unconstitutional and the defendants-appellees are hereby ordered to refund the
P12,087.50 plaintiff-appellant paid under protest. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.
1wph1.t

Footnotes
1

Resolution No. 30, Series of 1964.

Section 1, emphasis supplied.

An action for declaratory judgment was also filed on May 23, 1964 (Civil Case No. 665-0)
but this and the present case were tried jointly.
3

L-20125, July 20, 1965.

L-26511, Oct. 29, 1966.

L-12752, Jan. 30, 1965.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-77194 March 15, 1988

VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE

ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER
LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO LLAMAS, RODOLFO SIASON,
PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET AL., petitioners,
vs.
REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY
ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA
P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE
PLANTERS, intervenors.

MELENCIO-HERRERA, J.:
Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in
their individual capacities and in representation of other sugar producers, planters and millers, said
to be so numerous that it is impracticable to bring them all before the Court although the subject
matter of the present controversy is of common interest to all sugar producers, whether parties in
this action or not.
Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government
office tasked with the function of regulating and supervising the sugar industry until it was
superseded by its co-respondent Sugar Regulatory Administration (SRA, for brevity) under Executive
Order No. 18 on May 28, 1986. Although said Executive Order abolished the PHILSUCOM, its
existence as a juridical entity was mandated to continue for three (3) more years "for the purpose of
prosecuting and defending suits by or against it and enables it to settle and close its affairs, to
dispose of and convey its property and to distribute its assets."
Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation.
Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in
different mill districts of Negros Occidental, were allowed to intervene by the Court, since they have
common cause with petitioners and respondents having interposed no objection to their intervention.
Subsequently, on January 14,1988, the National Federation of Sugar Planters (NFSP) also moved to
intervene, which the Court allowed on February 16,1988.
Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding
respondents:
TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC
PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION OF THE SHARES OF
STOCK IN THE SAID BANK; NOW HELD BY AND STILL CARRIED IN THE NAME
OF THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR PRODUCERS,
PLANTERS AND MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE
761,416 COMMON SHARES VALUED AT P36,548.000.00, AND 53,005,045
PREFERRED SHARES (A, B & C) WITH A TOTAL PAR VALUE OF

P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE SAID

INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF Pl.00 PER
PICUL FROM SUGAR PROCEEDS OF THE SUGAR PRODUCERS COMMENCING
THE YEAR 1978-79 UNTIL THE PRESENT AS STABILIZATION FUND PURSUANT
TO P.D. # 388.
Respondent Bank does not take issue with either petitioners or its correspondents as it has no
beneficial or equitable interest that may be affected by the ruling in this Petition, but welcomes the
filing of the Petition since it will settle finally the issue of legal ownership of the questioned shares of
stock.
Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no
trust results from Section 7 of P.D. No. 388; that the stabilization fees collected are considered
government funds under the Government Auditing Code; that the transfer of shares of stock from
PHILSUCOM to the sugar producers would be irregular, if not illegal; and that this suit is barred by
laches.
The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees
collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for
them, or public funds; and (2) whether shares of stock in respondent Bank paid for with said
stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from whom
the fees were collected or levied.
P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the
collection of a Stabilization Fund as follows:
SEC. 7. Capitalization, Special Fund of the Commission, Development and
Stabilization Fund. There is hereby established a fund for the commission for the
purpose of financing the growth and development of the sugar industry and all its
components, stabilization of the domestic market including the foreign market to
be administered in trust by the Commission and deposited in the Philippine National
Bank derived in the manner herein below cited from the following sources:
a. Stabilization fund shall be collected as provided for in the various provisions of this
Decree.
b. Stabilization fees shall be collected from planters and millers in the amount of Two
(P2.00) Pesos for every picul produced and milled for a period of five years from the
approval of this Decree and One (Pl.00) Peso for every picul produced and milled
every year thereafter.
Provided: That fifty (P0.50) centavos per picul of the amount levied on planters,
millers and traders under Section 4(c) of this Decree will be used for the payment of
salaries and wages of personnel, fringe benefits and allowances of officers and
employees for the purpose of accomplishing and employees for the purpose of
accomplishing the efficient performance of the duties of the Commission.

Provided, further: That said amount shall constitute a lien on the sugar quedan
and/or warehouse receipts and shall be paid immediately by the planters and mill
companies, sugar centrals and refineries to the Commission. (paragraphing and bold
supplied).
Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in
trust by the Commission." However, while the element of an intent to create a trust is present, a
resulting trust in favor of the sugar producers, millers and planters cannot be said to have ensued
because the presumptive intention of the parties is not reasonably ascertainable from the language
of the statute itself.
The doctrine of resulting trusts is founded on the presumed intention of the parties;
and as a general rule, it arises where, and only where such may be reasonably
presumed to be the intention of the parties, as determined from the facts and
circumstances existing at the time of the transaction out of which it is sought to be
established (89 C.J.S. 947).
No implied trust in favor of the sugar producers either can be deduced from the imposition of the
levy. "The essential Idea of an implied trust involves a certain antagonism between the cestui que
trust and the trustee even when the trust has not arisen out of fraud nor out of any transaction of a
fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the
PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the
sugar producers. It must be categorically demonstrated that the very administrative agency which is
the source of such regulation would place a burden on itself (Batchelder v. Central Bank of the
Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]).
Neither can petitioners place reliance on the history of respondents Bank. They recite that at the
beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent difficulties early
in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the PHILSUCOM, submitted a
proposal to the Central Bank for the rehabilitation of the Bank. The Central Bank acted favorably on
the proposal at the meeting of the Monetary Board on March 31, 1978 subject to the infusion of fresh
capital by the Benedicto Group. Petitioners maintain that this infusion of fresh capital was
accomplished, not by any capital investment by Mr. Benedicto, but by PHILSUCOM, which set aside
the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of
respondent Bank. It is petitioners' submission that all shares were placed in PHILSUCOM's name
only out of convenience and necessity and that they are the true and beneficial owners thereof.
In point of fact, we cannot see our way clear to upholding petitioners' position that the investment of
the proceeds from the stabilization fund in subscriptions to the capital stock of the Bank were being
made for and on their behalf. That could have been clarified by the Trust Agreement, dated May 28,
1986, entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officerin-Charge, and respondent RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM
holds said shares for and in behalf of the sugar producers," the latter "being the true and beneficial
owners thereof." The Agreement, however, did not get off the ground because it failed to receive the
approval of the PHILSUCOM Board of Commissioners as required in the Agreement itself.

The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse
opinion of the SRA, Resident Auditor, dated June 25,1986, which was aimed by the Chairman of the
Commission on Audit, on January 26,1987.
On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of
the Commission on Audit that the aforementioned Agreement is of doubtful validity."
From the legal standpoint, we find basis for the opinion of the Commission on Audit reading:
That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory
Administration, in particular, owns and stocks. While it is true that the collected
stabilization fees were set aside by PHILSUCOM to pay its subscription to RPB, it did
not collect said fees for the account of the sugar producers. That stabilization fees
are charges/levies on sugar produced and milled which accrued to PHILSUCOM
under PD 338, as amended. ...
The stabilization fees collected are in the nature of a tax, which is within the power of the State to
impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar
liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development
and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created
under Section 6 of Commonwealth Act 567. 1 The tax collected is not in a pure exercise of the taxing
power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry.
The levy is primarily in the exercise of the police power of the State (Lutz vs. Araneta, supra.).
The protection of a large industry constituting one of the great sources of the state's
wealth and therefore directly or indirectly affecting the welfare of so great a portion of
the population of the State is affected to such an extent by public interests as to be
within the police power of the sovereign. (Johnson vs. State ex rel. Marey, 128 So.
857, cited in Lutz vs. Araneta, supra).
The stabilization fees in question are levied by the State upon sugar millers, planters and producers
for a special purpose that of "financing the growth and development of the sugar industry and all
its components, stabilization of the domestic market including the foreign market the fact that the
State has taken possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence vs. American Surety Co., 263 Mich 586,
249 ALR 535, cited in 42 Am. Jur. Sec. 2, p. 718). Having been levied for a special purpose, the
revenues collected are to be treated as a special fund, to be, in the language of the statute,
"administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned,
the balance, if any, is to be transferred to the general funds of the Government. That is the essence
of the trust intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution,
Article VI, Sec. 23(l]). 2
The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds
are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which
may be paid out only in pursuance of an appropriation made by law (1987) Constitution, Article VI,
Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]).

That the fees were collected from sugar producers, planters and millers, and that the funds were
channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a
trust fired for their benefit nor make them the beneficial owners of the shares so purchased. It is but
rational that the fees be collected from them since it is also they who are to be benefited from the
expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to
the purpose intended because of the Bank's character as a commodity bank for sugar conceived for
the industry's growth and development. Furthermore, of note is the fact that one-half, (1/2) or PO.50
per picul, of the amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and
wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM"
thereby immediately negating the claim that the entire amount levied is in trust for sugar, producers,
planters and millers.
To rule in petitioners' favor would contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive benefit of private persons. The
Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components,
stabilization of the domestic market," including the foreign market the industry being of vital
importance to the country's economy and to national interest.
WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs.
This Decision is immediately executory.
SO ORDERED.
Teehankee, C.J., Yap, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Cortes and Grio-Aquino, JJ., concur.
Fernan, J., took no part.

Footnotes
1 Sec. 6. All collections made under this Act shall accrue to a special fund in the
Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund
and shall be paid out only for any or all of the following purposes or to attain any or
all of the following objectives, as may be provided by law.
xxx xxx xxx
2 (5) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government." (1987 Constitution, Art. VI, Sec.
28[3]).

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-36081 April 24, 1989
PROGRESSIVE DEVELOPMENT CORPORATION, petitioner ,
vs.
QUEZON CITY, respondent.
Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO, J.:
On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997,
Series of 1969, otherwise known as the Market Code of Quezon City, Section 3 of which provided:
Sec. 3. Supervision Fee.- Privately owned and operated public markets shall submit
monthly to the Treasurer's Office, a certified list of stallholders showing the amount of
stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the gross
receipts from stall rentals to the City, ... , as supervision fee. Failure to submit said list
and to pay the corresponding amount within the period herein prescribed shall
subject the operator to the penalties provided in this Code ... includingrevocation of
permit to operate. ... .1
The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March
1972, which reads:
SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts on
rentals or lease of space in privately-owned public markets in Quezon City.
xxx xxx xxx
SECTION 3. For the effective implementation of this Ordinance, owners of privately
owned public markets shall submit ... a monthly certified list of stallholders of lessees
of space in their markets showing ... :
a. name of stallholder or lessee;
b. amount of rental;

c. period of lease, indicating therein whether the same is on a daily, monthly or yearly
basis.
xxx xxx xxx
SECTION 4. ... In case of consistent failure to pay the percentage tax for the (3)
consecutive months, the City shall revoke the permit of the privately-owned market to
operate and/or take any other appropriate action or remedy allowed by law for the
collection of the overdue percentage tax and surcharge.
xxx xxx xxx 2
On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public
market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with
Preliminary Injunction against respondent before the then Court of First Instance of Rizal on the
ground that the supervision fee or license tax imposed by the above-mentioned ordinances is in
reality a tax on income which respondent may not impose, the same being expressly prohibited by
Republic Act No. 2264, as amended.
In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the
questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on
income. The Solicitor General also filed an Answer arguing that petitioner, not having paid the ten
percent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to question,
and was estopped from questioning, its validity; that the tax on gross receipts was not a tax on
income but one imposed for the enjoyment of the privilege to engage in a particular trade or
business which was within the power of respondent to impose.
In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protest the
five percent (5%) tax under Ordinance No. 9236 for the months of June to September 1972. Two (2)
days later, on 25 September 1972, petitioner moved for judgment on the pleadings, alleging that the
material facts had been admitted by the parties.
On 21 October 1972, the lower court dismissed the petition, ruling

3 that the questioned imposition is not a tax on

income, but rather a privilege tax or license fee which local governments, like respondent, are empowered to impose and collect.

Having failed to obtain reconsideration of said decision, petitioner came to us on the present Petition
for Review.
The only issue to be resolved here is whether the tax imposed by respondent on gross receipts of
stall rentals is properly characterized as partaking of the nature of an income tax or, alternatively, of
a license fee.
We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as the
Revised Charter of Quezon City, authorizes the City Council:
xxx xxx xxx

(b) To provide for the levy and collection of taxes and other city revenues and apply
the same to the payment of city expenses in accordance with appropriations.
(c) To tax, fix the license fee, and regulate the business of the following:
... preparation and sale of meat, poultry, fish, game, butter, cheese, lard vegetables,
bread and other provisions. 4
The scope of legislative authority conferred upon the Quezon City Council in respect of businesses
like that of the petitioner, is comprehensive: the grant of authority is not only" [to] regulate" and "fix
the license fee," but also " to tax" 5
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local
Autonomy Act, provides that:
Any provision of law to the contrary notwithstanding, all chartered
cities, municipalities and municipal districts shall have authority to impose municipal
license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities, municipalities or municipal districts by
requiring them to secure licenses at rates fixed by the municipal board or city council
of the city, the municipal council of the municipality, or the municipal district council of
the municipal district; to collect fees and charges for service rendered by the city,
municipality or municipal district; to regulate and impose reasonable fees for services
rendered in connection with any business, profession or occupation being conducted
within the city, municipality or municipal district and otherwise to levy for public
purposes just and uniform taxes licenses or fees: ... 6
It is now settled that Republic Act No. 2264 confers upon local governments broad taxing authority
extending to almost "everything, excepting those which are mentioned therein," provided that the tax
levied is "for public purposes, just and uniform," does not transgress any constitutional provision and
is not repugnant to a controlling statute. 7 Both the Local Autonomy Act and the Charter of respondent clearly show that
respondent is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privately-owned public
market.

Petitioner, however, insist that the "supervision fee" collected from rentals, being a return from
capital invested in the construction of the Farmers Market, practically operates as a tax on income,
one of those expressly excepted from respondent's taxing authority, and thus beyond the latter's
competence. Petitioner cites the same Section 2 of the Local Autonomy Act which goes on to state:
... Provided, however, That no city, municipality or municipal district may levy or
impose any of the following:
xxx xxx xxx
(g) Taxes on income of any kind whatsoever;

The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is
often loosely used to include levies for revenue as well as levies for regulatory purposes such that
license fees are frequently called taxes although license fee is a legal concept distinguishable
from tax: the former is imposed in the exercise of police power primarily for purposes of regulation,
while the latter is imposed under the taxing power primarily for purposes of raising revenues. 9 Thus, if
the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary
purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. 10

To be considered a license fee, the imposition questioned must relate to an occupation or activity
that so engages the public interest in health, morals, safety and development as to require regulation
for the protection and promotion of such public interest; the imposition must also bear a reasonable
relation to the probable expenses of regulation, taking into account not only the costs of direct
regulation but also its incidental consequences as well. 11 When an activity, occupation or profession is of such a
character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of public health,
morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall be
carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one shall engage in the
occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been
paid. 12Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax
rather than an exercise of the police power. 13

In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution No.
7350 passed on 30 January 1967 by respondents's local legislative body authorizing petitioner to
establish and operate a market with a permit to sell fresh meat, fish, poultry and other
foodstuffs. 14 The same resolution imposed upon petitioner, as a condition for continuous operation, the obligation to "abide by and
comply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in Quezon
City." 15

The "Farmers' Market and Shopping Center" being a public market in the' sense of a market open to
and inviting the patronage of the general public, even though privately owned, petitioner's operation
thereof required a license issued by the respondent City, the issuance of which, applying the
standards set forth above, was done principally in the exercise of the respondent's police
power. 16 The operation of a privately owned market is, as correctly noted by the Solicitor General, equivalent to or quite the same as the
operation of a government-owned market; both are established for the rendition of service to the general public, which warrants close
supervision and control by the respondent City, 17 for the protection of the health of the public by insuring, e.g., the maintenance of sanitary
and hygienic conditions in the market, compliance of all food stuffs sold therein with applicable food and drug and related standards, for the
prevention of fraud and imposition upon the buying public, and so forth.

We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes,
not a tax on income, not a city income tax (as distinguished from the national income tax imposed by
the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act,
but rather a license tax or fee for the regulation of the business in which the petitioner is engaged.
While it is true that the amount imposed by the questioned ordinances may be considered in
determining whether the exaction is really one for revenue or prohibition, instead of one of regulation
under the police power, 18 it nevertheless will be presumed to be reasonable. Local' governments are allowed wide discretion in
determining the rates of imposable license fees even in cases of purely police power measures, in the absence of proof as to particular
municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or
unreasonableness of the questioned rates. 19 Thus:

[A]n ordinance carries with it the presumption of validity. The question of

reasonableness though is open to judicial inquiry. Much should be left thus to the
discretion of municipal authorities. Courts will go slow in writing off an ordinance as

unreasonable unless the amount is so excessive as to be prohibitory, arbitrary,

unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is
that factors relevant to such an inquiry are the municipal conditions as a whole and
the nature of the business made subject to imposition. 20
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and
excessive and so grossly disproportionate to the costs of the regulatory service being performed by
the respondent as to compel the Court to characterize the imposition as a revenue measure
exclusively. The lower court correctly held that the gross receipts from stall rentals have been used
only as a basis for computing the fees or taxes due respondent to cover the latter's administrative
expenses, i.e., for regulation and supervision of the sale of foodstuffs to the public. The use of the
gross amount of stall rentals as basis for determining the collectible amount of license tax, does not
by itself, upon the one hand, convert or render the license tax into a prohibited city tax on income.
Upon the other hand, it has not been suggested that such basis has no reasonable relationship to
the probable costs of regulation and supervision of the petitioner's kind of business. For, ordinarily,
the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related
items sold in petitioner's privately owned market; and the higher the volume of goods sold in such
private market, the greater the extent and frequency of inspection and supervision that may be
reasonably required in the interest of the buying public. Moreover, what we started with should be
recalled here: the authority conferred upon the respondent's City Council is not merely "to regulate"
but also embraces the power "to tax" the petitioner's business.
Finally, petitioner argues that respondent is without power to impose a gross receipts tax for revenue
purposes absent an express grant from the national government. As a general rule, there must be a
statutory grant for a local government unit to impose lawfully a gross receipts tax, that unit not
having the inherent power of taxation. 21The rule, however, finds no application in the instant case where what is involved is
an exercise of, principally, the regulatory power of the respondent City and where that regulatory power is expressly accompanied by the
taxing power.

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18, is
hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of merit.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Footnotes
1 Rollo, p. 102; Italics supplied.
2 Records on Appeal, pp. 14-15; Underscoring supplied.
3 Ibid, pp. 58-68.

4 46 Official Gazette 4732 (1950); Italics supplied. Certain portions of the Charter
had been amended by R.A. 5541, 65 Official Gazette, p. 7126 (1968). The
amendatory law, however, did not introduce any change to the portion quoted above.
5 See, in this connection, Pacific Commercial Co. v. Romualdez, et al., 49 Phil. 917
(1927).
6 Section 2 of R.A. 2264 has been amended by R.A. 4497, 62 Official Gazette, p.
8616 (1966); Underscoring supplied. R.A. 2264 was further amended by P.D. No.
145, 69 Official Gazette, p 2418 (1973), which however did not affect the
abovequoted portion.
7 Nin Bay Mining Co. v. Municipality of Roxas, 14 SCRA 660 (1965); See also C.N.
Hodges v. Municipal Board of the City of Iloilo, et. al., 19 SCRA 28 (1967); and
Villanueva v. City of Iloilo, 26 SCRA 578 (1968).
8 supra, note 6; underscoring supplied.
9 Compania General de Tabacos de Filipinas v. City of Manila, 118 Phil. 383; 8
SCRA 370 (1963); Pacific Commercial Co. v. Romualdez, 49 Phil, 917 (1927).
10 Manila Electric Company v. El Auditor General y La Comision
de Servicios Publicos, 73 Phil. 133 (1941); Republic v. Philippine
Rabbit Bus Lines, 32 SCRA 215 (1970).
11 City of Iloilo v. Villanueva, 105 Phil. 337 (1959).
12 Manila Electric Company vs. El Auditor General y la Comision de Servicios
Publicos, supra, at 134-135.
13 Serafin Saldana v. City of Iloilo, 104 Phil, 28. (1958).
14 Record on Appeal, p. 10.
15 Ibid.
16 In City of Jacksonville, et al. v. Ledwith 7 So. at 892 [1890]; 26 Fla. 163, it was
held that a permit to establish a market was:
"from the nature of a market, a license. It is a permit to do something
which could not be done before without such permit, and hence is the
grant of a license. x x x [T]he power to establish markets is within the
police power, and [thus is] x x x the power to charge, as a police
regulation, a fee for the permit or license for selling meats or
vegetables therein, x x x. The fee, however, is not a tax for revenue,

but a charge under the police power, and its amount is to be

controlled by the principles governing in such cases."
17 Brief for the Respondent, pp. 6-7; Rollo, p. 172.
18 E.g., Calalang v. Lorenzo and Villar, 97 Phil. 212 (1955).
19 Procter & Gamble PMC v. Municipality of Jagna 94 SCRA 894 (1979); Northern
Phil. Tobacco Co. v. Municipality of Agoo, 31 SCRA 304 (1970); and San Miguel
Brewery, Inc. v. City of Cebu, 43 SCRA 275 (1972).
20 Victorias Milling Co., Inc. v. Municipality of Victorias, Negros Occidental, 25 SCRA
192 at 205 (1968), citing 9 McQuillin Municipal Corporations, 3rd ed., at 65.
In Atkins v. Philips, 8 So. at 431 (1890); 26 Fla. 281, the Supreme
Court of Florida held:
21 City of Ozamis v. Lumapas, 65 SCRA 33 (1975).
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner,
Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO,
Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of
Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.

FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding

1 on the
validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends
Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the
net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner3 as taxpayer alleges that by virtue thereof, "he

would be unduly discriminated against by the imposition of higher rates of tax upon his income arising

from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried
individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation,
oppressive and capricious in character 5 For petitioner, therefore, there is a transgression of both the
equal protection and due process clauses 6 of the Constitution as well as of the rule requiring uniformity in
taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days
from notice. Such an answer, after two extensions were granted the Office of the Solicitor General,
was filed on May 28, 1982.8 The facts as alleged were admitted but not the allegations which to their
mind are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being
those stated [in their] Special and Affirmative Defenses." 9The answer then affirmed: "Batas Pambansa
Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly
quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so
clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private
enterprise and initiative and which the government was called upon to enter optionally, and only
'because it was better equipped to administer for the public welfare than is any private individual or
group of individuals,' continue to lose their well-defined boundaries and to be absorbed within
activities that the government must undertake in its sovereign capacity if it is to meet the increasing
social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes
being the lifeblood of the government, their prompt and certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is
not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due
process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it
were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In
a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a
flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that
it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from
Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while
this Court sits." 17 So it is in the Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as petitioner here alleges fails to abide by
its command, then this Court must so declare and adjudge it null. The injury thus is centered on the
question of whether the imposition of a higher tax rate on taxable net income derived from business
or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation,
as here. does not suffice. There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void or its face, he has not
made out a case. This is merely to adhere to the authoritative doctrine that were the due process
and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad
standards, there is a need for of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to amount
to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of

this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred.
That properly calls for the application of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case
of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process
grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of
eminent domain is to demonstrated that the governmental act assailed, far from being inspired by
the attainment of the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal
protection and security shall be given to every person under circumtances which if not Identical are
analogous. If law be looked upon in terms of burden or charges, those that fall within a class should
be treated in the same fashion, whatever restrictions cast on some in the group equally binding on
the rest." 20 That same formulation applies as well to taxation measures. The equal protection clause is,
of course, inspired by the noble concept of approximating the Ideal of the laws benefits being available to
all and the affairs of men being governed by that serene and impartial uniformity, which is of the very
essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice
Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions.
They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific
difficulties, address to the attainment of specific ends by the use of specific remedies. The Constitution
does not require things which are different in fact or opinion to be treated in law as though they were the
same." 21 Hence the constant reiteration of the view that classification if rational in character is allowable.
As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went
so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The
rule of taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel
in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force and
effect in every place where the subject may be found. " 26 He likewise added: "The rule of uniformity does
not call for perfect uniformity or perfect equality, because this is hardly attainable." 27 The problem of
classification did not present itself in that case. It did not arise until nine years later, when the Supreme
Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a similarity then
to the standard of equal protection for all that is required is that the tax "applies equally to all persons,
firms and corporations placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or
taxable income by eliminating all deductible items and at the same time reducing the applicable tax
rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real differences. In the case of the
gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification
is the susceptibility of the income to the application of generalized rules removing all deductible
items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of

them. Taxpayers who are recipients of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are e not entitled to make deductions for income
tax purposes because they are in the same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen, there is no uniformity in the costs or
expenses necessary to produce their income. It would not be just then to disregard the disparities by
giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the
basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the
gross system of income taxation to compensation income, while continuing the system of net income
taxation as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of
factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of
controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and taxable net income of professionals and
businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente
and Cuevas, JJ., concur.
Teehankee, J., concurs in the result.
Plana, J., took no part.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.
ABAD SANTOS, J., dissenting:
This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on the
basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote
for dismissal.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.
ABAD SANTOS, J., dissenting:
This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on the
basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote
for dismissal.
Footnotes
1 Petitioner must have realized that a suit for declaratory relief must be filed with
Regional Trial Courts.
2 Batas Pambansa Blg. 135, Section 21 (1981).
3 The respondents are Ruben B. Ancheta, Acting Commissioner, Bureau of Internal
Revenue; Romulo Villa, Deputy Commissioner, Bureau of Internal Revenue; Tomas
Toledo, Deputy Commissioner, Bureau of Internal Revenue; Manuel Alba, Minister of
Budget; Francisco Tantuico, Chairman, Commissioner on Audit; and Cesar E. A.
Virata, Minister of Finance.
4 Petition, Parties, par. 1. The challenge is thus aimed at paragraphs (a) and (b) of
Section 1 further Amending Section 21 of the National Internal Revenue Code of
1977. Par. (a) reads: "(a) On taxable compensation income. A tax is hereby
imposed upon the taxable compensation income as determined in Section 28 (a)
received during each taxable year from all sources by every individual, whether a
citizen of the Philippines, determined in accordance with the following schedule:

Not over P2,500

0%

Over P 2,500 but not over P

5,000

1%

Over P 5,000 but not over

10,000

P 25 + 3% of excess over P 5,000

Over P 10,000 but not over P

20,000

P 175 + 7 % of excess over P 10,000

Over P 20,000 but not over P

40,000

P 875 + 11%, of excess over P 20,000

Over P 40.000 but not over P

60,000

P 3,075 + I 15% of excess over P

40,000

Over P 60,000 but not over

P100,000

P 6,075 + 19% of excess over P 60,000

Over P100,000 but not over

P250,000

P 13,675 + 24% excess over P100,000

Over P250,000 but not over

P500,000

P 49,675 + 29% of excess over

P250,000

Over P500,000

P 122,175 + 35% of excess over

P500,000

Par. (b) reads: "(b) On taxable net income. A tax is hereby imposed upon the
taxable net income as determined in Section 29 (a) received during each taxable
year from all sources by every individual, whether a citizen of the Philippines, or an
alien residing in the Philippines determined in accordance with the following
schedule:

Not over P10,000

5%

Over P 10,000 but not over P

30,000

P 500 + 15% of excess over P 10,000

Over P 30,000 but not over

P150,000

P 3,500 + 30% of excess over P

30,000

Over P150,000 but not over

P500,000

P 39,500 + 45% of excess over

P150,000

Over P500,000

P197,000 + 601% of excess over

P500,000

5 Ibid Statement, par. 4.

6 Article IV, Section 1 of the Constitution reads: "No person shall be deprived of life,
liberty or property without due process of law, nor shall any person be denied the
equal protection of the laws."
7 Article VII, Section 7. par. (1) of the Constitution reads: "The rule of taxation shall
be uniform and equitable. The Batasang Pambansa shall evolve a progressive
system of taxation."
8 It was filed by Solicitor General Estelito P. Mendoza. He was assisted by Assistant
Solicitor General Eduardo D. Montenegro and Solicitor Erlinda B, Masakayan.
9 Answer, pars. 1-6.
10 Ibid, par. 6.
11 Agricultural Credit and Cooperative Financing Administration v. Consideration of
Unions in Government Corporation and Offices, L-21484, November 29, 1969, 30
SCRA 649, 662.
12 Cf, Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, per Castro, J.
13 Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).
14 McColloch v. Maryland 4 Wheaton 316,
15 306 US 466 ( 938).
16 Ibid, 489
17 Ibid. 490.
18 Cf. Ermita-Malate Hotel and Motel Operator S Association v. Hon. City Mayor, 127
Phil. 306, 315 ( 1967); U.S. v. Salaveria, 39 Phil. 102,111 (1918) and Ebona v. Daet,
85 Phil, 369 (1950). Likewise referred to is O'Gorman and Young v. Hartford Fire
Insurance Co 282 US 251, 328 (1931).

19 Cf. Manila Gas Co. v. Collector of Internal Revenue, 62 Phil. 895 (1936); Wells
Fargo Bank and Union Trust Co. v. Collector, 70 Phil. 325 (1940); Republic v. Oasan
Vda. de Fernandez, 99 Phil. 934 (1956).
20 The excerpt is from the opinion in J.M. Tuason and Co. v. The Land Tenure
Administration, L-21064, February 18, 1970, 31 SCRA 413, 435 and reiterated in
Bautista v. Juinio, G.R. No. 50908, January 31, 1984, 127 SCRA 329, 339. The
former deals with an eminent domain proceeding and the latter with a suit contesting
the validity of a police power measure.
21 Tigner v. Texas, 310 US 141, 147 (1940).
22 98 Phil. 148 (1955).
23 Ibid, 153.
24 Article VIII, Section 17, par. 1, first sentence of the Constitution
25 69 Phil. 420 (1940).
26 Ibid, 426.
27 Ibid, 424.
28 Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949).
29 Manila Race Horse Trainers Asso. v. De la Fuente, 88 Phil. 60,65 (1951).
30 Uy Matias v. City of Cebu, 93 Phil. 300 (1953).
31 While petitioner cited figures to sustain in his assertion, public respondents
refuted with other figures that argue against his submission. One reason for requiring
declaratory relief proceedings to start in regional trial courts is precisely to enable
petitioner to prove his allegation, absent an admission in the answer.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28138 August 13, 1986
MATALIN COCONUT CO., INC., petitioner-appellee,
vs.
THE MUNICIPAL COUNCIL OF MALABANG, LANAO DEL SUR, AMIR M. BALINDONG and
HADJI PANGILAMUN MANALOCON, MUNICIPAL MAYOR and MUNICIPAL TREASURER OF
MALABANG, LANAO DEL SUR, respondents-appellants. PURAKAN PLANTATION
COMPANY, intervenor-appellee.

YAP, J.:
On August 24, 1966, the Municipal Council of Malabang, Lanao del Sur, invoking the authority of
Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, enacted Municipal
Ordinance No. 45-46, entitled "AN ORDINANCE IMPOSING A POLICE INSPECTION FEE OF P.30
PER SACK OF CASSAVA STARCH PRODUCED AND SHIPPED OUT OF THE MUNICIPALITY OF
MALABANG AND IMPOSING PENALTIES FOR VIOLATIONS THEREOF." The ordinance made it
unlawful for any person, company or group of persons "to ship out of the Municipality of Malabang,
cassava starch or flour without paying to the Municipal Treasurer or his authorized representatives
the corresponding fee fixed by (the) ordinance." It imposed a "police inspection fee" of P.30 per sack
of cassava starch or flour, which shall be paid by the shipper before the same is transported or
shipped outside the municipality. Any person or company or group of individuals violating the
ordinance "is liable to a fine of not less than P100.00, but not more than P1,000.00, and to pay Pl.00
for every sack of flour being illegally shipped outside the municipality, or to suffer imprisonment of 20
days, or both, in the discretion of the court.
The validity of the ordinance was challenged by the Matalin Coconut, Inc. in a petition for declaratory
relief filed with the then Court of First Instance of Lanao del Sur against the Municipal Council, the
Municipal Mayor and the Municipal Treasurer of Malabang, Lanao del Sur. Alleging among others
that the ordinance is not only ultra vires,being violative of Republic Act No. 2264, but also
unreasonable, oppressive and confiscatory, the petitioner prayed that the ordinance be declared null
and void ab initio, and that the respondent Municipal Treasurer be ordered to refund the amounts
paid by petitioner under the ordinance. The petitioner also prayed that during the pendency of the
action, a preliminary injunction be issued enjoining the respondents from enforcing the ordinance.
The application for preliminary injunction, however, was denied by the trial court; instead respondent
Municipal Treasurer was ordered to allow payment of the taxes imposed by the ordinance under
protest.
Claiming that it was also adversely affected by the ordinance, Purakan Plantation Company was
granted leave to intervene in the action. The intervenor alleged that while its cassava flour factory
was situated in another municipality, i.e., Balabagan, Lanao del Sur, it had to transport the cassava
starch and flour it produced to the seashore through the Municipality of Malabang for loading in
coastwise vessels; that the effect of the enactment of Ordinance No. 45-46, is that intervenor had to
refrain from transporting its products through the Municipality of Malabang in order to ship them by
sea to other places.
After trial, the Court a quo rendered a decision declaring the municipal ordinance in question null
and void; ordering the respondent Municipal Treasurer to refund to the petitioner the payments it
made under the said ordinance from September 27, 1966 to May 2, 1967, amounting to P
25,500.00, as well as all payments made subsequently thereafter; and enjoining and prohibiting the
respondents, their agents or deputies, from collecting the tax of P.30 per bag on the cassava flour or
starch belonging to intervenor, Purakan Plantation Company, manufactured or milled in the
Municipality of Balabagan, but shipped out through the Municipality of Malabang.

After the promulgation of the decision, the Trial Court issued a writ of preliminary mandatory
injunction, upon motion of petitioner, requiring the respondent Municipal Treasurer to deposit with the
Philippine National Bank, Iligan Branch, in the name of the Municipality of Malabang, whatever
amounts the petitioner had already paid or shall pay pursuant to the ordinance in question up to and
until final termination of the case; the deposit was not to be withdrawn from the said bank without
any order from the court. On motion for reconsideration by respondents, the writ was subsequently
modified on July 20, 1967, to require the deposit only of amounts paid from the effectivity of the writ
up to and until the final termination of the suit.
From the decision of the trial court, the respondents appealed to this Court.
A motion to dismiss appeal filed by petitioner-appellee, was denied by this court in its resolution of
October 31, 1967. Subsequently, respondents-appellants filed a motion to dissolve the writ of
preliminary mandatory injunction issued by the trial court on July 20, 1967. This motion was also
denied by this Court on January 10, 1968.
Of the assignments of error raised by the appellants in their Brief, only the following need be
discussed: (1) that the trial court erred in adjudicating the money claim of the petitioner in an action
for declaratory relief; and (2) that the trial court erred in declaring the municipal ordinance in question
null and void.
The respondents-appellants maintain that it was error for the trial court, in an action for declaratory
relief, to order the refund to petitioner-appellee of the amounts paid by the latter under the municipal
ordinance in question. It is the contention of respondents-appellants that in an action for declaratory
relief, all the court can do is to construe the validity of the ordinance in question and declare the
rights of those affected thereby. The court cannot declare the ordinance illegal and at the same time
order the refund to petitioner of the amounts paid under the ordinance, without requiring petitioner to
file an ordinary action to claim the refund after the declaratory relief judgment has become final.
Respondents maintain that under Rule 64 of the Rules of Court, the court may advise the parties to
file the proper pleadings and convert the hearing into an ordinary action, which was not done in this
case.
We find no merit in such contention. Under Sec. 6 of Rule 64, the action for declaratory relief may be
converted into an ordinary action and the parties allowed to file such pleadings as may be necessary
or proper, if before the final termination of the case "a breach or violation of an...ordinance, should
take place." In the present case, no breach or violation of the ordinance occurred. The petitioner
decided to pay "under protest" the fees imposed by the ordinance. Such payment did not affect the
case; the declaratory relief action was still proper because the applicability of the ordinance to future
transactions still remained to be resolved, although the matter could also be threshed out in an
ordinary suit for the recovery of taxes paid (Shell Co. of the Philippines, Ltd. vs. Municipality of
Sipocot, L-12680, March 20, 1959). In its petition for declaratory relief, petitioner-appellee alleged
that by reason of the enforcement of the municipal ordinance by respondents it was forced to pay
under protest the fees imposed pursuant to the said ordinance, and accordingly, one of the reliefs
prayed for by the petitioner was that the respondents be ordered to refund all the amounts it paid to
respondent Municipal Treasurer during the pendency of the case. The inclusion of said allegation
and prayer in the petition was not objected to by the respondents in their answer. During the trial,

evidence of the payments made by the petitioner was introduced. Respondents were thus fully
aware of the petitioner's claim for refund and of what would happen if the ordinance were to be
declared invalid by the court.
Respondents' contention, if sustained, would in effect require a separate suit for the recovery of the
fees paid by petitioner under protest. Multiplicity of suits should not be allowed or encouraged and, in
the context of the present case, is clearly uncalled for and unnecessary.
The main issue to be resolve in this case whether not Ordinance No. 45-66 enacted by respondent
Municipal Council of Malabang, Lanao del Sur, is valid. The respondents-appellants contend that the
municipality has the power and authority to approve the ordinance in question pursuant to Section 2
of the Local Autonomy Act (Republic Act No. 2264).
Since the enactment of the Local Autonomy Act, a liberal rule has been followed by this Court in
construing municipal ordinances enacted pursuant to the taxing power granted under Section 2 of
said law. This Court has construed the grant of power to tax under the above-mentioned provision as
sufficiently plenary to cover "everything, excepting those which are mentioned" therein, subject only
to the limitation that the tax so levied is for public purposes, just and uniform (Nin Bay Mining
Company vs. Municipality of Roxas, Province of Palawan, 14 SCRA 661; C.N. Hodges vs. Municipal
Board, Iloilo City, et al., 19 SCRA 28).
We agree with the finding of the trial court that the amount collected under the ordinance in question
partakes of the nature of a tax, although denominated as "police inspection fee" since its undeniable
purpose is to raise revenue. However, we cannot agree with the trial court's finding that the tax
imposed by the ordinance is a percentage tax on sales which is beyond the scope of the
municipality's authority to levy under Section 2 of the Local Autonomy Act. Under the said provision,
municipalities and municipal districts are prohibited from imposing" any percentage tax on sales or
other taxes in any form based thereon. " The tax imposed under the ordinance in question is not a
percentage tax on sales or any other form of tax based on sales. It is a fixed tax of P.30 per bag of
cassava starch or flour "shipped out" of the municipality. It is not based on sales.
However, the tax imposed under the ordinance can be stricken down on another ground. According
to Section 2 of the abovementioned Act, the tax levied must be "for public purposes, just and
uniform" (Emphasis supplied.) As correctly held by the trial court, the so-called "police inspection
fee" levied by the ordinance is "unjust and unreasonable." Said the court a quo:
... It has been proven that the only service rendered by the Municipality of Malabang,
by way of inspection, is for the policeman to verify from the driver of the trucks of the
petitioner passing by at the police checkpoint the number of bags loaded per trip
which are to be shipped out of the municipality based on the trip tickets for the
purpose of computing the total amount of tax to be collect (sic) and for no other
purpose. The pretention of respondents that the police, aside from counting the
number of bags shipped out, is also inspecting the cassava flour starch contained in
the bags to find out if the said cassava flour starch is fit for human consumption could
not be given credence by the Court because, aside from the fact that said purpose is
not so stated in the ordinance in question, the policemen of said municipality are not

competent to determine if the cassava flour starch are fit for human consumption.
The further pretention of respondents that the trucks of the petitioner hauling the
bags of cassava flour starch from the mill to the bodega at the beach of Malabang
are escorted by a policeman from the police checkpoint to the beach for the purpose
of protecting the truck and its cargoes from molestation by undesirable elements
could not also be given credence by the Court because it has been shown, beyond
doubt, that the petitioner has not asked for the said police protection because there
has been no occasion where its trucks have been molested, even for once, by bad
elements from the police checkpoint to the bodega at the beach, it is solely for the
purpose of verifying the correct number of bags of cassava flour starch loaded on the
trucks of the petitioner as stated in the trip tickets, when unloaded at its bodega at
the beach. The imposition, therefore, of a police inspection fee of P.30 per bag,
imposed by said ordinance is unjust and unreasonable.
The Court finally finds the inspection fee of P0.30 per bag, imposed by the ordinance
in question to be excessive and confiscatory. It has been shown by the petitioner,
Matalin Coconut Company, Inc., that it is merely realizing a marginal average profit of
P0.40, per bag, of cassava flour starch shipped out from the Municipality of
Malabang because the average production is P15.60 per bag, including
transportation costs, while the prevailing market price is P16.00 per bag. The further
imposition, therefore, of the tax of P0.30 per bag, by the ordinance in question would
force the petitioner to close or stop its cassava flour starch milling business
considering that it is maintaining a big labor force in its operation, including a force of
security guards to guard its properties. The ordinance, therefore, has an adverse
effect on the economic growth of the Municipality of Malabang, in particular, and of
the nation, in general, and is contrary to the economic policy of the government.
Having found the ordinance in question to be invalid, we find it unnecessary to rule on the other
errors assigned by the appellants.
WHEREFORE, petition is dismissed. The decision of the court a quo is hereby affirmed. No costs.
SO ORDERED.
Narvasa, Melencio-Herrera, Cruz and Paras, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-26521

December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,

vs.
CITY OF ILOILO, defendants-appellants.

Pelaez, Jalandoni and Jamir for plaintiff-appellees.

Assistant City Fiscal Vicente P. Gengos for defendant-appellant.
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo
declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License
Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to
refund to the plaintiffs-appellees the sums of collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license
tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house,
partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer,
P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other
streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by
the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses
containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio
Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the
power to tax owners of tenement houses is one among those clearly and expressly granted to the
City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of
Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or
power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted
Ordinance 11, series of 1960, hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE
BUSINESS OF OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of
Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that:
Section 1. A municipal license tax is hereby imposed on tenement houses in accordance
with the schedule of payment herein provided.
Section 2. Tenement house as contemplated in this ordinance shall mean any building or
dwelling for renting space divided into separate apartments or accessorias.
Section 3. The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses:

(a) Apartment house made of strong materials

P20.00 per door p.a.

(b) Apartment house made of mixed materials

P10.00 per door p.a.

II Rooming house of strong materials

P10.00 per door p.a.

Rooming house of mixed materials

P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to

business in the following streets: J.M. Basa, Iznart, Aldeguer,
Guanco and Ledesma from Plazoleto Gay to Valeria. St.

P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or dedicated to

business in any other street

P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market

as soon as said place is declared commercial

P24.00 per door p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended.
Section 5. Any person found violating this ordinance shall be punished with a fine note
exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6)
months or both at the discretion of the Court.
Section 6 This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five
tenement houses, aggregately containing 43 apartments, while the other appellees and the same
Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door
leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as
a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva
owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon
City, which cities, according to him, do not impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva
and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees
Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum
of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended
complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance
11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the
City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation
and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City
be ordered to refund the amounts collected from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the
grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the
same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses
who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates
the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double
taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal
clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal license taxes
or fees upon persons engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by requiring them to secure licences at
rates fixed by the municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to collect fees and
charges for services rendered by the city, municipality or municipal district; to regulate and
impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise to
levy for public purposes, just and uniform taxes, licenses or fees; Provided, That
municipalities and municipal districts shall, in no case, impose any percentage tax on sales
or other taxes in any form based thereon nor impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the National Internal Revenue Code;Provided,
however, That no city, municipality or municipal district may levy or impose any of the
following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication of any
newspaper, magazine, review or bulletin appearing at regular intervals and having fixed
prices for for subscription and sale, and which is not published primarily for the purpose of
publishing advertisements;

(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric
light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the national
government, tonnage, and all other kinds of customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign
insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless the
ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall
have authority to suspend the effectivity of any ordinance within one hundred and twenty
days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust,
excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority
the effectivity of such ordinance shall be suspended.
In such event, the municipal board or city council in the case of cities and the municipal
council or municipal district council in the case of municipalities or municipal districts may
appeal the decision of the Secretary of Finance to the court during the pendency of which
case the tax levied shall be considered as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments
broad taxing authority which extends to almost "everything, excepting those which are mentioned
therein," provided that the tax so levied is "for public purposes, just and uniform," and does not
transgress any constitutional provision or is not repugnant to a controlling statute. 2 Thus, when a tax,
levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations
aforementioned, the same comes within the ambit of the general rule, pursuant to the rules
of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in
section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of
the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax," 3 and not a "tax
on persons engaged in any occupation or business or exercising privileges," or a license tax, or a
privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license
tax on persons engaged in the business of operating tenement houses," while section 1 thereof
states that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of
section 1 on which the appellees base their contention that the tax involved is a real estate tax
which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one
per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158." 5.

It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax.
Obviously, the appellees confuse the tax with the real estate tax within the meaning of the
Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in
the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or
other improvements thereon, not specially exempted, 8 and is payable regardless of whether the
property is used or not, although the value may vary in accordance with such factor.9The tax is
usually single or indivisible, although the land and building or improvements erected thereon are
assessed separately, except when the land and building or improvements belong to separate
owners.10 It is a fixed proportion11 of the assessed value of the property taxed, and requires,
therefore, the intervention of assessors.12 It is collected or payable at appointed times,13 and it
constitutes a superior lien on and is enforceable against the property14 subject to such taxation, and
not by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a
tax on the land on which the tenement houses are erected, although both land and tenement houses
may belong to the same owner. The tax is not a fixed proportion of the assessed value of the
tenement houses, and does not require the intervention of assessors or appraisers. It is not payable
at a designated time or date, and is not enforceable against the tenement houses either by sale or
distraint. Clearly, therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court
looks less to its words and more to the context, subject-matter, consequence and effect. Accordingly,
what is within the spirit is within the ordinance although it is not within the letter thereof, while that
which is in the letter, although not within the spirit, is not within the ordinance." 15 It is within neither
the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise
the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the
context of the ordinance that the intention is to impose a license tax on the operation of tenement
houses, which is a form of business or calling. The ordinance, in both its title and body, particularly
sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself,
means an "imposition or exaction on the right to use or dispose of property, to pursue a business,
occupation, or calling, or to exercise a privilege."16.
"The character of a tax is not to be fixed by any isolated words that may beemployed in the
statute creating it, but such words must be taken in the connection in which they are used
and the true character is to be deduced from the nature and essence of the subject." 17 The
subject-matter of the ordinance is tenement houses whose nature and essence are
expressly set forth in section 2 which defines a tenement house as "any building or
dwelling for renting space divided into separate apartments or accessorias." The Supreme
Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959,
adopted the definition of a tenement house18 as "any house or building, or portion thereof,
which is rented, leased, or hired out to be occupied, or is occupied, as the home or residence
of three families or more living independently of each other and doing their cooking in the
premises or by more than two families upon any floor, so living and cooking, but having a
common right in the halls, stairways, yards, water-closets, or privies, or some of them."
Tenement houses, being necessarily offered for rent or lease by their very nature and
essence, therefore constitute a distinct form of business or calling, similar to the hotel or
motel business, or the operation of lodging houses or boarding houses. This is precisely one
of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva,
et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of
Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and
regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding
houses, livery garages, public warehouses, pawnshops, theaters, cinematographs,"
tenement houses, which constitute a different business enterprise,19 are not mentioned in the

aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court
explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is one among those
clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power
cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a
tenement house such as those belonging to defendants." .
The lower court has interchangeably denominated the tax in question as a tenement tax or an
apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local
Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons
engaged in the business of operating tenement houses finds authority in section 2 of the Local
Autonomy Act which provides that chartered cities have the authority to impose municipal license
taxes or fees upon persons engaged in any occupation or business, or exercising privileges within
their respective territories, and "otherwise to levy for public purposes, just and uniform taxes,
licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation but treble at
that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A)
(3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance."
Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and
occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of
which persons engaged in "leasing or renting property, whether on their account as principals or as
owners of rental property or properties," are considered "real estate dealers" and are taxed
according to the amount of their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National
Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the
argument against double taxation may not be invoked. The same tax may be imposed by the
national government as well as by the local government. There is nothing inherently obnoxious in the
exaction of license fees or taxes with respect to the same occupation, calling or activity by both the
State and a political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate
taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a wellsettled rule that a license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax. The State may collect an ad valorem
tax on property used in a calling, and at the same time impose a license tax on that calling, the
imposition of the latter kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited sense the same
property must be taxed twice when it should be taxed but once; both taxes must be imposed
on the same property or subject-matter, for the same purpose, by the same State,
Government, or taxing authority, within the same jurisdiction or taxing district, during the
same taxing period, and they must be the same kind or character of tax." 23 It has been shown
that a real estate tax and the tenement tax imposed by the ordinance, although imposed by
the sametaxing authority, are not of the same kind or character.
At all events, there is no constitutional prohibition against double taxation in the Philippines. 24 It is
something not favored, but is permissible, provided some other constitutional requirement is not
thereby violated, such as the requirement that taxes must be uniform."25.

3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not
only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months
or both, if the owner or owners of the tenement buildings divided into apartments do not pay the
tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects the
owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely
sum of money." The lower court apparently had in mind, when it made the above ruling, the provision
of the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll tax." 26 It is
elementary, however, that "a tax is not a debt in the sense of an obligation incurred by contract,
express or implied, and therefore is not within the meaning of constitutional or statutory provisions
abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the nonpayment thereof by fine or imprisonment is not, in conflict with that prohibition." 27 Nor is the tax in
question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a
certain class, resident within a specified territory, without regard to their property or the occupations
in which they may be engaged.28 Therefore, the tax in question is not oppressive in the manner the
lower court puts it. On the other hand, the charter of Iloilo City29 empowers its municipal board to "fix
penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six
months' imprisonment, or both such fine and imprisonment for each offense." In Punsalan, et al. vs.
Mun. Board of Manila, supra, this Court overruled the pronouncement of the lower court declaring
illegal and void an ordinance imposing an occupation tax on persons exercising various professions
in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation. 30.
4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.
"... because while the owners of the other buildings only pay real estate tax and income
taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. It
should be noted that in the assessment of real estate tax all parts of the building or buildings
are included so that the corresponding real estate tax could be properly imposed. If aside
from the real estate tax the owner or owners of the tenement buildings should pay apartment
taxes as required in the ordinance then it will violate the rule of uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that there is "lack of
uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to
pay taxes on their tenement houses, while citizens of other cities, where their councils do not enact a
similar tax ordinance, are permitted to escape such imposition." .
It is our view that both assertions are undeserving of extended attention. This Court has already
ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are
uniform and equal when imposed upon all property of the same class or character within the taxing
authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do
not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that
tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the
same purpose should be imposed in different territorial subdivisions at the same time. 32So long as
the burden of the tax falls equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity of taxation is accomplished. 33 The plaintiffsappellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is
not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are
intended to operate uniformly and equally.34.
5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a
mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L12695, supra, as ultra vires, the decision in that case should be accorded the effect of res judicata in

the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices
to say that there is no identity of subject-matter in that case andthis case because the subject-matter
in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and
the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in
the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise
no identity of cause of action in the two cases because the main issue in L-12695 was whether the
City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of
1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not
available for consideration in the decision in L-12695 which was promulgated on March 23, 1959.
Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now
tax any taxable subject-matter or object not included in the enumeration of matters removed from the
taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes that
could be legally levied by local governments were only those specifically authorized by law, and their
power to tax was construed in strictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the
complaint is hereby dismissed. No pronouncement as to costs..
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano,
JJ., concur..

Footnotes
The record discloses that the delay caused in the lower court was due to the loss of the
original record while the same was in the possession of the late Judge Perfecto Querubin.
The record was later reconstituted under Judge Ramon Blanco..
1

Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965, per
Concepcion, J.: .
2

"Neither the plaintiff nor the lower court maintains that the subject matter of the
ordinance in question comes under any of the foregoing exceptions. Hence, under
the rule - "expressio unius est exclusio alterius", the ordinance should be deemed to
come within the purview of the general rule. Indeed, the sponsor of the bill, which
upon its passage became Republic Act No. 2264, explicitly informed the House of
Representatives when he urged the same to approve it, that, under its provisions,
local governments would be "able to do everything, excepting those things which are
mentioned therein." ..." .
C.N. Hodges vs. The Mun. Board of the City of Iloilo, et al., L-18276, Jan. 12, 1967,
per Castro, J.: .
"... Heretofore, we have announced the doctrine that the grant of the power to tax to
chartered cities under section 2 of the Local Autonomy Act is sufficiently plenary to
cover "everything, excepting those which are mentioned therein," subject only to the
limitation that the tax so levied is for "public purposes, just and uniform" (Nin Bay
Mining Co. vs. Mun. of Roxas, Prov. of Palawan, G.R. No. L-20125, July 20, 1965).
There is no showing, and we do not believe it is possible to show, that the tax levied,
called by any name - percentage tax or sales tax - comes under any of the specific

exceptions listed in Section 2 of the Local Autonomy Act. Not being excepted, it must
be regarded as coming within the purview of the general rule. As the maxim goes,
"Exceptio firmat regulum in casibus non excepti." Since its public purpose, justness
and uniformity of application are not disputed, the tax so levied must be sustained as
valid." (Re: Ordinance imposing a tax on sales or real estate property situated in the
City of Iloilo, of 1/2% of 1% of the contract price or consideration.).
Ormoc Sugar Co., Inc. vs. Mun. Board of Ormoc City, et al., L-24322, July 21, 1967,
per Fernando, J.: .
"In a number of decisions starting from City of Bacolod v. Gruet, L-18290, Jan. 31,
1963, to Hodges vs. Mun. Board, L-18276, Jan. 12, 1967, such broad taxing
authority has been implemented and vitalized by this Court.
"... The question before this Court is one of power. From and after June 19, 1959,
when the Local Autonomy Act was enacted, the sphere of autonomy of a chartered
city in the enactment of taxing measures has been considerably enlarged.
"... In the absence of a clear and specific showing that there was a transgression of a
constitutional provision or repugnancy to a controlling statute, an objection of such a
generalized character deserves but scant sympathy from this Court. Considering the
indubitable policy expressly set forth in the Local Autonomy Act, the invocation of
such a talismanic formula as "restraint of trade" without more no longer suffices,
assuming it ever did, to nullify a taxing ordinance, otherwise valid." [Re: Ordinance
imposing tax on all productions of centrifugal sugar (B-sugar) locally sold or sold
within the Phil., at P.20 per picul, etc.].
"Taxes on property are taxes assessed on all property or on all property of a certain class
located within a certain territory on a specified date in proportion to its value, or in
accordance with some other reasonable method of apportionment, the obligation to pay
which is absolute and unavoidable and it is not based upon any voluntary action of the
person assessed. A property tax is ordinarily measured by the amount of property owned by
the taxpayer on a given day, and not on the total amount owned by him during the year. It is
ordinarily assessed at stated periods determined in advance, and collected at appointed
times, and its payment is usually enforced by sale of the property taxed, and, occassionally,
by imprisonment of the person assessed." (51 Am. Jur. 57) .
3

"A "real estate tax" is a tax in rem against realty without personal liability therefor on
part of owner thereof, and a judgment recovered in proceedings for enforcement of
real estate tax is one in rem against the realty without personal liability against the
owner." (36 Words and Phrases, 286, citing Land O'Lakes Dairy Co. vs. Wadena
County, 39 N. W. 2d. 164, 171, 229 Minn. 263).
"The term "license tax" or "license fee" implies an imposition or exaction on the right to use
or dispose of a property, to pursue a business, occupation, or calling, or to exercise a
privilege." (33 Am. Jur. 325-v26) .
4

"The term "excise tax" is synonymous with "privilege tax", and the two are often used
interchangeably, and whether a tax is characterized in the statute imposing it as a
privilege tax or an excise tax is merely a choice of synonymous words, for an excise
tax is a privilege tax." (51 Am. Jur. 62, citing Bank of Commerce & T. Co. vs. Senter,
149 Tenn. 569, 260 SW 144) .

"Thus, it is said that an excise tax is a charge imposed upon the performance of an
act, the enjoyment of a privilege, or the engaging in an occupation." (51 Am. Jur.
61) .
"SEC. 38. Annual tax and penalties. Extension and remission of the tax. -- An annual tax of
one per centum on the assessed value of all real estate in the city subject to taxation shall be
levied by the city treasurer..." .
5

Commonwealth Act No. 470 -- "SECTION 1. Title of this Act. - This Act shall be known as
the Assessment Law. `.
6

`SEC. 2. Incidence of real property tax. -- Except in chartered cities, there shall be
levied, assessed, and collected an annual ad valorem tax on real property, including
land, buildings, machinery and other improvements not hereinafter specially
exempted.".
7

Com. Act 158, sections 28 to 53.

Com. Act 158, sec. 29.

51 Am. Jur. 53: "An ad valorem property tax is invariably based upon ownership of property,
and is payable regardless of whether the property is used or not, although of course the
value may vary in accordance with such factor." .
9

"Real estate, for purposes of taxation, includes all land within the district by which the tax is
levied, and all rights and interests in such land, and all buildings and other structures affixed
to the land, even though as between the landlord and the tenant they are the property of the
tenant and may be removed by him at the termination of the lease." (51 Am. Jur. 438) Sec.
31 of Com. Act 158 provides: "When it shall appear that there are separate owners of the
land and the improvements thereon, a separate assessment of the property of each shall be
made." .
10

Sec. 38 of Com. Act 158 provides: "An annual tax of one per centum on the assessed
value of all real estate in the city subject to taxation shall be levied by the city treasurer." .
11

12

Secs. 28 to 34, Com. Act 158.

Sec. 38 of Com. Act 158 provides: "All taxes on real estate for any year shall be due and
payable on the first day of January and from this date such taxes together with all penalties
accruing thereto shall constitute a lien on the property subject to such taxation." .
13

Sec. 38 of Com. Act 158 provides: "Such lien shall be superior to all other liens, mortgages
or incumbrances of any kind whatsoever, and shall be enforceable against the property
whether in the possession of the delinquent or any subsequent owner, and can only be
removed by the payment of the tax and penalty.".
14

62 C.J.S. 845; Manila Race Horse Trainers Assn. vs. De la Fuente, L-2947, Jan. 11, 1951,
88 Phil. 60.
15

16

51 Am. Jur. 59-60; 33 Am. Jur. 325-326..

17

51 Am. Jur. 56, citing Eyre v. Jacob, 14 Gratt (Va.) 422; 73 Am. Dec. 367.

18

Webster's New International Dictionary, 2nd Ed., p. 2601.

City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959: "As may be
seen from the definition of each establishment hereunder quoted, a tenement house is
different from hotel, lodging house, or boarding house. These are different business
enterprises. They have been established for different purposes.
19

20

National Internal Revenue Code: .

"SEC. 182. Fixed taxes. -- On business ...; (3) Other fixed taxes. -- The following
fixed taxes shall be collected as follows, the amount stated being for the whole year,
when not otherwise specified: .
XXX

XXX

XXX

"(s) Stockbrokers, dealers in securities, real estate brokers, real estate dealers,
commercial brokers, customs brokers, and immigration brokers, one hundred and
fifty pesos: Provided, however, That in the case of real estate dealers, the annual
fixed tax to be collected shall be as follows: .
"One hundred and fifty pesos, if the annual income from buying, selling, exchanging,
leasing, or renting property (whether on their own account as principals or as owners
of rental property or properties) is four thousand pesos or more but not exceeding ten
thousand pesos; .
"Three hundred pesos, if such annual income exceeds ten thousand pesos but does
not exceed thirty thousand pesos; and .
"Five hundred pesos, if such annual income exceeds thirty thousand pesos."
Punsalan, et al. vs. Mun. Board of the City of Manila, et al., L-4817, May 26, 1954, 95 Phil.
46, per Reyes, J.: In this case the Supreme Court upheld the validity of Ordinance 3398 of
the City of Manila, approved on July 25, 1950, imposing a municipal occupation tax on
persons exercising various professions (lawyers, medical practitioners, public accountants,
dental surgeons, pharmacists, etc.), in the city and penalizes non-payment of the tax by a
fine of not more than P200.00 or by imprisonment of not more than 6 months, or by both
such fine and imprisonment in the discretion of the court, although section 201 [now sec.
182(B)] of the National Internal Revenue Code requires the payment of taxes on occupation
or professional taxes. Said Justice Reyes: "The argument against double taxation may not
be invoked where one tax is imposed by the state and the other is imposed by the city (1
Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing
obnoxious in the requirement thatlicense fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivision thereof. (51 Am.
Jur., 341.)" .
21

A month after the promulgation of the above decision, Congress passed Rep. Act
1166, approved on June 18, 1954, providing as follows: "Any provisions of existing
laws, city charters and ordinances, executive orders and regulations, or parts thereof,
to the contrary notwithstanding, every professional legally authorized to practice his

profession, who has paid the corresponding annual privilege tax on professions
required by Sec. 182 of the NIRC, Com. Act No. 466,shall be entitled to practice the
profession for which he has been duly qualified under the law, in all parts of the
Philippines without being subject to any other tax, charge, license or fee for the
practice of such profession; Provided, however, That they have paid to the office
concerned the registration fees required in their respective professions." .
People vs. Santiago Mendaros, et al., L-6975, May 27, 1955, 97 Phil. 958-959, per
Bautista Angelo, J. Appeal from the decision of the CFI of Zambales. Defendants-appellees
were convicted by the JP Court of Palauig, Zambales, and sentenced to pay a fine of P5.00,
for failure to pay the occupation tax imposed by a municipal ordinance on owners of
fishponds on lands of private ownership. The Supreme Court, in sustaining the validity of the
ordinance, held:.
22

"The ground on which the trial court declared the municipal ordinance invalid would
seem to be that, since the land on which the fishpond is situated is already subject to
land tax, it would be unfair and discriminatory to levy another tax on the owner of the
fishpond because that would amount to double taxation. This view is erroneous
because it is a well-settled rule that a license tax may be levied upon a business or
occupation although the land or property used therein is subject to property tax. It
was also held that "the state may collect an ad valorem tax on property used in a
calling, and at the same time impose a license tax on the pursuit of that calling." The
imposition of this kind of tax is in no sense called a double tax." .
Veronica Sanchez vs. The Collector of Internal Revenue, L-7521, Oct. 18, 1955, 97
Phil. 687, per Reyes, J.B.L., J.
"Considering that appellant constructed her four-door "accessoria" purposely for rent
or profit; that she has been continuously leasing the same to third persons since its
construction in 1947; that she manages her property herself; and that said leased
holding appears to be her main source of livelihood, she is engaged in the leasing of
real estate, and is a real estate dealer as defined in section 194(s) [now, Sec. 182(A)
(3)(s)] of the Internal Revenue Code, as amended by Rep. Act No. 42.
"Appellant argues that she is already paying real estate taxes on her property, as well
as income tax on the income derived therefrom, so that to further subject its rentals
to the "real estate dealers" tax amounts to double taxation. This argument has
already been rejected by this Court in the case of People vs. Mendaros et al., L6975, promulgated May 27, 1955, wherein we held that it is a well-settled rule that
license tax may be levied upon a business or occupation although the land or
property used therein is subject to property tax, and that"the state may collect an ad
valorem tax on property used in a calling, and at the same time impose a license tax
on the pursuit of that calling", the imposition of the latter kind of tax being in no sense
a double tax." ".
23

84 C.J.S. 131-132.

Manufacturers' Life Insurance Co. vs. Meer, L-2910, June 29, 1951; City of Manila vs.
Interisland Gas Service, L-8799, Aug 31, 1956; Commissioner of Internal Revenue vs.
Hawaiian-Philippine Co., L-16315, May 30, 1964; Pepsi-Cola Bottling Co. of the Philippines
vs. City of Butuan, et al., L-22814, Aug. 28, 1968.
24

Pepsi-Cola Bottling Co. vs. City of Butuan, supra: .

"The second and last objections are manifestly devoid of merit. Indeed -independently of whether or not the tax in question, when considered in relation to
the sales tax prescribed by Acts of Congress, amounts to double taxation, on which
we need not and do not express any opinion -- double taxation, in general, is not
forbidden by our fundamental law. We have not adopted, as part thereof, the
injunction against double taxation found in the Constitution of the United States and
some States of the Union. Then, again, the general principle against delegation of
legislative powers, in consequence of the theory of separation of powers is subject to
one well-established exception, namely; legislative powers may be delegated to local
governments - to which said theory does not apply - in respect of matters of local
concern." .
84 C.J.S. 133-134; "Double taxation, although not favored, is permissible in the absence of
express or implied constitutional prohibition.
25

"Double taxation should not be permitted unless the legislature has authority to
impose it. However, since the taxing power is exclusively a legislative function, and
since, except as it is limited or restrained by constitutional provisions, it is absolute
and unlimited, it is generally held that there is nothing, in the abscence of any
express or implied constitutional prohibition against double taxation, to prevent the
imposition of more than one tax on property within the jurisdiction, as the power to
tax twice is as ample as the power to tax once. In such case whether or not there
should be double taxation is a matter within the discretion of the legislature.
"In some states where double taxation is not expressly prohibited, it is held that
double taxation is permissible, or not invalid or unconstitutional, or necessarily
unlawful, provided some other constitutional requirement is not thereby violated, as a
requirement that taxes must be equal and uniform." .
The Constitution of the Philippines, Art. VI, sec. 22 (1) provides: "The rule of taxation
shall be uniform." .
26

Art. III, sec. 1, par. 12, Constitution.

51 Am. Jur. 860-861, citing Cousins v. State, 50 Ala. 113, 20 Am. Rep. 290; Rosenbloom v.
State, 64 Neb. 342, 89 NW 1053, 57 LRA 922; Voelkel v. Cincinnati, 112 Ohio St. 374, 147
NE 754, 40 ALR 73 (holding the provisions of an ordinance making the non-payment of an
excise tax levied in pursuance of such ordinance a misdemeanor punishable by fine not in
violation of the constitutional prohibition against the imprisonment of any person for "debt in
a civil action, or mesne or final process"); Ex parte Mann, 39 Tex. Crim. Rep. 491, 46 SW
828,73 Am. St. Rep. 961.
27

26 R.C.L. 25-26: "It is generally considered that a tax is not a debt, and that the
municipality to which the tax is payable is not a creditor of the person assessed. A
debt is a sum of money due by certain and express agreement. It originates in, and is
founded upon, contract express or implied. Taxes, on the other hand, do not rest
upon contract, express or implied. They are obligations imposed upon citizens to pay
the expenses of government. They are forced contributions, and in no way
dependent upon the will or contract, express or implied, of the persons taxed." .

51 Am. Jur. 66-67; "Capitation or poll taxes are taxes of a fixed amount upon all persons,
or upon all the persons of a certain class, resident within a specified territory, without regard
to their property or the occupations in which they may be engaged. Taxes of a specified
amount upon each person performing a certain act or engaging in a certain business or
profession are not, however, poll taxes." .
28

Com. Act No. 158 (An Act Establishing a Form of Government for the City of Iloilo), section
21: "Except as otherwise provided by law, and subject to the conditions and limitations
thereof, the Municipal Board shall have the following legislative powers: .
29

"(aa) ... and to fix penalties for the violation of ordinances which shall not exceed a
fine of two hundred pesos or six months' imprisonment, or both such fine and
imprisonment, for each offense." .
"To begin with the defendants' appeal, we find that the lower court was in error in saying
that the imposition of the penalty provided for in the ordinance was without the authority of
law. The last paragraph (kk) of the very section that authorizes the enactment of the
ordinance (section 18 of the Manila Charter) in express terms also empowers the Municipal
Board to "fix penalties for the violation of ordinances which not exceed to [sic] two hundred
pesos fine or six months' imprisonment, or both such fine and imprisonment, for a single
offense." Hence, the pronouncement below that the ordinance in question is illegal and void
because it imposes a penalty not authorized by law is clearly without legal basis." .
30

51 Am. Jur. 203, citing Re Page, 60 Kan. 842, 59 P 478, 47 LRA 68: "Taxes are uniform
and equal when imposed upon all property of the same character within the taxing authority."
Manila Race Horse Trainers Assn., Inc. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60:
"In the case of Eastern Theatrical Co., Inc. vs. Alfonso, [L-1104, May 31, 1949], 46 O.G.
Supp. to No. 11, p. 303, it was said that there is equality and uniformity in taxation if all
articles or kinds of property of the same class are taxed at the same rate. Thus, it was held in
that case, that "the fact that some places of amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions
and other kinds of amusements or places of amusement are taxed, is no argument at all
against equality and uniformity of the tax imposition." Applying this criterion to the present
case, there would be discrimination if some boarding stables of the class used for the same
number of horses were not taxed or were made to pay less or more than others." Tan Kim
Kee vs. Court of Tax Appeals, et al., L-18080, April 22, 1963, per Reyes, J.B.L., J.: "The rule
of uniform taxation does not deprive Congress of the power to classify subjects of taxation,
and only demands uniformity within the particular class.".
31

Am. Jur. 203: "153. Uniformity of Operation Throughout Tax Unit. One requirement with
respect to taxation imposed by provisions relating to equality and uniformity, which has been
introduced into some state constitutions in express language, is that taxation must be
uniform throughout the political unit by or with respect to which the tax is levied. This means,
for example, that a tax for a state purpose must be uniform and equal throughout the state, a
tax for a county purpose must be uniform and equal throughout the county, anda tax for a
city, village, or township purpose must be uniform and equal throughout the city, village, or
township. It does not mean, however, that the taxes levied by or with respect to the various
political subdivisions or taxing districts of the state must be at the same rate, or, as one court
has graphically put it, that a man in one county shall pay the same rate of taxation for all
purposes that is paid by a man in an adjoining county. Nor does the rule require that taxes
for the same purposes shall be imposed in different territorial subdivisions at the same time.
32

It has also been said in this connection that the omission to tax any particular individual who
may be liable does not render the whole tax illegal or void."
84 C.J.S. 77: "Equality in taxation is accomplished when the burden of the tax falls equally
and impartially on all the persons and property subject to it [State ex rel. Haggart v. Nichols,
265 N.W. 859, 66 N.D. 355], so that no higher rate or greater levy in proportion to value is
imposed on one person or species of property than on others similarly situated or of like
character."
33

84 C.J.S. 79: "The rule of uniformity in taxation applies to property of like kind and
character and similarly situated, and a tax, in order to be uniform, must operate alike
on all persons, things, or property, similarly situated. So the requirement is complied
with when the tax is levied equally and uniformly on all subjects of the same class
and kind and is violated if particular kinds, species or items of property are selected
to bear the whole burden of the tax, while others, which should be equally subjected
to it, are left untaxed."
84 C.J.S. 81: "There is a presumption the at tax statutes are intended to operate uniformly
and equally [Alaska Consol. Canneries v. Territory of Alaska, C.C.A. Alaska, 16 F. 2d. 256],
and a liberal construction will be indulged in order to accomplish fair and equal taxation of all
property within the state."
34

Medina vs. City of Baguio, L-4060, Aug. 29, 1952; Wa Wa Yu vs. City of Lipa, L-9167,
Sept. 27, 1956; Saldana vs. City of Iloilo, 55 O.G. 10267, and the cases cited therein.
35

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION
ERICSSON
TELECOMMUNIG.R. NO. 176667
CATIONS, INC.,
Petitioner,
Present:

- versus -

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,

CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
CITY OF PASIG, represented by
its City Mayor, Hon. Vicente P.
Eusebio, et al.
Promulgated:
Respondent.
November 22, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
AUSTRIA-MARTINEZ, J.:
Ericsson Telecommunications, Inc. (petitioner), a corporation with principal
office in Pasig City, is engaged in the design, engineering, and marketing of
telecommunication facilities/system. In an Assessment Notice dated October 25,
2000 issued by the City Treasurer of Pasig City, petitioner was assessed a business
tax deficiency for the years 1998 and 1999 amounting to P9,466,885.00
and P4,993,682.00, respectively, based on its gross revenues as reported in its
audited financial statements for the years 1997 and 1998. Petitioner filed a Protest
dated December 21, 2000, claiming that the computation of the local business tax
should be based on gross receipts and not on gross revenue.
The City of Pasig (respondent) issued another Notice of Assessment to
petitioner on November 19, 2001, this time based on business tax deficiencies for
the years 2000 and 2001, amounting toP4,665,775.51 and P4,710,242.93,
respectively, based on its gross revenues for the years 1999 and
2000. Again, petitioner filed a Protest on January 21, 2002, reiterating its position
that the local business tax should be based on gross receipts and not gross revenue.

Respondent denied petitioners protest and gave the latter 30 days within
which to appeal the denial. This prompted petitioner to file a petition for
review[1] with the Regional Trial Court (RTC) ofPasig, Branch 168, praying for the
annulment and cancellation of petitioners deficiency local business taxes
totaling P17,262,205.66.
Respondent and its City Treasurer filed a motion to dismiss on the grounds
that the court had no jurisdiction over the subject matter and that petitioner had no
legal capacity to sue. The RTC denied the motion in an Order dated December 3,
2002 due to respondents failure to include a notice of hearing. Thereafter, the
RTC declared respondents in default and allowed petitioner to present evidence exparte.
In a Decision[2] dated March 8, 2004, the RTC canceled and set aside the
assessments made by respondent and its City Treasurer. The dispositive portion of
the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and ordering defendants to CANCEL and SET ASIDE
Assessment Notice dated October 25, 2000 and Notice of Assessment
datedNovember 19, 2001.
SO ORDERED.[3]

On
appeal,
the
Court
of
Appeals
(CA)
rendered
Decision[4] dated November 20, 2006, the dispositive portion of which reads:

its

WHEREFORE, the decision appealed from is hereby ordered SET ASIDE

and a new one entered DISMISSING the plaintiff/appellees complaint
WITHOUT PREJUDICE.
SO ORDERED.[5]

The CA sustained respondents claim that the petition filed with the RTC
should have been dismissed due to petitioners failure to show that Atty. Maria
Theresa B. Ramos (Atty. Ramos), petitioners Manager for Tax and Legal Affairs

and the person who signed the Verification and Certification of Non-Forum
Shopping, was duly authorized by the Board of Directors.
Its motion for reconsideration having been denied in a
Resolution[6] dated February 9, 2007, petitioner now comes before the Court via a
Petition for Review on Certiorari under Rule 45 of the Rules of Court, on the
following grounds:
(1) THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR
LACK OF SHOWING THAT THE SIGNATORY OF THE VERIFICATION/
CERTIFICATION IS NOT SPECIFICALLY AUTHORIZED FOR AND IN
BEHALF OF PETITIONER.
(2) THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO
RESPONDENTS APPEAL, CONSIDERING THAT IT HAS NO
JURISDICTION OVER THE SAME, THE MATTERS TO BE RESOLVED
BEING PURE QUESTIONS OF LAW, JURISDICTION OVER WHICH IS
VESTED ONLY WITH THIS HONORABLE COURT.
(3) ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER
RESPONDENTS APPEAL, SAID COURT ERRED IN NOT DECIDING
ON THE MERITS OF THE CASE FOR THE SPEEDY DISPOSITION
THEREOF, CONSIDERING THAT THE DEFICIENCY LOCAL
BUSINESS TAX ASSESSMENTS ISSUED BY RESPONDENT ARE
CLEARLY INVALID AND CONTRARY TO THE PROVISIONS OF THE
PASIG REVENUE CODE AND THE LOCAL GOVERNMENT CODE.[7]

After receipt by the Court of respondents complaint and petitioners reply,

the petition is given due course and considered ready for decision without the need
of memoranda from the parties.
The Court grants the petition.
First, the complaint filed by petitioner with the RTC was erroneously
dismissed by the CA for failure of petitioner to show that its Manager for Tax and
Legal Affairs, Atty. Ramos, was authorized by the Board of Directors to sign the

Verification and Certification of Non-Forum Shopping in behalf of the petitioner

corporation.
Time and again, the Court, under special circumstances and for compelling
reasons, sanctioned substantial compliance with the rule on the submission of
verification and certification against non-forum shopping.[8]
In General Milling Corporation v. National Labor Relations Commission,
[9]
the Court deemed as substantial compliance the belated attempt of the petitioner
to attach to the motion for reconsideration the board resolution/secretarys
certificate, stating that there was no attempt on the part of the petitioner to ignore
the prescribed procedural requirements.
In Shipside Incorporated v. Court of Appeals,[10] the authority of the
petitioners resident manager to sign the certification against forum shopping was
submitted to the CA only after the latter dismissed the petition. The Court
considered the merits of the case and the fact that the petitioner subsequently
submitted a secretarys certificate, as special circumstances or compelling reasons
that justify tempering the requirements in regard to the certificate of non-forum
shopping.[11]
There were also cases where there was complete non-compliance with the
rule on certification against forum shopping and yet the Court proceeded to decide
the case on the merits in order to serve the ends of substantial justice.[12]
In the present case, petitioner submitted a Secretarys Certificate signed on
May 6, 2002, whereby Atty. Ramos was authorized to file a protest at the local
government level and to sign, execute and deliver any and all papers, documents
and pleadings relative to the said protest and to do and perform all such acts and
things as may be necessary to effect the foregoing.[13]

Applying the foregoing jurisprudence, the subsequent submission of the

Secretarys Certificate and the substantial merits of the petition, which will be
shown forthwith, justify a relaxation of the rule.
Second, the CA should have dismissed the appeal of respondent as it has no
jurisdiction over the case since the appeal involves a pure question of law. The CA
seriously erred in ruling that the appeal involves a mixed question of law and fact
necessitating an examination and evaluation of the audited financial statements and
other documents in order to determine petitioners tax base.
There is a question of law when the doubt or difference is on what the law is
on a certain state of facts. On the other hand, there is a question of fact when the
doubt or difference is on the truth or falsity of the facts alleged. [14] For a question
to be one of law, the same must not involve an examination of the probative value
of the evidence presented by the litigants or any of them. The resolution of the
issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. Thus, the test of whether a question is
one of law or of fact is not the appellation given to such question by the party
raising the same; rather, it is whether the appellate court can determine the issue
raised without reviewing or evaluating the evidence, in which case, it is a question
of law; otherwise it is a question of fact.[15]
There is no dispute as to the veracity of the facts involved in the present
case. While there is an issue as to the correct amount of local business tax to be
paid by petitioner, its determination will not involve a look into petitioners audited
financial statements or documents, as these are not disputed; rather, petitioners
correct tax liability will be ascertained through an interpretation of the pertinent tax
laws, i.e., whether the local business tax, as imposed by the Pasig City Revenue

Code (Ordinance No. 25-92) and the Local Government Code of 1991, should be
based on gross receipts, and not on gross revenue which respondent relied on in
computing petitioners local business tax deficiency. This, clearly, is a question of
law, and beyond the jurisdiction of the CA.
Section 2(c), Rule 41 of the Rules of Court provides that in all cases where
questions of law are raised or involved, the appeal shall be to this Court by petition
for review on certiorari under Rule 45.
Thus, as correctly pointed out by petitioner, the appeal before the CA should
have been dismissed, pursuant to Section 5(f), Rule 56 of the Rules of Court,
which provides:
Sec. 5. Grounds for dismissal of appeal.- The appeal may be
dismissed motu proprio or on motion of the respondent on the following grounds:
xxxx
(f) Error in the choice or mode of appeal.
xxxx

Third, the dismissal of the appeal, in effect, would have sustained the RTC
Decision ordering respondent to cancel the Assessment Notices issued by
respondent, and therefore, would have rendered moot and academic the issue of
whether the local business tax on contractors should be based on gross receipts or
gross revenues.
However, the higher interest of substantial justice dictates that this Court
should resolve the same, to evade further repetition of erroneous interpretation of
the law,[16] for the guidance of the bench and bar.
As earlier stated, the substantive issue in this case is whether the local
business tax on contractors should be based on gross receipts or gross revenue.

Respondent assessed deficiency local business taxes on petitioner based on

the latters gross revenue as reported in its financial statements, arguing that gross
receipts is synonymous with gross earnings/revenue, which, in turn, includes
uncollected earnings. Petitioner, however, contends that only the portion of the
revenues which were actually and constructively received should be considered in
determining its tax base.
Respondent is authorized to levy business taxes under Section 143 in relation
to Section 151 of the Local Government Code.
Insofar as petitioner is concerned, the applicable provision is subsection (e),
Section 143 of the same Code covering contractors and other independent
contractors, to wit:
SEC. 143. Tax on Business. - The municipality may impose taxes on the
following businesses:
xxxx
(e) On contractors and other independent contractors, in accordance with
the following schedule:

With gross receipts for the

preceding calendar year in the
amount of:

Amount of Tax
Per Annum

xxxx
(Emphasis supplied)

The above provision specifically refers to gross receipts which is defined

under Section 131 of the Local Government Code, as follows:
xxxx
(n) Gross Sales or Receipts include the total amount of money or its
equivalent representing the contract price, compensation or service fee, including

the amount charged or materials supplied with the services and the deposits or
advance payments actually or constructively received during the taxable quarter
for the services performed or to be performed for another person excluding
discounts if determinable at the time of sales, sales return, excise tax, and valueadded tax (VAT);
xxxx

The law is clear. Gross receipts include money or its equivalent actually or
constructively received in consideration of services rendered or articles sold,
exchanged or leased, whether actual or constructive.
In Commissioner of Internal Revenue v. Bank of Commerce,[17] the Court
interpreted gross receipts as including those which were actually or constructively
received, viz.:
Actual receipt of interest income is not limited to physical
receipt. Actual receipt may either be physical receipt or constructive
receipt. When the depository bank withholds the final tax to pay the tax liability
of the lending bank, there is prior to the withholding a constructive receipt by the
lending bank of the amount withheld. From the amount constructively received
by the lending bank, the depository bank deducts the final withholding tax and
remits it to the government for the account of the lending bank. Thus, the interest
income actually received by the lending bank, both physically and constructively,
is the net interest plus the amount withheld as final tax.
The concept of a withholding tax on income obviously and
necessarily implies that the amount of the tax withheld comes from the income
earned by the taxpayer. Since the amount of the tax withheld constitutes income
earned by the taxpayer, then that amount manifestly forms part of the
taxpayers gross receipts. Because the amount withheld belongs to the taxpayer,
he can transfer its ownership to the government in payment of his tax liability.
The amount withheld indubitably comes from income of the taxpayer, and thus
forms part of his gross receipts. (Emphasis supplied)

Further elaboration was made by the Court in Commissioner of Internal

Revenue v. Bank of the Philippine Islands,[18] in this wise:

Receipt of income may be actual or constructive. We have held that the

withholding process results in the taxpayers constructive receipt of the income
withheld, to wit:
By analogy, we apply to the receipt of income the rules
on actual and constructive possession provided in Articles 531 and 532 of our Civil
Code.
Under Article 531:

Possession is acquired by the material occupation of a thing or the

exercise of a right, or by the fact that it is subject to the action of our will, or by
the proper acts and legal formalities established for acquiring such right.
Article 532 states:
Possession may be acquired by the same person who is to enjoy it, by
his legal representative, by his agent, or by any person without any power
whatever; but in the last case, the possession shall not be considered as acquired
until the person in whose name the act of possession was executed has ratified
the same, without prejudice to the juridical consequences of negotiorum gestio in
a proper case.
The last means of acquiring possession under Article 531 refers to
juridical actsthe acquisition of possession by sufficient titleto which the law
gives the force of acts of possession. Respondent argues that only items of
incomeactually received should be included in its gross receipts. It claims that
since the amount had already been withheld at source, it did not
have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the
acquisition of the right of possession is through the proper acts and legal
formalities established therefor. The withholding process is one such act. There
may not beactual receipt of the income withheld; however, as provided for in
Article 532, possession by any person without any power whatsoever shall be
considered as acquired when ratified by the person in whose name the act of
possession is executed.

In our withholding tax system, possession is acquired by

the payor as the withholding agent of the government, because the
taxpayer ratifies the very act of possession for the government. There is
thus constructivereceipt. The processes of bookkeeping and accounting for
interest on deposits and yield on deposit substitutes that are subjected to
FWT are indeedfor legal purposestantamount to delivery, receipt or
remittance.[19]

Revenue Regulations No. 16-2005 dated September 1, 2005[20] defined and

gave examples of constructive receipt, to wit:
SEC. 4. 108-4. Definition of Gross Receipts. -- x x x
Constructive receipt occurs when the money consideration or its
equivalent is placed at the control of the person who rendered the service without
restrictions by the payor. The following are examples of constructive receipts:
(1) deposit in banks which are made available to the seller of services
without restrictions;
(2) issuance by the debtor of a notice to offset any debt or obligation and
acceptance thereof by the seller as payment for services rendered; and
(3) transfer of the amounts retained by the payor to the account of the
contractor.

There is, therefore, constructive receipt, when the consideration for the
articles sold, exchanged or leased, or the services rendered has already been placed
under the control of the person who sold the goods or rendered the services without
any restriction by the payor.
In contrast, gross revenue covers money or its equivalent actually or
constructively received, including the value of services rendered or articles
sold, exchanged or leased, the payment of which is yet to be received. This is
in consonance with the International Financial Reporting Standards,[21] which
defines revenue as the gross inflow of economic benefits (cash, receivables, and
other assets) arising from the ordinary operating activities of an enterprise (such as
sales of goods, sales of services, interest, royalties, and dividends), [22] which is
measured at the fair value of the consideration received or receivable.[23]
As aptly stated by the RTC:
[R]evenue from services rendered is recognized when services have been
performed and are billable. It is recorded at the amount received or expected to

be received. (Section E [17] of the Statements of Financial Accounting

Standards No. 1).[24]

In petitioners case, its audited financial statements reflect income or

revenue which accrued to it during the taxable period although not yet actually or
constructively received or paid. This is because petitioner uses the accrual method
of accounting, where income is reportable when all the events have occurred that
fix the taxpayers right to receive the income, and the amount can be determined
with reasonable accuracy; the right to receive income, and not the actual receipt,
determines when to include the amount in gross income.[25]
The imposition of local business tax based on petitioners gross revenue will
inevitably result in the constitutionally proscribed double taxation taxing of the
same person twice by the same jurisdiction for the same thing [26] inasmuch as
petitioners revenue or income for a taxable year will definitely include its gross
receipts already reported during the previous year and for which local business tax
has already been paid.
Thus, respondent committed a palpable error when it assessed petitioners
local business tax based on its gross revenue as reported in its audited financial
statements, as Section 143 of the Local Government Code and Section 22(e) of
the Pasig Revenue Code clearly provide that the tax should be computed based
on gross receipts.
WHEREFORE, the petition is GRANTED. The Decision dated November
20, 2006 and Resolution dated February 9, 2007 issued by the Court of
Appeals are SET ASIDE, and the Decision datedMarch 8, 2004 rendered by the
Regional Trial Court of Pasig, Branch 168 is REINSTATED.
SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice

MINITA V. CHICO-NAZARIO

Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons attestation, it is hereby certified that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]

[2]
[3]
[4]

[5]
[6]
[7]
[8]

[9]
[10]
[11]
[12]

[13]
[14]
[15]
[16]

[17]
[18]
[19]

Only Pasig City is named as respondent in the body of herein Petition for Review, pp. 1-2; rollo, pp. 1718.
Entitled Ericsson Telecommunications, Inc., Plaintiff, v. Pasig City thru its Mayor, Hon.
Soledad Eusebio and the City Treasurer, Hon. Crispino Salvador, Defendants.
Rollo, pp. 60-67.
Rollo, p. 67.
Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Rosalinda Asuncion-Vicente and
Ramon M. Bato, Jr., concurring; id. at 6-13.
Id. at 12-13.
Id. at 14.
Rollo, pp. 24-25.
Estribillo v. Department of Agrarian Reform, G.R. No. 159674, June 30, 2006, 494 SCRA 218,
232; General Milling Corporation v. National Labor Relations Commission, 442 Phil. 425, 427
(2002); Shipside Incorporated v. Court of Appeals, 404 Phil. 981, 995 (2001).
Supra note 8.
Supra note 8, at 995.
Id. at 996.
De Guia v. De Guia, 408 Phil. 399, 408 (2001); Damasco v. National Labor Relations Commission, 400
Phil. 568, 581 (2000).
Rollo, p. 68.
Pajuyo v. Court of Appeals, G.R. No. 146364, June 3, 2004, 430 SCRA 492, 506.
Velayo-Fong v. Velayo, G.R. No. 155488, December 6, 2006, 510 SCRA 320, 329-330.
See Velayo-Fong v. Velayo, supra note 15; Province of Batangas v. Romulo, G.R. No. 152774, May 27,
2004, 429 SCRA 736, 757.
G.R. No. 149636, June 8, 2005, 459 SCRA 638, 653.
G.R. No. 147375, June 26, 2006, 492 SCRA 551.
Id. at 569-570.

[20]
[21]

[22]
[23]
[24]
[25]
[26]

Consolidated Value-Added Tax Regulations of 2005.

In March 2005, the Accounting Standards Council approved the issuance of International Accounting
Standards 18, Revenue, issued by the International Accounting Standards Board as a Philippine Financial
Reporting Standard, consisting of the Philippine Financial Reporting Standards corresponding to the
International Financial Reporting Standards, the Philippine Accounting Standards corresponding to
International Accounting Standards, and Interpretations.
International Accounting Standards 18.7.
International Accounting Standards 18.9.
Rollo, p. 66.
Filipinas Synthetic Fiber Corporation v. Court of Appeals, 374 Phil. 835, 842 (1999).
Commissioner of Internal Revenue v. Solidbank Corporation, 462 Phil. 96, 133 (2003).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-24322

July 21, 1967

IN THE MATTER OF A PETITION FOR DECLARATORY JUDGMENT REGARDING THE

VALIDITY OF MUNICIPAL ORDINANCE NO. 14, AS AMENDED BY ORDINANCE NO. 22, SERIES
OF 1964 OF ORMOC CITY. ORMOC SUGAR COMPANY, INC., petitioner-appellant,
vs.
THE MUNICIPAL BOARD OF ORMOC CITY and HON. ESTEBAN C. CONEJOS as MAYOR of
Ormoc City,respondents-appellees.
Ponce Enrile, Sigiuon Reyna, Montecillo and Belo for petitioner-appellant.
City Fiscal Ramon O. de Vera for respondents-appellees.
FERNANDO, J.:
Appeal from a decision of the Court of First Instance of Leyte, Fifth Branch, in a declaratory relief
proceeding to test the validity of a Municipal Ordinance of the City of Ormoc, which as amended
reads as follows:
SECTION 1. City Tax. There shall be paid to the City Treasurer on any and all productions
of centrifugal sugar (B-Sugar locally sold or sold within the Philippines a city tax of Twenty
Centavos (P0.20) per picul and one percentum (1%) on the gross sale of its derivatives and
by-products produced by the Ormoc Sugar Company, Incorporated, or by any other sugar
mills [sic] in Ormoc City.
The above amendatory ordinance was enacted on October 28, 1964 and took effect immediately
after approval. The lower court sustained its validity in its decision of January 28, 1965.
The appeal must fail and the decision of the lower court affirmed. The question before this Court is
one of power. From and after June 19, 1959, when the Local Autonomy Act was enacted, the sphere

of autonomy of a chartered city in the enactment of taxing measures has been considerably
enlarged. In the language of the statute:
SECTION 2. Taxation. Any provision of law to the contrary notwithstanding, all chartered
cities, municipalities and municipal districts shall have authority to impose municipal license
taxes or fees upon persons engaged in any occupation or business, or exercising, privileges
in chartered cities, municipalities or municipal districts by requiring them to secure licenses at
rates fixed by the municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to collect fees and
charges for services rendered by the city, municipality or municipal district; to regulate and
impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise to
levy for public purposes, just and uniform taxes, licenses or fees: Provided, That
municipalities and municipal districts shall, in no case impose any percentage tax on sales or
other taxes in any form based thereon nor impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the National Internal Revenue Code x x x . .
In a number of decisions starting from City of Bacolod v. Gruet1 to Hodges v. Municipal
Board2 decided early this year, such broad taxing authority has been implemented and vitalized by
this Court.
The last mentioned-case, Hodges v. Municipal Board restated the controlling doctrine in this wise:
No special difficulty attends the resolution of the main issue. Heretofore, we have announced
the doctrine that the grant of the power to tax to chartered cities under Section 2 of the Local
Autonomy Act is sufficiently plenary to cover "everything, excepting those which are
mentioned" therein, subject only to the limitation that the tax so levied is for "public purposes,
just and uniform" (Nin Bay Mining Company vs. Municipality of Roxas, Province of Palawan,
G.R. No. L-20125, July 20, 1965). There is no showing, and we do not believe it is possible
to show, that the tax levied, called by any name, percentage tax or sales tax comes
under any of the specific exceptions listed in section 2 of the Local Autonomy Act. Not being
excepted, it must be regarded as coming within the purview of the general rule. As the
maxim goes, "Exceptio firmat regulam in casibus non exceptis." Since its public purpose,
justness and uniformity of application are not disputed, the tax so levied must be sustained
as valid.
1wph1.t

In the light of the above, it cannot be said that the ordinance suffers from a constitutional or statutory
infirmity as claimed in the first alleged error. Nor is petitioner-appellant any more successful in its
claim in the second assigned error that the ordinance suffers from the taint of illegality, it being in
restraint of trade. In the absence of a clear and specific showing that there was a transgression of a
constitutional provision or repugnancy to a controlling statute, an objection of such a generalized
character deserves but scant sympathy from this Court. Considering the indubitable policy expressly
set forth in the Local Autonomy Act, the invocation of such a talismanic formula as "restraint of trade"
without more no longer suffices, assuming it ever did, to nullify a taxing ordinance, otherwise valid.
Wherefore, the judgment a quo is hereby affirmed. Without costs.

Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Angeles, JJ., concur.
Concepcion, C.J. and Dizon, J., are on leave.
Footnotes
1

L-18290, January 31, 1963. Cf. Hodges vs. Municipal Board, L-18129, January 31, 1963.

L-18276, January 12, 1967.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-41631 December 17, 1976

HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as
Secretary to the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of
Manila, Branch XXX and the FEDERATION OF MANILA MARKET VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.

MARTIN, J.:
The chief question to be decided in this case is what law shall govern the publication of a tax
ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as
amended), which requires publication of the ordinance before its enactment and after its approval, or
the Local Tax Code (P.D. No. 231), which only demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE
RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR
OTHER PURPOSES." The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on
June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil
Case 96787 before the Court of First Instance of Manila presided over by respondent Judge,
seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication
requirement under the Revised Charter of the City of Manila has not been complied with; (b) the
Market Committee was not given any participation in the enactment of the ordinance, as envisioned

by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated;
and (d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribing the
collection of fees and charges on livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent
Judge issued an order on March 11, 1975, denying the plea for failure of the respondent Federation
of Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax
Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975,
declaring the nullity of Ordinance No. 7522 of the City of Manila on the primary ground of noncompliance with the requirement of publication under the Revised City Charter. Respondent Judge
ruled:
There is, therefore, no question that the ordinance in question was not published at
all in two daily newspapers of general circulation in the City of Manila before its
enactment. Neither was it published in the same manner after approval, although it
was posted in the legislative hall and in all city public markets and city public
libraries. There being no compliance with the mandatory requirement of publication
before and after approval, the ordinance in question is invalid and, therefore, null and
void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a postpublication is required by the Local Tax Code; and (b) private respondent failed to exhaust all
administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the
City of Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the
Municipal Board of Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general
circulation in the city, and shall not be discussed or enacted by the Board until after
the third day following such publication. * * * Each approved ordinance * * * shall be
published in two daily newspapers of general circulation in the city, within ten days
after its approval; and shall take effect and be in force on and after the twentieth day
following its publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all provincial, city,
municipal and barrioordinances levying or imposing taxes, fees or other
charges shall be published for three consecutive days in a newspaper or publication
widely circulated within the jurisdiction of the local government, or posted in the local
legislative hall or premises and in two other conspicuous places within the territorial
jurisdiction of the local government. In either case, copies of all provincial, city,

municipal and barrio ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the
enactment of the ordinance and after the approval thereof in two daily newspapers of general
circulation in the city, the Local Tax Code only prescribes for publication after the approval of
"ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication
widely circulated within the jurisdiction of the local government or by posting the ordinance in the
local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction
of the local government. Petitioners' compliance with the Local Tax Code rather than with the
Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates
only to the City of Manila, whereas the Local Tax Code is a general law because it applies
universally to all local governments. Blackstone defines general law as a universal rule affecting the
entire community and special law as one relating to particular persons or things of a class. 1 And the
rule commonly said is that a prior special law is not ordinarily repealed by a subsequent general law. The
fact that one is special and the other general creates a presumption that the special is to be considered
as remaining an exception of the general, one as a general law of the land, the other as the law of a
particular case. 2 However, the rule readily yields to a situation where the special statute refers to a
subject in general, which the general statute treats in particular. The exactly is the circumstance obtaining
in the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in
general, i.e., irrespective of the nature and scope thereof,whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore,
to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant, but, that
dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing
taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general
provision must give way to a particular provision. 3 Special provision governs. 4 This is especially true
where the law containing the particular provision was enacted later than the one containing the general
provision. The City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code
which was decreed on June 1, 1973. The law-making power cannot be said to have intended the
establishment of conflicting and hostile systems upon the same subject, or to leave in force provisions of
a prior law by which the new will of the legislating power may be thwarted and overthrown. Such a result
would render legislation a useless and Idle ceremony, and subject the law to the reproach of uncertainty
and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for
damages arising from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin
or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A.
409) exempting the City of Manila from any liability for damages or injury to persons or property arising
from the failure of the city officers to enforce the provisions of the charter or any other law or ordinance, or
from negligence of the City Mayor, Municipal Board, or other officers while enforcing or attempting to
enforce the provisions of the charter or of any other law or ordinance. Upon the other hand, Article 2189
of the Civil Code makes cities liable for damages for the death of, or injury suffered by any persons by
reason of the defective condition of roads, streets, bridges, public buildings, and other public works under
their control or supervision. On review, the Court held the Civil Code controlling. It is true that, insofar as
its territorial application is concerned, the Revised City Charter is a special law and the subject matter of
the two laws, the Revised City Charter establishes a general rule of liability arising from negligence in
general, regardless of the object thereof, whereas the Civil Code constitutes a particular prescription for
liability due to defective streets in particular. In the same manner, the Revised Charter of the City
prescribes a rule for the publication of "ordinance" in general, while the Local Tax Code establishes a rule
for the publication of "ordinance levying or imposing taxes fees or other charges in particular.

In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a
general or broad one. 7 A charter provision may be impliedly modified or superseded by a later statute,
and where a statute is controlling, it must be read into the charter notwithstanding any particular charter
provision. 8 A subsequent general law similarly applicable to all cities prevails over any conflicting charter
provision, for the reason that a charter must not be inconsistent with the general laws and public policy of
the state. 9 A chartered city is not an independent sovereignty. The state remains supreme in all matters
not purely local. Otherwise stated, a charter must yield to the constitution and general laws of the state, it
is to have read into it that general law which governs the municipal corporation and which the corporation
cannot set aside but to which it must yield. When a city adopts a charter, it in effect adopts as part of its
charter general law of such character. 10
2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as
having been violated by private respondent in bringing a direct suit in court. This is because Section
47 of the Local Tax Code provides that any question or issue raised against the legality of any tax
ordinance, or portion thereof, shall be referred for opinion to the city fiscal in the case of tax
ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice, whose
decision shall be final and executory unless contested before a competent court within thirty (30)
days. But, the petition below plainly shows that the controversy between the parties is deeply rooted
in a pure question of law: whether it is the Revised Charter of the City of Manila or the Local Tax
Code that should govern the publication of the tax ordinance. In other words, the dispute is sharply
focused on the applicability of the Revised City Charter or the Local Tax Code on the point at issue,
and not on the legality of the imposition of the tax. Exhaustion of administrative remedies before
resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the question litigated
upon is purely a legal one, the rule does not apply. 11 The principle may also be disregarded when it
does not provide a plain, speedy and adequate remedy. It may and should be relaxed when its application
may cause great and irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because
the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenueraising function, so that the procedure for publication under the Local Tax Code finds no application.
The pretense bears its own marks of fallacy. Precisely, the raising of revenues is the principal object
of taxation. Under Section 5, Article XI of the New Constitution, "Each local government unit shall
have the power to create its own sources of revenue and to levy taxes, subject to such provisions as
may be provided by law." 13 And one of those sources of revenue is what the Local Tax Code points to in
particular: "Local governments may collect fees or rentals for the occupancy or use of public markets and
premises * * *." 14 They can provide for and regulate market stands, stalls and privileges, and, also, the
sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or otherwise dispose
of stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated
September 30, 1972, insofar as it affects livestock and animal products, because the said decree
prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and
post-mortem inspection fees, as well as the delivery, stockyard and slaughter fees as may be
authorized by the Secretary of Agriculture and Natural Resources." 16Clearly, even the exception
clause of the decree itself permits the collection of the proper fees for livestock. And the Local Tax Code
(P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may collect fees for the
slaughter of animals and the use of corrals * * * "
4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522
supposedly in accordance with Republic Act No. 6039, an amendment to the City Charter of Manila,
providing that "the market committee shall formulate, recommend and adopt, subject to the
ratification of the municipal board, and approval of the mayor, policies and rules or regulation
repealing or maneding existing provisions of the market code" does not infect the ordinance with any

germ of invalidity. 17 The function of the committee is purely recommendatory as the underscored phrase
suggests, its recommendation is without binding effect on the Municipal Board and the City Mayor. Its
prior acquiescence of an intended or proposed city ordinance is not a condition sine qua non before the
Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate
remains undisturbed even in the slightest degree. It can move in its own initiative and the Market
Committee cannot demur. At most, the Market Committee may serve as a legislative aide of the Municipal
Board in the enactment of city ordinances affecting the city markets or, in plain words, in the gathering of
the necessary data, studies and the collection of consensus for the proposal of ordinances regarding city
markets. Much less could it be said that Republic Act 6039 intended to delegate to the Market Committee
the adoption of regulatory measures for the operation and administration of the city markets. Potestas
delegata non delegare potest.
5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are
diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said
fees had been let by the City of Manila to the said corporation in a "Management and Operating
Contract." The assumption is of course saddled on erroneous premise. The fees collected do not go
direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation
but for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the
collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is
public, it does not matter whether the agency through which the money is dispensed is public or
private. The right to tax depends upon the ultimate use, purpose and object for which the fund is
raised. It is not dependent on the nature or character of the person or corporation whose
intermediate agency is to be used in applying it. The people may be taxed for a public purpose,
although it be under the direction of an individual or private corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt
Practices Act because the increased rates of market stall fees as levied by the ordinance will
necessarily inure to the unwarranted benefit and advantage of the corporation. 19 We are concerned
only with the issue whether the ordinance in question is intra vires. Once determined in the affirmative,
the measure may not be invalidated because of consequences that may arise from its enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No.
7522 of the City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No.
costs.
SO ORDERED.
Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.
Teehankee, J., reserves his vote.

Separate Opinions

FERNANDO, J., concurring:

But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."

Separate Opinions
FERNANDO, J., concurring:
But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."

Footnotes
1 Cooley, The Law of Taxation, Vol. 2, 4th ed.
2 Butuan Sawmill, Inc. vs. City of Butuan, L-21516, April 29, 1966, 16 SCRA 758,
citing State v. Stoll, 17 Wall. 425.
3 Lichauco & Co. v. Apostol, 44 Phil. 145 (1922).
4 Crawford, Construction of Statutes, 265, citing U.S. v. Jackson, 143 Fed. 783.
5 See Separate Opinion of Justice Johns in Lichauco, fn. 3, citing Lewis' Sutherland
Statutory Construction, at 161.
6 L-23052, January 29, 1968, 22 SCRA 270.
7 See 73 Am Jur 2d 521.
8 McQuillin, Municipal Corporation, Vol. 6, 3rd ed., 223.
9 See Bowyer v. Camden, 11 Atl. 137.
10 McQuillin, Municipal Corporation, Vol. 6, 3rd ed., 229-230.
11 Tapales v. President and Board of Regents of the U.P., L-17523, March 30, 1963,
7 SCRA 553; C.N. Hodges v. Municipal Board of the City of Iloilo, L-18276, January
12, 1967, 19 SCRA 32-33; Aguilar v. Valencia, L-30396, July 30, 1971, 40 SCRA
214;. Mendoza v. SSC, L-29189, April 11, 1972, 44 SCRA 380.
12 Cipriano v. Marcelino, L-27793, February 28, 1972, 43 SCRA 291; Del Mar v.
PVA, L-27299, June 27, 1973, 51 SCRA 346, citing cases.
13 See City of Bacolod v. Enriquez, L-27408, July 25, 1975, Second Division, per
Fernando, J., 65 SCRA 384-85.

14 Article 5, Section 30, Chapter II.

15 McQuillin, Municipal Corporations, Vol. 7, 3rd ed., 275.
16 P.D. 7 was amended by P.D. 45 on November 10, 1972, so as to allow local
governments to charge the ordinary fee for the issuance of certificate of ownership
and one peso for the issuance of transfer certificate for livestock.
17 The market committee is composed of the market administrator as chairman, and
a representative of each of the city treasurer, the municipal board, the Chamber of
Filipino Retailers, Inc. and the Manila Market Vendors Association Inc. as members.
18 Cooley, The Law of Taxation, Vol. 1, 394-95.
19 Section 3 (e) causing any undue injury to any party, including the government, or
giving any private party any unwarranted benefits, advantage or preference in the
discharge of his official administrative or judicial functions through manifest partiality,
evident bad faith or gross inexcusable negligence.* * *
20 Willoughby, The Constitutional Law of the United States, 668 et seq.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-37187 September 15, 1975

ASIATIC INTEGRATED CORPORATION, petitioner,
vs.
HON. FEDERICO ALIKPALA, in his capacity as Presiding Judge of the Court of First Instance
of Manila, Branch XXII, DOLORSINDO PANER and ARMANDO CAPISTRANO, respondents.
G.R. No. L-37248 September 15, 1975
THE CITY OF MANILA, RAMON D. BAGATSING and SERAFIN LUZ CUI, as MAYOR and Market
Administrator, respectively of the City of Manila, petitioners,
vs.
HON. FEDERICO ALIKPALA, as Judge of the Court of First Instance of Manila, ARMANDO
CAPISTRANO, DOLORSINDO PANER, PETRA ATIENZA, REMEGIA GREGORIO, and
SAMAHAN NG MGA MANININDA SA PAMILIHANG QUINTA, INK., respondents.
G.R. No. L-37249 September 15, 1975

ASIATIC INTEGRATED CORPORATION, petitioner,

vs.
HON. FEDERICO ALIKPALA, in his capacity as Presiding Judge of the Court of First Instance
of Manila, Branch XXII, DOLORSINDO PANER, ARMANDO CAPISTRANO and SAMAHAN NG
MANININDA NG QUINTA, INK., respondents.

BARREDO, J.:
Three cases related to the decision of the Court of First Instance of Manila dated July 13,
1973 in Civil Case No. 89442, Armando Capistrano et al. vs. The City of Manila et al., declaring
null and void the Management and Operating Contract between defendant City (for short) and
its co-defendant Asiatic Integrated Corporation (Asiatic, for short) involving all the public
markets in Manila and ordering in consequence the turning over of said markets to the City,
an accounting of all income earned by Asiatic under the contract and the payment of
attorney's fees and costs by the same respondent.
The first case, G.R. No. L-37187, is for certiorari with preliminary injunction to restrain
respondent judge from enforcing his aforementioned decision during the pendency of the
appeals therefrom of the defendants City and Asiatic. The other two cases, G.R. Nos. L-37248
and L-37249 are precisely the separate appeals or petitions for review of the City and Asiatic,
respectively, which, however, were deemed by the Court as special civic actions in its
resolution of December 10, 1973.
I
On December 13, 1972, the Market Committee created by Republic Act 6039, approved a
resolution recommending that the City Mayor of Manila urgently consider the immediate
lease and/or assignment of the administration of the city public markets and talipapas to "a
multi-million peso corporation under such terms and conditions as (would be) most
advantageous to the City of Manila." Evidently in pursuance of such recommendation, on
December 28, 1972, an agreement captioned "Management and Operating Contract" was
executed by and between the City, represented by its Mayor, and Asiatic covering all the
thirty-five public markets and talipapas in Manila. Said contract is as follows:
MANAGEMENT AND OPERATING CONTRACT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into at Manila, Philippines, this 28 day of
December, 1972, by and between - The City of Manila, a municipal corporation
organized existing under and by virtue of the laws of the Philippines (R.A. No.
409) with principal office at City Hall, Manila, represented in this act by RAMON
D. BAGATSING, Mayor of said City, hereinafter known as the FIRST PARTY;

 and
Asiatic Integrated Corporation, a 100% Filipino-owned corporation, organized
and existing pursuant to Philippine Laws and with principal office at the 2nd
Floor, Rojas Center Building, C.M. Recto Avenue, Manila, represented in this
act by its President, JOSE A. ROJAS, duly authorized therefor, hereinafter
known as the SECOND PARTY;
WITNESSETH: That
WHEREAS, the concept and main objectives of a public market are to provide
an accessible, clean, safe, convenient and economical shopping services to
the public; to provide livelihood to stallholders, peddlers, distributors, brokers,
middlemen and other low income groups: provide income for the maintenance,
repair and establishment of new public markets and to provide income for
other areas of city improvement;
WHEREAS, physically, the state of our public markets had been turning from
bad to worse, there being no major repair and maintenance done in the public
markets for the last ten (10) years as can be seen from the following building
and sanitary deficiencies now prevalent in all public markets:
a. Out of the sixteen (16) major markets, fourteen (14) are of prewar vintage. No major reconstruction has been made.
b. Building and sanitary deficiencies are prevalent in all public
markets such as defective electrical system, broken down and
inadequate drainage and sewerage facilities, wornout and
unsafe market floorings, defective plumbing and water pipe
fixtures, structural defects, rusted, dilapidated roofs, gutters and
downspouts, building hazards, lack of ventilation facilities, etc.
WHEREAS, economically because of the proliferation of supermarkets,
groceries, wholesalers and retailers, profit-wise, the public markets have no
chance at all to outlive, let alone survive, the unbalanced competition coming
from those well entrenched sectors due to commodity economics and lack of
adequate service facilities as well as credit and financial sources at legal
interests;
WHEREAS, based on an indepth analysis and study of the conditions
prevailing in the public markets, it will take the City ten (10) to fifteen (15) years
of massive capital infusion to put to service Class B shape the public markets
and that without immediate total physical and economic rehabilitation, the
public markets will be driven into obsolescence:

WHEREAS, the City of Manila presently does not have the necessary funds to
improve and develop the public markets the way they should be improved and
developed to conform to modern marketing concepts and standard;
WHEREAS, cognizant of the foregoing, the Market Committee in its regular
meeting held on December 13, 1972, adopted a Resolution requesting the
Mayor to urgently consider "the immediate lease and/or assignment of
administration of the City public markets and talipapas and this be awarded to
a reputable multi-million peso corporation with such terms and conditions that
are most advantageous to the City of Manila";
WHEREAS, the ASIATIC INTEGRATED CORPORATION has offered to improve,
repair, develop, reconstruct and rehabilitate the City Public Markets and
talipapas presently existing, which are listed and indicated in Annex "A"
hereof.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and stipulations contained in the following clauses, the respective
parties hereto do contract and agree as follows:
I
That the SECOND PARTY shall conduct, manage, operate, develop and
maintain the City public markets and talipapas enumerated in Annex "A"
hereof for a period of ten (10) years commencing from the date of execution of
this Contract, Provided, However, that the FIRST PARTY may at any time
during the lifetime of this Contract revoke the same (if the services are
unsatisfactory) or for violation of its terms and conditions.
II
That immediately after the execution of this Contract, the SECOND PARTY
shall start the painting, cleaning, sanitizing and repair of the public markets
and talipapas and within ninety (90) days thereof, the SECOND PARTY shall
submit a program of improvement, development, rehabilitation and
reconstruction of the City public markets and talipapas subject to prior
approval of the FIRST PARTY.
III
The SECOND PARTY shall, during the terms of this Contract, pay and defray all
costs for utilities, repairs, maintenance, new equipment, improvement,
rehabilitation and reconstruction, and any and all other expenses incurred
incident to the management and operation of the City public markets and
talipapas.

 IV
That all constructions and improvements introduced by the SECOND PARTY,
inclusive of equipment shall, upon expiration of this Contract, remain the
property of the FIRST PARTY without payment of any amount to the SECOND
PARTY.
V
That all government licenses and permits required for the management and
operation of the City public markets and talipapas and for the improvement,
development, rehabilitation and reconstruction made by the SECOND PARTY
pursuant to the provisions of this Contract shall be taken out and paid for by
the SECOND PARTY in the name of the FIRST PARTY.
VI
That all present personnel of the City public markets and talipapas shall be
retained by the SECOND PARTY as long as their services remain satisfactory
and they shall be extended the same rights and privileges as heretofore
enjoyed by them. Provided, however, that the SECOND PARTY shall have the
right, subject to prior approval of the FIRST PARTY to discharge any of the
present employees for cause.
VII
That the SECOND PARTY may from time to time be required by the FIRST
PARTY, or his duly authorized representative or representatives, to report on
the activities and operation of the City public markets and talipapas and the
facilities and conveniences installed therein, particularly as to their cost of
construction, operation and maintenance in connection with the stipulations in
this Contract.
VIII
That considering the investments which shall be made by the SECOND PARTY
for improvement, maintenance, operation and rehabilitation of the City public
markets and talipapas, the SECOND PARTY may not be removed from the
management operation of the City public markets and talipapas during the
period of this Contract except for any violation of the terms and conditions
hereof.
IX
That the SECOND PARTY hereby warrants that it has sufficient credit and
banking facilities to effectuate the improvement, repair, development,

reconstruction and rehabilitation of the public markets as the necessary

maintenance and upkeep thereof and for this purpose, binds itself to submit
within ten (10) days from the execution this Constract such document or
documents from any local responsible bank attesting to this fact.
X
That the SECOND PARTY further agrees to execute and file a performance
bond in the amount of FIVE HUNDRED THOUSAND (P500,000.00) PESOS in
cash or equivalent amounts in surety bond acceptable of the FIRST PARTY, in
lieu of such bond, to deposit with the City Treasurer of Manila a certified check
in the amount of FIVE HUNDRED THOUSAND (P500,000.00) PESOS drawn in
favor of the City against any local responsible bank in the Philippines, which
shall answer for the following:
a. Faithful compliance by the SECOND party with any and all of
the terms with condition of this Contract;
b. All losses, damages and destruction of properties in the
public markets arising from the negligence or misdemeanor on
the part of the employees, laborers and other personnel of the
SECOND PARTY;
c. Any claims for unpaid wages that the market laborers and
employees may have against it including obligations of the
SECOND PARTY under the Workmen's Compensation Act and
other pertinent laws.
IX
That it is understood and agreed that the SECOND PARTY binds itself to pay
the salaries and wages, insurance and all other benefits of the retained market
employees and shall at all times hold the FIRST PARTY from any liability for
salaries, wages, insurance and any benefits due its laborers and employees
under existing labor and other laws and for damages suffered by third persons
for any cause attributable to the SECOND PARTY, its laborers or employees..
XII
That it is further expressly stipulated and agreed that the SECOND PARTY shall
hold the FIRST PART free and harmless from any action or liability whatsoever,
arising from any claim by any or all the personnel assigned by the SECOND
PARTY to perform the services herein agreed upon under the Workmen's
Compensation Act, the Minimum Wage Law, the Eight-Hour Labor Laws, it
being understood and agreed upon that the faithful compliance with the said
laws shall devolve entirely upon the SECOND PARTY.

 XIII
That the SECOND PARTY will appropriate a yearly amount of not less than
thirty (30%) per cent of the gross income of the public markets and talipapas
for the fiscal year 1971-1972 to answer for the maintenance and repair,
reconstruction, development and rehabilitation of the public markets and
talipapas and proof of such appropriation and minimum expenditure must be
submitted to the FIRST PARTY or his duly authorize representative or
representatives. The SECOND PARTY further agrees to insure the public
market against fire.
XIV
That the SECOND PARTY further warrants that it will honor and respect the
rights of the present stallholders and will make available to the stallholders,
loans and financing (product purchase and/or inventory) at legal rates to
eliminate loan sharks and will establish buying cooperatives to assist the
stallholders on the purchase of products at the maximum volume discount and
such other services like free seminars on practical small business
management marketing as a means of assisting the stallholders in increasing
their profits.
XV
That during the term of this Contract, the SECOND PARTY shall to be entitled
to the annual gross income from the City public markets and talipapas in
excess of P500,000.00 for the first year thereof and for the succeeding years in
such terms as hereinafter enumerated:
2nd year P550.000.00
3rd year 600,000.00
4th year 650,000.00
5th year 700,000.00
6th year 750,000.00
7th year 800,000.00
8th year 850,000.00
9th year 900,000.00
10th year 950,000.00
said sums being payable to the FIRST PARTY within sixty (6) days after the
anniversary date of the execution of this contract, Provided, However, that the
SECOND PARTY shall immediately advance to the FIRST PARTY the amount of
ONE HUNDRED THOUSAND (100,000.00) PESOS within seven (7) day and the
further, amount of FOUR HUNDRED THOUSAND (P400,000.00) PESOS within
ninety (90) days from the extension for this Contract.

IN WITNESS WHEREOF, the parties have hereunto affixed their signatures in

the City of Manila, Philippines, on the day and year first above stated.
CITY OF MANILA ASIATIC INTEGRATED
By: CORPORATION
By:
(Sgd.)
RAMON BAGATSING
Mayor (Sgd.)
JOSE A. ROJAS
President
WITNESSES:
(Sgd.) SERAFIN LUZ CUI
(Sgd.) Illegible
xxx xxx xxx
In connection with this contract, We find annexed as Annex G of the petition in G.R. No. L37248, the following:
RESOLUTION EXPRESSING CONCURRENCE WITH AND SUPPORT FOR THE
CONTRACT ENTERED INTO BY THE CITY OF MANILA TURNING OVER THE
MANAGEMENT AND OPERATION OF PUBLIC MARKETS AND TALIPAPAS IN
THE CITY TO A PRIVATE CONCERN.
WHEREAS, a contract has been entered into by the City of Manila with the
Asiatic Integrated Corporation for the latter to handle the management and
operation of Manila's outmoded and deteriorating public markets and
talipapas;
WHEREAS, the deplorable state of these markets, most of which are of pre-war
vintage, has always been the constant source of headaches of past
administration, considering the mismanagement and corruption that have
attended their operation for years;
WHEREAS, the state of finances of the City Government does not permit it to
undertake the massive and expensive task of rehabilitating and modernizing
these public markets as to enable them to survive the stiff competition offered
by mushrooming and sophisticated supermarkets without sacrificing other
more vital and essential public services;
WHEREAS, the members of the Municipal Board cannot close their eyes to the
perrenial problem affecting the interests of their constituents, particularly the

poor and underprivileged, but must take positive steps to bring about a change
for the better;
WHEREAS, the Municipal Board finds the contract entered into by the City to
be a step in the right direction in that it may well be the only lasting solution to
the ills that have continuously beset the administration and operation of public
markets in the City and thus bring about the change long envisioned by this
Body: Now therefore, be it.
Resolved by the Municipal Board of the City of Manila, to express, as it hereby
expresses its concurrence with and support for the contract entered into by
the City of Manila turning over the management and operation of public
markets in the City to the Asiatic Integrated Corporation.
Resolved, further, That a copy of this Resolution be transmitted to His Honor,
Mayor Ramon D. Bagatsing.
Adopted, January 12, 1973.
(SGD) DANILO LACUNA
(SGD) MANUEL UY, JR.
(SGD) QUIRINO MARQUINEZ
(SGD) ROSALINA ROBLES GONZALES
(SGD) JOSE M. SEMBRANO
(SGD) MARIANO M. MAGSALIN
(SGD) AVELINO VILLACORTA
(SGD) ROBERTO OCA, JR.
(SGD) CARLOS FERNANDEZ
(SGD) ALFONSO MENDOZA, JR.
(SGD) AMBROSIO LORENZO, JR.
(SGD) HERMOGENES PABLO
(Pp. 82-83, Rollo of L-37248.)
All the signatories are councilors of the City of Manila.
The contract must have been brought to the attention of President Ferdinand E. Marcos, for
on January 12, 1973, the President sent a memorandum to City Mayor Ramon D. Bagatsing,
reading thus:
In connection with the contract between the City of Manila and Asiatic
Integrated Corporation for the management and operation by the latter of 35
markets in Manila, it is my desire, in the interest of the public welfare, that the
following conditions be incorporated therein:

1. All market vendors should form cooperatives and should be sold shares in
the market thus becoming co-owners.
2. The market cooperatives should be authorized to directly procure from
producers' cooperatives and other sources, domestically or internationally,
and be given allocations for imports, provided they bring down prices in
accordance with the policy and the regulations set forth by the Price Control
Council, through its chairman.
3. The public should be part owner of such markets by the public sale of
shares.
(SGD.)
FERDI
NAND
E.
MARC
OS
(P. 119-Rollo of L-37249, Annex "O".)
In an effort evidently to comply with the foregoing presidential memorandum, a
"Supplementary Contract" was executed by the parties on March 30, 1973, which provides:
SUPPLEMENTARY CONTRACT
KNOW ALL MEN BY THESE PRESENTS:
This SUPPLEMENTARY CONTRACT, made and entered into the City of Manila,
Philippines, this 30th day of March, 1973, by and between
The CITY OF MANILA, a municipal corporation duly organized
and existing under and by virtue of the laws of the Republic of
the Philippines, (R.A. No. 409-Revised Charter of the City of
Manila), with principal office at the City Hall Building, Manila,
represented in this Act by the Hon. RAMON BAGATSING, Mayor
of the City of Manila, hereunto duly authorized and hereinafter
referred to as the CITY;
and
ASIATIC INTEGRATED CORPORATION, a 100% Filipino owned
Corporation duly organized and existing under and by virtue of
the laws of the Republic of the Philippines, with principal office
at the 2nd Floor, Rojas Center Building, Claro M. Recto Avenue,
Manila, represented in this Act by JOSE A. ROJAS, President

thereof, hereunto duly authorized and hereinafter referred to as

the CORPORATION;
WITNESSETH THAT:
WHEREAS, on December 28, 1972, a contract was entered into by and between
City of Manila and the Asiatic Integrated Corporation, described as Doc. No. 5,
Page No. 2, Book I, Series of 1972, of Notary Public Gabriel L. Gonzales of
Manila, for the operation and management of the thirty-five (35) public markets
and talipapas of Manila, subject to the terms and conditions therein set forth;
WHEREAS, on January 12, 1973, His Excellency, President Ferdinand E.
Marcossent a Memorandum to Mayor Ramon D. Bagatsing of Manila directing
the incorporation of certain conditions in the Management and Operating
Contract of December 28, 1972, copy of which is hereto attached as Annex "A";
WHEREAS, the parties hereby agree that the conditions set forth in the
Presidential Memorandum, if incorporated in the said Contract dated
December 28, 1972 and implemented, will undoubtedly redound to the benefit
not only of the market vendors concerned but also the public in general; NOW
THEREFORE, for and in consideration of the foregoing principles and of the
conditions hereinafter set forth, the parties have agreed as they hereby agree
as follows;
I
That all legitimate vendors in the public markets and talipapas of the City of
Manila who have or may hereafter form and/or organize cooperatives shall be
extended and fullest help and assistance by the parties.
II
That the market cooperatives so formed or may hereafter be formed shall be
extended the necessary aid and assistance by the CORPORATION so that they
may directly procure from producers' cooperatives and other legitimate
sources, domestically or internationally, such goods or products needed by
said cooperatives: PROVIDED that they bring down prices of commodities in
accordance with the policy and the regulations set forth by the Price Control
Council, through its Chairman.
III
That the CORPORATION hereby binds itself to take the necessary steps to put
up shares to be sold to the public to the extent of allowing them to participate
in the management and operation of the markets, PROVIDED that the market
vendors shall be given preference in the sale of such shares.

IN WITNESS WHEREOF, the parties hereunto set their hands at the place and
on the date first above written.
CITY OF MANILA ASIATIC INTEGRATED
CORPORATION
By: T.A.N. 0201-022-1
By:
RAMON D. BAGATSING
City Mayor JOSE A. ROJAS
President
T.A.N. 1701-719-4
ATTESTED:
ROMAN G. GARGANTIEL
Secretary to the Mayor
SIGNED IN THE PRESENCE OF:
_______________ ________________
SERAFIN LUZ CUI RAMON S. MENDOZA
In further connection with the contract at issue, on November 26, 1973, President Marcos
issued the following decree:
PRESIDENTIAL DECREE NO. 345
AUTHORIZING THE REVERSION OF THE ACCUMULATED THIRTY (30%)
PERCENT SINKING FUND TO THE GENERAL FUND OF THE CITY OF MANILA,
FOR THE UNDERTAKING OF ITS PUBLIC WORKS PROJECTS, AND FOR
OTHER PURPOSES.
WHEREAS, paragraph V, Sec. 1 of Republic Act No. 6039, amending Sec. 18(cc)
of Republic Act No. 409, otherwise known as the Revised Charter of the City of
Manila, expressly provides that `the sinking fund shall be created from thirty
per centum of the annual gross receipts from market fees which shall be used
to amortize or to finance the construction of new markets, to remodel or
replace old market buildings, the purchase of privately-owned building utilized
as public markets, and purchase of new market sites and the construction of
market building and facilities thereof: Provided, that for as long as selfliquidating old markets have not been replaced, reconstructed, or remodeled in
accordance with the specifications adopted and recommended by the Market
Committee, the gross revenue from all market fee collections shall, be
apportioned and appropriated as follows:
"a. To the special fund of the City - 70%

"b. To the sinking fund ------------- 30%

WHEREAS, on December 28, 1972, the City of Manila entered into a
Management and Operating Contract with the Asiatic Integrated Corporation
over its thirty-five (35) public markets and talipapas, wherein it is expressly
stipulated that the latter shall appropriate a yearly amount of not less than
thirty (30%) per centum of the gross receipts from market fees for the fiscal
year 1971-1972 to answer for the maintenance, repair, reconstruction,
development and rehabilitation of the said markets and talipapas;
WHEREAS, prior to the conclusion for the aforementioned contract, there
accumulated the sum for Three Million Six Hundred Ninety Six Thousand Nine
Hundred Twenty-One & 99/100 (P3,696,921.99) Pesos, equivalent to thirty
(30%)per centum of the gross receipts from market fees, which amount,
however, was not appropriated for the purpose stated in Republic Act No.
6039;
WHEREAS, there is no more need to appropriate the accumulated sinking fund
of P3,696,921.99, since it is already the Asiatic Integrated Corporation, under
the contract referred to above, which shall undertake the improvements stated
in Republic Act No. 6039;
WHEREAS, there are in the City of Manila pending urgent public works
projects, such as the construction and repair for streets and dredging and
clearing of esteros, which cannot be successfully undertake for lack of funds;
WHEREAS, in order to generate funds with which to undertake and thereby
carry out successfully the foregoing objectives, it is imperative to tap the other
resources of the City of Manila;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,
by virtue of the powers in me vested by the Constitution as Commander-inChief of the Philippines, and pursuant to Proclamation No. 1081 dated
September 21, 1972, and General Order No. 1 dated September 22, 1972, as
amended, do hereby authorize the reversion for the accumulated thirty (30%)
per cent sinking fund amounting to P3,696,921.99 to the General Fund of the
City of Manila and the appropriation of the same by the City for the undertaking
of its public works projects.
This Decree shall take effect immediately.
DONE in the City of Manila, this 26th day of November, in the year of Our Lord,
nineteen hundred and seventy-three.
(SGD.)
FERDI

NAND
E.
MARC
OS
Presid
ent
Republ
ic of
the
Philipp
ines
By the President:
(SGD.) ROBERTO V. REYES
Assistant Executive Secretary
(P. 104, Rollo of L-37248.)
Relatedly also, on January 3, 1974, the Municipal Board passed Ordinance No. 7451 providing
as follows:
AN ORDINANCE AUTHORIZING HIS HONOR, THE MAYOR TO LEASE VACANT,
UNUSED AND UNENCUMBERED PATRIMONIAL PROPERTIES OR OTHER
LEASABLE PATRIMONIAL PROPERTIES TO REPUTABLE AND HIGHLY
QUALIFIED PERSONS, FIRMS OR CORPORATIONS, UNDER CERTAIN
CONDITIONS.
Be it ordained by the Municipal Board of Manila, that:
SECTION 1. His Honor, the Mayor is hereby authorized to lease vacant, unused
and unencumbered patrimonial properties, or other leasable patrimonial
properties to reputable and highly qualified persons, firms or corporations,
subject to the following conditions:
1. That the contract shall not exceed twenty-five (25) years;
2. That the price or consideration of the transaction shall be determined by the
City Appraisal Committee or by the City Rental Committee; 3. That the
municipal Board shall be furnished, for its information and guidance, copies of
the contracts covering the transaction;
3. That the Mayor shall consider other terms and conditions most beneficial to
the city government;

4. That this ordinance shall not be utilized to create a monopoly favor of any
corporation or enterprise;
5. That the amount of P25,000,000.00 which will be derived from the lease of
the patrimonial and other leasable patrimonial properties shall be set aside for
the construction of a new city hall building or a temple of justice; and 7. That
the Municipal Board shall retain the power to enact ordinances to make use of
vacant and unused properties of the City for public purposes.
SEC. 2. This ordinance shall take effect upon its approval.
Enacted by the Municipal Board of Manila at its regular session, today, January
3, 1974.
Approved by His Honor, the Mayor on January 11, 1974.
APPROVED:
(SGD) RAMON D. BAGATSING (SGD) MARTIN B. ISIDRO
Mayor Vice Mayor and
Presiding Officer, Municipal Board
ATTESTED:
(SGD) ROMAN G. GARGANTIEL (SGD) HERMINIO R. NORIEGA
Acting Secretary
Municipal Board
A Note:
SEC. 7, is unnecessary it being one of the inherent powers of the Board in the
same way that it is the inherent power of the Mayor to approve or disapprove
resolution and/or ordinance.
(SGD) RAMON D. BAGATSING
(P. 209-Rollo of L-37187, Annex "2".)
Then, on February 13, 1974, an amended contract was executed between the same parties,
which reads:
amended contract
KNOW ALL MEN BY THESE PRESENTS:

This AMENDED CONTRACT, executed in the City of Manila, Philippines, this

13th day of February 1974, by and between:
The CITY OF MANILA, a municipal corporation duly organized
and existing under and by virtue of the laws of the Republic of
the Philippines, (R.A. No. 409-Revised Charter of the City of
Manila), with principal office at the City Hall Building, Manila
represented in this Act by the Hon. RAMON D. BAGATSING,
Mayor of the City of Manila, hereunto duly authorized and
hereinafter referred to as the city;
and
ASIATIC INTEGRATED CORPORATION, a 100% Filipino-owned
Corporation duly organized and existing under and by virtue of
the laws of the Republic of the Philippines, with principal office
at the 2nd Floor, Rojas Center Building, Claro M. Recto Avenue,
Manila represented in this Act by JOSE A. ROJAS, President
thereof, hereunto duly authorized and hereinafter referred to as
the CORPORATION;
WITNESSETH THAT:
WHEREAS, on the 28th day of December 1972, under authority of existing
laws, the parties hereto entered into a Management and Operating Contract,
the same providing among others, in numbered paragraphs I and XV thereof,
the following:
Paragraph I
"That the SECOND PARTY shall conduct, manage, operate,
develop and maintain the city public markets and talipapas
enumerated in Annex "A" hereof for a period of ten (10) years
commencing from the date of execution of this Contract.
Provided, however that the FIRST PARTY may at any time during
the lifetime of this Contract revoke the same (if the services are
unsatisfactory) or for violation of the terms and conditions.
Paragraph XV
"That during the term of this Contract, the SECOND PARTY shall
be entitled to the annual gross income from the city public
markets and talipapas in excess of P500,000.00 for the first year
thereof and for the succeeding years in such terms as
hereinafter enumerated:

2nd year P550,000.00

3rd year 600,000.00
4th year 650,000.00
5th year 700,000.00
6th year 750,000.00
7th year 800,000.00
8th year 850,000.00
9th year 900,000.00
10th year 950,000.00
said sum being payable to the FIRST PARTY within sixty (60)
days after the anniversary date of the execution of the Contract,
Provided, however, that the SECOND PARTY shall immediately
advance to the FIRST PARTY the amount of ONE HUNDRED
THOUSAND (P100,000.00 PESOS within seven (7) days and the
further amount of FOUR HUNDRED THOUSAND (P400,000.00)
PESOS within ninety (90) days from the execution of this
Contract.
WHEREAS, under Ordinance No. 7451, enacted by the Municipal Board on
January 3, 1974, and approved by the City Mayor on January 11, 1974, the City
Mayor is expressly authorized to lease patrimonial properties of the City for a
period not exceeding 25 years;
WHEREAS, the improvement, rehabilitation and reconstruction of the City's
public markets and talipapas is a long, tedious and continuing process and, in
the light of the worldwide rise of the cost of all commodities, including building
and construction materials, will necessarily entail huge and substantial
expenditures on the part of the SECOND PARTY:
WHEREAS, the SECOND PARTY has made known to the FIRST PARTY its
problem of rising costs of materials as well as labor and related matters, which
has affected and will continue to affect its program and projection of
improvement, rehabilitation and reconstruction of the City's public markets
and talipapas;
WHEREAS, the SECOND PARTY has requested the FIRST PARTY to extend the
term of the Management and Operating Contract to Twenty-five (25) years in
lieu of ten (10) years as provided for in the aforesaid numbered paragraph I of
the Management and Operating Contract to cope with the said problem, not
foreseen and anticipated, and to enable the SECOND PARTY to ensure the
fulfillment of its program and projection;
WHEREAS, the FIRST PARTY, cognizant of the problem which is of public
knowledge, is disposed to grant the request of the SECOND PARTY and the

extension requested ultimately will redound to the benefit of the City and its
constitutes;
NOW THEREFORE, for and in consideration of the foregoing premises and the
covenants herein set forth, the parties have agreed as they hereby agree to
AMEND as they hereby amend the aforesaid numbered paragraph I and XV of
the Management and Operating Contract to read as follows:
PARAGRAPH I
"That the SECOND PARTY shall conduct, manage, operate,
develop and maintain the City public markets and talipapas
enumerated in Annex "A" hereof for the period TWENTY-FIVE
(25) years commencing from December 28, 1972; PROVIDED,
However, that the FIRST PARTY may at anytime during the
lifetime of this Contract revoke the same (if the services are
unsatisfactory or for violation of its terms and conditions."
PARAGRAPH II
"That during the term of this Contract, the SECOND PARTY
shall, from the annual gross income from the City public
markets and talipapas, pay to the FIRST PARTY the sum of FIVE
HUNDRED THOUSAND (P500,000.00) PESOS, for the first year,
and additional sum of FIFTY THOUSAND (P50,000.00) PESOS
such that in the progression of this yearly increase, the FIRST
PARTY shall be receiving the sum of ONE MILLION SEVEN
HUNDRED THOUSAND (P1,700,000.00) PESOS on the 25th year,
said sums being payable to the FIRST PARTY within sixty (60)
days after the anniversary date of execution of this Contract,
Provided, However, that the SECOND PARTY shall immediately
advance to the FIRST PARTY the amount of ONE HUNDRED
THOUSAND (P100,000.00) PESOS within ninety (90) days from
the execution of this Contract; Provided, FURTHER, That in the
event of any increase in the prescribed rentals for fixed stalls,
booths and tiendas or other market fees at any time during the
life of this Contract, within the limits set forth under the Local
Tax Code, the amounts payable by the SECOND PARTY to the
FIRST PARTY UNDER THIS Paragraph shall automatically be
increased in the same proportion as the increase of such rentals
or fees and shall thereafter be the basis for fixing the share of
the FIRST PARTY for the succeeding years."
Subject to the amendments above set forth, all other terms and conditions of
the original contract dated December 28, 1972 and the supplementary contract
dated March 30, 1973, copy each of which are herein attached as Annexes "A"

and "B", respectively, and made integral parts thereof, are hereby
reproduced en toto herein and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have hereunto affixed their signature in the
CITY OF MANILA, Philippines, on the day and year first above stated.
CITY OF MANILA ASIATIC INTEGRATED
CORPORATION
By: By:
(SGD) RAMON D. BAGATSING (SGD) JOSE A. ROJAS
Mayor President
ATTESTED:
(SGD) ROMAN G. GARGANTIEL
Secretary to the Mayor
xxx xxx xxx
(Pp. 122-126, Rollo of L-37248.)
And in obedience to the provisions of Section 1, paragraph 3, of the ordinance, two days later
or on February 15, 1974, Mayor Bagatsing wrote the Municipal Board as follows:
The Honorable
The Municipal Board
Manila
Lady and Gentlemen:
In pursuance of the provisions of Ordinance No. 7451 authorizing the Mayor of
Manila to lease vacant, unused and unencumbered patrimonial properties or
other leasable patrimonial properties of the City for a period not exceeding
twenty-five (25) years, please find enclosed, for the information and guidance
of that Honorable Body, a copy of the Amended Contract entered into by and
between the City of Manila and The Asiatic Integrated Corporation relative to
the operation and management of the City's public markets and talipapas.
Very
truly
yours,
(SGD)
RAMO
N D,

BAGA
TSING
City
Mayor
(P. 193-Rollo of L-37187.)
Now, in case G.R. No. L-37187, the petitioners filed on July 25, 1973. The decision impugned
in these cases was rendered on July 13, 1973. The petition in G.R. No. L-37248 was actually
filed on August 27, 1973, while that in G.R. No. L-37249 on August 21,
1973. 1 Upon being required to comment on the petitions, private respondents filed theirs on July
31, 1973 and respondent Judge filed his own on August 3, 1973. 2 So it is that some of the facts
aforestated which gave rise to new issues took place and were brought to the attention of the
Court after the original issues were already joined. Indeed, they were never considered by the trial
court. In view, however, of the fact that they are material and relevant, if not decisive, as they are
indisputable, the Court will overlook the resulting technicalities regarding the need for
corresponding supplemental pleadings. The matters of public interest herein involved need to be
promptly settled, and considering that after all the new issues have no factual facets which would
call for a new trial and that they are purely legal, We do not see any practical purpose that can be
served by requiring the return of these cases to the trial court. For these same reasons, We can
also pass over two other technical points: (1) the apparent incompleteness of the judgement of
the trial court, the accounting ordered by it not having been rendered yet by Asiatic and (2) the
fact that some of the matters. We are to resolve have not been passed upon by the lower court.
Anyway, for one thing, under the view We take of these cases, there would not be need anymore
for the ordered accounting. Withal, as a matter of fact, the parties have fully presented there
respective positions in regard to all the issues without suggesting the need for further
proceedings in the court below.
II
The first question for Our determination is whether or not the petitioners in the trial court,
private respondents here, possess the requisite interest to prosecute these cases. In this
connection, it is to be noted that in initially resolving the petition for preliminary injunction
filed by said respondents together with their main petition, His Honor ruled these wise:
The contract sought to be annulled was entered into by and between
defendants City of Manila and Asiatic Integrated Corporation, and the present
action was brought by persons who are not even parties thereto. Besides, the
basis of the action is on the alleged illegality of the contract, and this question
may only be result after the trial of the case on the merits. The allegations of
the complaint and the evidence presented at the hearing, do not show that
plaintiffs have a clear legal right to the relief prayed for.
Moreover, it was not alleged much less proven that the defendants have
committed or attempted to commit any act which endangered or tends to
endanger the rights of the employees of the Market Administration of the City

of Manila to their respective position, or of the market vendors to the stalls that
they are presently occupying and leased to them by the City of Manila.
The apprehensions and fears entertained by the plaintiffs of removal from their
respective jobs or deprivation of their stalls are at best speculative and may
never arise. It has been held that injunction, whether preliminary or final, is not
designed to protect contingent or future rights. The possibility of irreparable
damage without proof of violation of an actually existing right being
mere damnum absque injuria is no ground for the issuance of a writ
preliminary injunction (Bacolod Murcia Milling Co. vs. Capitol Sub-division
Inc., et al., 17 SCRA 731, 737). (Pp. 32-33, Rollo of L-37187.)
But seemingly, the point as to the personality of the plaintiffs was deemed no longer
important in the final decision, since His Honor made no final ruling thereon. It may be said
then that the adequacy of their personality and interest was assumed.
We view the matter differently. Herein private respondents are employees and vendors in the
public markets referred to in the contract in dispute. But under the said contract, Asiatic has
not been given any power of supervision or control over the employees of the markets. Their
civil service status is not affected, nay, it is expressly respected and protected. Thus,
Paragraph VI of the contract reads as follows:
That all present personnel of the City public markets and talipapas shall be
retained by the SECOND PARTY as long as their services remain satisfactory
and they shall be extended the same rights and privileges as heretofore
enjoyed by them. Provided, that the SECOND PARTY shall have the right,
subject to prior approval of the FIRST PARTY to discharge any of the present
employees for cause. (Page 60, Rollo of L-37249.)
This provision must be understood to mean that for all intents and purposes, the employees
in the markets remain to be in the employment of the City. In other words, they continue as
employees of the city government, subject to the pertinent civil service laws, rules and
regulations, albeit the application of the these insofar as supervision of their work is
concerned would have to be reconciled with the degree of control over operation and
management given to Asiatic under the contract. Of course, when it comes to appointment,
transfer, discipline and dismissal, the civil service laws prevail, but in the matter of collection
of the stall fees and the proper upkeep of the markets, it is but natural and logical that Asiatic
should have a say in their supervision, and its recommendations regarding the selection,
transfer, discipline and dismissal of the corresponding employees should have due weight.
Indeed, if its is considered that the markets can be wholly leased to effect economy, it should
not be difficult to see that the consequent lay-off of the employees therein is legally tenable,
provided the rules applicable to such a situation are observed. 3
Moreover, We note that is stipulated in the contract that:
XI

That it is understood and agreed that the SECOND PARTY binds itself to pay
the salaries and wages, insurance and wages, insurance and all other benefits
of the retained market employees and shall at all times hold the FIRST PARTY
free from any liability for salaries, wages, insurance and any laws and for
damages suffered by third persons for any cause attributable to the SECOND
PARTY, its laborers or employees.
XII
That it is further expressly stipulated and agreed that the SECOND PARTY shall
hold the FIRST PARTY free and harmless from any action or liability
whatsoever, arising from any claim by any services herein agreed upon under
the Workmen's' Compensation Act, the Minimum Wage Law, the Eight-Hour
Labor Laws, it being understood and agreed upon that the faithful compliance
with the said laws shall devote entirely upon the SECOND PARTY. (Page
61, Rollo of L-37249.)
To Our mind; these provisions constitute further proof that the rights of the employees in the
markets to their public or government employment under existing terms and conditions are
not impaired. In fact, it is clear that the responsibility and liability of the city to pay the
salaries and benefits referred to is still primary, and the obligation of Asiatic in respect
thereto is to reimburse fully what the city has to pay. In the cases at bar, therefore, that the
said employees are being retained in their governmental status, as above-explained, deprives
herein employees-respondents of the requisite interest to judicially impugn the contract.
And with respect to the vendors, neither the award of the stalls nor the fixing of the fees to be
paid by them are removed from the city authorities. The contract does not empower the
corporation to interfere with any of these matters. Thus, Paragraph XIV thereof provides:
XIV
That the SECOND PARTY further warrants that it will honor and respect the
rights of the present stallholders and will make available to the stallholders,
loans and financing (product purchase and/or inventory) at legal rates to
eliminate loan sharks and will establish buying cooperatives to assist the
stallholder on the purchase of products at the maximum volume discount and
such other services like free seminars on practical small business
management and marketing as a means of assisting the stallholders in
increasing their profits. (Page 62, Rollo of L-37249.)
The only proper construction of this provision is that all matters relative to the awarding and
holding of the stalls to and by the vendors have still to be done by the city authorities
themselves and in accordance with the laws and ordinances governing the same.
Now, having in view the foregoing stipulation in favor of the vendors as well as those
embodied in the supplementary contract of March 30, 1973, pursuant to the directive of the

President in his memorandum of January 12, 1973, which would enable them to be eventually
co-operators of the markets, We cannot see how the vendors can be prejudices by the
contract.
Accordingly, We hold that herein private respondents do not possess the requisite interest or
personality to file the complaint herein. If for this reason alone, the same should be
dismissed.
III
Even if We laid aside the lack of requisite interest of private respondents, We would still have
to find in favor of petitioners insofar as the legality of the contract in controversy is
concerned.
Respondents assail the legality of said contract on the following grounds: (1) the
Management and Operating Contract, involving as it does public markets, is ultra vires or
beyond the authority of the City to enter into; (2) the Mayor of Manila had no power to execute
the same and bind the City without the corresponding authority given in an ordinance duly
approved by the Municipal Board; (3) it is violative of Republic Act No. 37 nationalizing public
markets and of the existing civil service laws, rules and regulations; and (4) it is grossly
disadvantageous to the City. We are of the considered opinion, however, that none of these
contentions can be upheld.
A
The trial court sustained respondent's contention that the City has no power to enter into a
contract of management and operation of its public markets under the operational
arrangement and conditions stipulated in the contract in dispute. We do not agree. We hold
that the said contract is not ultra vires.
His honor predicated his ruling on an analogy from the lease of public wharves. We hold the
analogy does not hold. In the law on municipal corporations, public wharves belong to a
different category from public markets.
Indeed, there can be hardly any doubt that public markets owned by a municipality or city
may be leased. (Salgado vs. de la Fuente, 87 Phil. 343.) Municipal corporations have both
governmental and corporate or business functions, and to the latter belongs the construction
and maintenance of markets. (Mendoza vs. de Leon, 33 Phil. 508). Section 2318 of the
Revised Administrative Code expressly authorizes that markets be "let for a stipulated return
to private parties." In Chamber of Filipino Retailers, Inc. vs. Villegas, 44 SCRA 405. We held
that "it is idle ... to contend that public markets (in Manila) are for public use, hence not
patrimonial property susceptible of lease." Earlier, citingEsteban vs. City of Cabanatuan, G.R.
No. L-13662, May 30, 1960, 108 Phil. 1245, We made it clear inGuillergan vs. Ganzon, 17 SCRA
257, that the operation of a market is not strictly a governmental function, albeit in Aprueba
vs. Ganzon, 18 SCRA 8, it was held that the leasing of a market stall is subject to police
power and in Co Chiong vs. Mayor of Manila, 83 Phil. 257, Co Chiong vs. Cuaderno, 83 Phil.

251 and Salgado vs. de la Fuente, supra, the Court ruled that for purposes of excluding aliens
from the public markets, the establishment, maintenance and operation thereof are part of
the functions of government in which aliens may not take part. It is obvious then that since
markets can be leased, the management and operation thereof may by contract be given to
private parties. In fact, one of the powers expressly granted to the Municipal Board by
Section 17 of the Charter of Manila is to "prohibit or permit the establishment or operation
within the city limits of public markets ... by any person, entity, association or corporation
other than the city." (Par. cc). 3*
In this connection, We reiterate it would indeed seem immaterial, from the legal point of view,
that as a consequence of leasing a market, the government employees and workers therein
are retained or laid-off. And so, that the contract at issue provides specifically for their
continuation, including their respective civil service status and their existing conditions of
work subject to no control at all by Asiatic, including as to their salaries and benefits, which
are reserved for determination by the city authorities, is certainly not prejudicial to said
employees, much less a valid ground for annulling the same.
B
The second issue raised by respondents relative to the alleged invalidity of the contract in
dispute, allegedly due to the fact that it was not previously approved or authorized in an
ordinance passed by the municipal board, makes it imperative for Us to consider certain
facts which as earlier noted were not only not before the trial court but were not even existing
yet during the first joining of the issues in this Court. We reiterate that for the reasons stated
in the first part of this opinion, there is no legal impediment to Our taking said facts into
account, if only because they are indubitable and the issues arising from them are purely of
law which under the peculiar circumstances of these cases it would be impractical and
dilatory, nay, prejudicial to the interests of justice to require that they be first passed upon by
the lower court.
As stated earlier, when the subject contract came to the attention of the Municipal Board,
twelve councilors, out of the twenty composing the Board, or three-fifths (3/5) of its whole
membership signed the aforequoted resolution expressing the Board's "concurrence with
and support for (said) contract" because it "finds the contract ... to be a step in the right
direction in that it may well be the only lasting solution to the ills that have continuously
beset the administration and operation of public markets in the City and thus bring about the
change long envisioned by this Body." Of course, respondents maintain that no such
resolution exists or, that, in any event, it does not appear to have been passed in regular
session. But that it exists is plain for anyone to see, the certified true copy of the copy
thereof received by the Mayor being now part of the record, as submitted by petitioners, and
the signatures therein appearing not being impugned by anyone of those concerned, not
even the councilors themselves to whom they are attributed. And with respect to the
certification of the Assistant Secretary of the Municipal Board to the effect that "the records
of this office (Municipal Board) do not show that the Municipal Board of Manila has adopted"
such a resolution, it may be stated that there is no showing that the one who made such
certification is the legal custodian of the records of the Board.

In this connection, it is important to note that under Republic Act 6039, the Market Committee
that recommend to the Mayor the immediate lease and/or assignment of the administration of
the city public markets and talipapas to "a multi-million peso corporation under such terms
and conditions as (would be) most advantageous to the City of Manila", has the following
powers:
1) The market committee shall formulate, recommend and adopt, subject to the
ratification of the municipal board, and approval of the mayor, policies and
rules or regulation repealing or amending existing provisions of the market
code as amended and embodied in the compilation of City Ordinances No.
1600 provided they are not inconsistent with the provisions of this Act. After all
such promulgated rules and regulations and provisions of the market code
may have been modified, amended, or repealed, within one year from date of
the approval of this Act, all the new, modifying and amendatory provisions,
rules and regulations, shall be codified into a new market code. The internal
rules and regulations of the market committee shall not require ratification by
the municipal board or the mayor;
xxx xxx xxx
Under this provision, it would seem that when it comes to public markets in the City of
Manila, the action of the Market Committee is considered more basic, if not more controlling,
than that of the municipal board.
Withal, considering that the said Market Committee is composed, per Republic Act 6039, of
the market administrator, as chairman, a representative each of the city treasurer, the
municipal board, the Chamber of Filipino Retailers, Inc. and the Manila Market Vendors
Association, Inc. as members, it can be readily appreciated that it is more representative of
all the different public and private officials and persons directly concerned or having interest
in the proper operation and maintenance of the public markets, and as such should be in a
better position than the municipal board itself to study and deliberate on the problems
connected therewith from their respective and/or collective points of view. Importantly, the
representative of the municipal board therein, who is actually one of the councilors, is
supposed to speak for the board in all the committee's actuations, hence it may be said that
the municipal board was not entirely a stranger to the contract under discussion, even from
its conception. With these facts borne in mind, no one should be surprised with the
resolution above-quoted and signed by twelve members of the municipal board indicative of
their ratification, required by Republic Act 6039, of the contract which had been precisely
recommended by the Market Committee.
Be that as it may, We deem it unnecessary to pass on the issue relative to the initial form in
which the contract at bar was authorized or sanctioned by the city authorities. 4 There are two
later developments which by their legal force make it of little consequence juridically how the
contract was originally into. It will be recalled that when the execution of the contract came to the
attention of President Marcos, as early as 12, 1973, a memorandum was addressed by the
President to the City Mayor directing that certain conditions be included therein. Those

conditions, contrary to the observation of the trial judge, were accordingly embodied substantially
in a supplementary contract executed by the parties on March 30, 1973. And then, on November
26, 1973, the President issued Presidential Decree 345 under which he declared that there is no
more need for the city authorities to create the sinking fund required by Section 1 of Republic Act
6039 consisting of thirty per centum (30%) of the annual gross receipts from market fees in the
City, precisely because, according to the decree, "the maintenance, repair, reconstruction,
development and rehabilitation of the ... markets and talipapas" in the City are to be undertaken
already by Asiatic at its own expense pursuant to the contract in dispute.

Having been virtually sanctioned thus by a presidential decree, which in the present
constitutional situation in the Philippines amounts to a legislative enactment. 5 We cannot see
how the contract in dispute can be declared invalid. A municipal corporation, such as the City of
Manila, is a creature of the national legislative authority and, therefore, it is within the power of
such authority to validate and legalize any legally deficient act of the municipal officials, including
those that could otherwise be ultra vires.
Petitioners contend, however, that Presidential Decree 345 refers solely to the sinking fund
and does not, therefore, amount to a conferment of legality upon the contract. The point is
stressed that the decree merely takes cognizance of the existence of the contract "and it
does not assert, much less in any way establish, the validity" thereof. Moreover, it is claimed
that inasmuch as the contract was executed before the effectivity of the present Constitution,
under Section 8 of Article XVII of the Charter, the issue of validity of the contract should be
decided in the light of the laws then prevailing and not of P.D. 345 which was issued
subsequent to January 17, 1973 when the Constitution went into effect.
None of these arguments is sufficiently convincing. The developments subsequent to the
execution of the contract were such that it would be tantamount to imputing utter
carelessness to the President to hold that he issued the decree without being aware of said
developments. To recall again, it was upon his directive that the Supplementary Contract of
March 30, 1973 embodied the conditions enumerated in his letter of January 12, 1973. Indeed,
the knowledge of the President of the terms and conditions of the contract deducible from
his directive that it be amended conformably to his desires, suggests that he must have
subsequently checked whether or not his directive had been obeyed before issuing any
decree based on the provisions of the contract. We are loath to hold the President would
predicate a decree on a contract which he does not sanction or without being assured of its
propriety. As a matter of fact, We are inclined to believe that even the resolution signed by
twelve members of the Municipal Board on January 12, 1973 and Presidential Decree 231
known as the Local Tax Code must have been taken into account when P.D. 345 was
conceived. In other words, it must have been seen to it whether or not the contract was
legally tenable before the decree was issued, for it is but consistent with the dignity of the
presidential office for the Court to assume that the President would not have issued the
decree unless he were certain his act would not be meaningless and academic.
In effect, the decree directs the enforcement of the contract, for it authorizes "the reversion of
the accumulated thirty (30%) per centum sinking fund amounting to P3,696,921.99 to the
General Fund of the City of Manila and the appropriation of the same by the City for the
undertaking of its public works projects" precisely because, according to it, "there is no

more need (for said appropriation), since it is already the Asiatic Integrated Corporation,
under the contract ... , which shall undertake the improvements stated in Republic Act 6039."
The purpose of the reversion, according also to the decree, is "to generate funds with which
to undertake and thereby carry out successfully the objectives" of "construction and repair
of streets and dredging and clearing of esteros, which cannot be successfully undertaken for
lack of funds."
In the light of these circumstances, to hold that the decree did not amount to an approval of
the contract in question by the President, which, as already explained, is the present
equivalent of ratification by legislative enactment, is to refuse to see something that is
logically ineluctable from facts that are indubitable.
Anent the contention relative to the applicability of P.D. 345 to the subject contract, said
decree having been issued after the Constitution went into effect, suffice it to say that the
constitutional provision cited 6 does not and could not have the effect of preventing the
President, under the present set-up and, later on, the legislature from exercising the
prerogative of validating acts of local governments and officials done prior to the effectivity
of the Constitution. And in this connection, it may be added that the circumstances that, as in
the cases at bar, there were already litigations when the decree was issued could not in any
manner affect the jurisdiction already acquired by the Court over the issue of legality of the
contract. There is here no derogation of the court's authority. Rather, it is the cause of action
itself that is removed. Instead of being offensive, the decree has produced the salutary effect
of keeping the city away from litigations, there being no vested rights prejudiced anyway.
Incidentally, with respect to respondent's contention that under Presidential Decree No. 231
or the Local Tax Code, the city treasurer has been vested with the powers of administration,
supervision and control of the city markets and its personnel, it may be observed that
Presidential Decree 345 is a later one. Indeed, the Code took effect on June 28, 1973 and
cannot apply retroactively as to affect a contract executed in December, 1972, since it would
then impair the obligation of contracts in violation of the Constitution. (Section II, Article IV,
Bill of Rights.) Moreover, it is not clear to Us that the Local Tax Code completely derogates
the inherent power of supervision and control of the Mayor of Manila over the affairs of the
city government and its departments and the legislative power of the municipal board over its
markets. (Secs. 9, 13 and 18 (cc) of the Charter of Manila, Republic Act 409, as amended by
Republic Act 6039.)
To top it all, the issuance of P.D. 345 has been known by the Municipal Board of Manila since
the beginning of its enforcement in November, 1973. If the Board were not agreeable to the
continued enforcement of the contract, immediate steps would have been taken to make the
decree inoperative, which could have been easily done by the Board by expressly
disapproving the contract and continuing the reserve for the sinking fund. But as it is, it is a
matter of public knowledge that the Board has not only failed to take such a step; on the
contrary, nowhere in their pleadings is there any claim that the reversion directed by the
decree has not been done and that the corresponding appropriations therefrom have not
been made. Besides, respondents do not pretend that in the approval of the budget
ordinances for the fiscal years 1973-74 and 1974-75 the income of P500,000 and P550,000, for

the years 1973 and 1975, coming from Asiatic under the contract were not used as basis for
the estimate of incomes of the City. There is absolutely no showing here that any of the
salaries, wages, insurance and other benefits due the market employees under existing labor
and other laws as well as damages suffered by third parties, as contemplated in Paragraph XI
of the contract, has not been paid by Asiatic. Neither is it alleged that Asiatic has not
faithfully complied with its liability, pursuant to Paragraph XII, for claims under the
Workmen's Compensation Act, the Minimum Wage Law, the Eight-Hour Labor Law of the
personnel assigned to the markets. Considering that all these payment made by Asiatic
pursuant to the terms of the contract have accrued to the benefit of the City without any
protest on the part of the Municipal Board, We cannot but conclude that in fact the said Board
has already acquiesced to the validation of the contract by
P.D. 345.
What is more, by approving Ordinance No. 7451, the Municipal Board may be deemed to have
done a more positive act of ratification, practically explicit, of the contract in issue. Contrary
to the view of petitioners, the scope of said ordinance specifically embraces not only "vacant,
unused and unencumbered patrimonial properties" but also any "other leasable properties"
of the City. And as discussed earlier, public markets form part of said "leasable patrimonial
properties". We need not determine whether the nature of the contract here is that of a lease
wholly of the markets themselves or of only the management or operation thereof, for if the
markets can be wholly leased, it follows that something less, like their operation and
management, can also be allowed by the City to be undertaken by private parties for a
consideration, under terms that would be beneficial to the public interest. Stated differently,
the authority to lease public markets necessarily includes that of awarding the operation and
management there of to private parties.
Now, after Ordinance 7451 was enacted, the original and supplementary contracts were
correspondingly amended mainly for the purpose of enlarging the period from ten to twentyfive years. In accordance with the provisions of the ordinance, the Municipal Board was
notified of this amendment for "its information and guidance." In his letter to the Board dated
February 15, 1974, the Mayor made it a point to state that the amended contract was executed
"in pursuance of the provisions of Ordinance No. 7451 authorizing the Mayor Manila to
lease ... leasable patrimonial properties of the City." There is absolutely no showing, and it is
quite apparent that none such can be made, to the effect that after the Board received the
Mayor's letter, it has in any form repudiated the contract as not being within its contemplation
when it approved the ordinance. Indeed, in the light of the resolution of January 12, 1973,
signed by twelve of its members, it can hardly be expected that the Municipal Board could
have taken a different attitude. And it would be too late, if not absurd, for it to do otherwise
now.
As We see it, even if there could be some doubt that any of the circumstances just discussed
could be individually adequate in law as a ratification or validation of the contract, assuming
it suffers from any congenital infirmity, verily, the combined effect of all of them together
cannot but lead to the inevitable conclusion that there is more than enough legal basis for
upholding its validity. Incidentally, it is interesting to note that while petitioners who, as
already discussed earlier herein, have no actionable interest in the contract in dispute

annulled, the Municipal Board, in whom rested the power to repudiate the contract from the
outset, were it really opposed to it, has been significantly silent in the face of the material
developments above pointed out, thereby indicating that as far as it is concerned, things may
well be left as they are.
IV
The third contention of respondents to the effect that the contract in question is violative of
Republic Act 37 which nationalizes public markets by providing that citizens of the
Philippines shall have preference in the award of stalls therein and also of the civil service
laws, rules and regulations governing the terms and conditions of employment and security
of tenure of the city employees assigned to the public markets is even less persuasive.
As regards the awarding of the market stalls, there is nothing in the contract which in any
manner confers upon Asiatic any authority to have any part in it. The basic nature of the
management and operation contemplated to be undertaken by Asiatic covers only the
collection of stall fees and the maintenance, repair and rehabilitation of the buildings,
premises and facilities of the markets. The awarding of stalls is left in the hands of the City
authorities, and even if this had been given to Asiatic, it would have to do it in accordance
with the provisions of Republic Act 37. And with respect to the status and security of the
employees, as We have already discussed earlier in this opinion, there is no basis for the
claim that the contract violates the provisions of the civil service laws, rules and regulations.
V
Finally, respondents maintain that the contract in dispute is grossly disadvantageous to the
City.
In respect to such contention, the first point to bear in mind is that the determination of the
reasonableness and propriety of the terms and conditions embodied in the contract rests
primarily with the city authorities and not with the courts. It is only in instances wherein the
contract is ultra vires or clearly unreasonable that the courts can interfere. (Umali vs. City of
Naga, 96 Phil. 379.) In the cases at bar, We have failed to find, after a careful consideration of
the circumstances extant in the records, sufficient basis for holding that the terms and
conditions of the subject contract are grossly disadvantageous to the city, as claimed by
respondents.
In their Comment on the petition in G.R. No. L-37187, respondents support their contention
thus:
Contract is grossly
disadvantageous to the City.
Assuming that the contract is valid, the same should be rescinded because the
questioned contract is grossly disadvantageous to the City of Manila. A
perusal of the statement of Income and Expenditures of the city markets of

Manila will readily show that the City of Manila realized the following net
incomes in the following fiscal years:
FY-1969-70 P1,609,899.96
FY-1970-71 1,657,668.85
FY-1971-72 1,455,932.95
A copy of the aforesaid statement of income and expenditures of the city
public markets as prepared by the Office of the City Auditor of Manila is
attached to and made part hereof as Annex "C".
For the first year of the term of the contract alone, the City of Manila stands to
lose close to one million (P1,000,000.00) pesos. Multiply this amount by the
lifetime of the contract which is ten (10) years, the total prejudice to the City
would indeed come to a huge and staggering sum of millions upon millions of
pesos. The tragedy of it all is that these millions which should properly go to
city residents by way of public services will instead find their way into the
already bulging pocketbooks of private individuals." (Pp. 101-102, Rollo of L31787.)
Examining the figures referred to closely, We find however that counsel's argument is less
than candid. It is true that according to the Annex C, relied upon by respondents the net
incomes from the markets of Manila for the fiscal years 1969-70, 1970-1971 and 1971-1972,
comparable to what would be received from Asiatic of P500,000 yearly, with additional
P50,000 each year after 1973 were P1,609,899.96, P1,657,668.85 and P1,455,932.95. But to
jump from these figures to the conclusion that the city stands to lose P1 M annually under
the contract is entirely misleading.
As can be clearly seen from said certification, Annex C, the 30% annual sinking fund reserve
for the year 1969-1970, as required by Republic Act 6039, was P999,263.33. Assuming
hypothetically that the contract in question had started that year, this amount would have
been 30% of the hypothetical total collections or income of Asiatic that year. Under the
contract, Asiatic would have had to reserve at least the same amount exclusively for the
improvement of the markets. In other words, said amount would have been in effect income
for the City to be used for the stated statutory purpose. Now, adding to this the P500.000
lump sum which, as stipulated in the contract, Asiatic is supposed to have paid the City on
the first year, the total effective income of the City for the year 1969-1970 would have been
P1,499,263.30. Using the same method of computation on the basis of the figures certified in
Annex C, We can see that the hypothetical income of the City from Asiatic would have been
P1,578,042.48 for the year 1970-1971 (i.e. 30% amounting to P1,028,042.48 plus P550,000, the
second annual payment of Asiatic) and P1,095,548.70 for the year 1971-1972 (i.e. 30%
amounting to P1,095,548.70 plus P600,000, the third annual payment of Asiatic). Thus, the
total effective income of the City from Asiatic for the three years indicated would have been
P4,772,854.51, which compared with the total of P4,723.501.76 appearing in Annex C as net
income of the City from its market collections for the same period, would have been

P49,352.75 more. In other words, instead of losing P3 M as claimed by petitioners, the City
would have been benefited by the said amount of P49,952.75. 7
Not only that. While there is no reliable assurance that the income of the markets would
increase, considering there has been no notable substantial differences in the past annual
incomes on record, the other expenditures for which Asiatic would have to answer, such as
"the salaries and wages, insurance and all other benefits of the retained market employees"
(Par. XI) including the payment of "claims by any or all the (such) personnel under the
Workmen's Compensation Act, the Minimum Wage Law and the Eight-Hour Labor Law" (Pat
XII) have not only increased in the meanwhile but are surely bound to increase more or be
higher, what with the new policies of the government providing for higher salaries and more
fringe or emergency benefits for the employees.
In connection with the point under discussion, it will be recalled that in their resolution of
January 12, 1973, the twelve councilors who signed the contract described its advantages to
the city in these words:
"WHEREAS, a contract has been entered into by the City of Manila with the
Asiatic Integrated Corporation for the latter to handle the management and
operation of Manila's outmoded and deteriorating public markets and
talipapas;
WHEREAS, the deplorable state of these markets, most of which are of pre-war
vintage, has always been the constant source of headaches of past
administration, considering the mismanagement and corruption that have
attended their operation for years;
WHEREAS, the state of finances of the City Government does not permit it to
undertake the massive and expensive task of rehabilitating and modernizing
these public markets as to enable them to survive the stiff competition offered
by mushrooming and sophisticated supermarkets without unduly sacrificing
other more vital and essential public services;
WHEREAS, the members of the Municipal Board cannot close their eyes to the
perennial problem affecting the interests of their constituents, particularly the
poor and underprivileged, but must take positive steps to bring about a change
for the better;
WHEREAS, the Municipal Board finds the contract entered into by the City to
be a step in the right direction in that it may well be the only lasting solution to
the ills that have continuously beset the administration and operation of public
markets in the City and thus bring about the change long envisioned by this
Body: ... ."
And on the whereases of the contract which, as already discussed, the councilors ratified in
the above resolution as well as by approving Ordinance 7451, it is stated:

WHEREAS, the concept and main objectives of a public market are to provide
an accessible clean, safe, convenient and economical shopping services to the
public; to provide livelihood to stallholders, peddlers, distributors, brokers,
middlemen and other low income groups; provide income for the maintenance,
repair and establishment of new public markets and to provide income for
other areas of city improvement;
WHEREAS, physically, the state of our public markets had been turning from
bad to worse, there being no major repair and maintenance done in the public
markets for the last ten (10) years as can be seen from the following building
and sanitary deficiencies now prevalent in all public markets;
a. Out of the sixteen (16) major markets, fourteen (14) are of prewar vintage. No major reconstruction has been made.
b. Building and sanitary deficiencies are prevalent in all public
markets such as defective electrical system, broken down and
inadequate drainage and sewerage facilities, wornout and
unsafe market floorings, defective plumbing and water pipe
fixtures, structural defects, rusted, dilapidated roofs, gutters and
downspouts, building hazards, lack of ventilation facilities, etc.
WHEREAS, economically because of the proliferation of supermarkets,
groceries, wholesalers and retailers, profit-wise, the public markets have no
chance at all to outlive, let alone survive, the unbalanced competition coming
from those wellentrenched sectors due to commodity economics and lack of
adequate service and financial sources at legal interests;
WHEREAS, based on the indepth analysis and study of the conditions
prevailing in the public markets, it will take the City ten (10) to fifteen (15) years
of massive capital infusion to put to service Class B shape the public markets
and that without immediate total physical and economic rehabilitation, the
public markets will be driven into obsolescence;
WHEREAS, the City of Manila presently does not have the necessary funds to
improve and develop the public markets the way they should be improved and
developed to conform to modern marketing concepts and standard;
WHEREAS, the cognizant of the foregoing, the Market Committee in its regular
meeting held on December 13, 1972, adopted a Resolution requesting the
Mayor to urgently consider "the immediate lease and/or assignment of
administration of the City public markets and talipapas and this be awarded to
a reputable multi-million peso corporation with such terms and conditions that
are most advantageous to the City of Manila;"

WHEREAS, the ASIATIC INTERGRATED CORPORATION has offered to

improve, repair, develop, reconstruct and rehabilitate the City public markets
and talipapas presently existing, which are listed and indicated in Annex "A"
hereof. (Page 58-59, Rollo of L-37249.)
Relatedly, in Presidential Decree 345, the President appears to have taken note of a particular
benefit that has accrued to the City from the operation of the contract:
WHEREAS, on December 28, 1972, the City of Manila entered into a
Management and Operating Contract with the Asiatic Intergrated Corporation
over its thirty-five (35) public markets and talipapas, wherein it is expressly
stipulated that the latter shall appropriate a yearly amount of not less than
thirty (30%) per centum of the gross receipts from market fees for the fiscal
year 1971-1972 to answer for the maintenance, repair, reconstruction,
development and rehabilitation of the said markets and talipapas;
WHEREAS, prior to the conclusion of the aforementioned contract, there
accumulated the sum of Three Million Six Hundred Ninety Six Thousand Nine
Hundred Twenty-One & 99/100 (P3,696,921.99) Pesos, equivalent to thirty (30%)
per centum of the gross receipts from market fees, which amount, however,
was not appropriated for the purpose stated in Republic Act No. 6039;
WHEREAS, there is no more need to appropriate the accumulated sinking fund
P3,696,921.99, since it is already the Asiatic Intergrated Corporation, under the
contract referred to above, which shall undertake the improvements stated in
Republic Act No. 6039;
WHEREAS, there are in the City of Manila pending urgent public works
projects, such as the construction and repair of streets and dredging and
clearing of esteros, which cannot be successfully undertaken for lack of funds.
In the light of all these more authoritative pronouncements, We are not prepared to go along
with respondents' contention that the contract that they are impugning is grossly
disadvantageous to the City of Manila.
The foregoing conclusions render moot and academic private respondents' motion to declare
Mayor Bagatsing, petitioner Asiatic and others in contempt of this Court.
Premises considered, We hold that the trial court committed grave abuse of discretion in
annulling the contract here in dispute.
JUDGMENT
IN VIEW OF ALL THE FOREGOING, the decision of the trial court of July 13, 1973, subject of
the petitions in G.R. Nos. L-37248 and L-37249, is set aside and the Management and
Operating Contract of December 28, 1972 between the City and Asiatic, as supplemented on

March 30, 1973 and amended on February 13, 1974 is hereby declared legal and valid. In
consequence, the prayer in G.R. No. L-37187 that the trial court be enjoined from executing
its decision annulling the said contract need not be acted upon, the basis of the said
execution being no longer existent. No costs.
Makalintal, C.J., Castro, Fernando, Muoz Palma, Martin, Antonio and Esguerra, JJ., concur.
Makasiar and Aquino, JJ., concur in the result.
Concepcion, J., is on leave.

Separate Opinions

TEEHANKEE, J., concurring and dissenting:

I concur qualifiedly with the main opinion insofar as it reverses the trial court's decision
of July 13, 1973 which declared the Management and Operating Contract of December 28,
1972 between petitioners City of Manila and Asiatic Integrated Corporation null and void ab
initio. I qualify this concurrence because although the serious objections against the contract
(viz, lack of authority, and that the contract is ultra vires and grossly disadvantageous)appear
as per the main opinion to have been overriden by the President's memorandum of January
12, 1973, compliance therewith, in my view, has not been satisfactorily shown.
In the President's memorandum of January 12, 1973, he expressed" (his) desire, in the
interest of the public welfare," that three conditions be incorporated in the contract as
follows:
1. All market vendors should form cooperatives and should be sold shares in
the market thus becoming co-owners.
2. The market cooperatives should be authorized to directly procure from
producers' cooperatives and other sources, domestically or internationally,
and be given allocations for imports, provided they bring from down prices in
accordance with the policy and regulations set forth by the Price Control
Council through its chairman.
3. The public should be part owner of such markets by the public sales of
shares.

While a supplementary contract was executed by the parties on March 30, 1973 in apparent
effort to comply with the President's memorandum, a reading of the same shows that no
specifics have been provided for substantial compliance with the presidential requirements.
As stated by the lower court in its decision, "as a matter of fact, the supplementary
agreement did not embody one of the provisions which the President of the Philippines
desired to be incorporated, more particularly with respect to giving the market vendors and
the public an opportunity to become part owners of the public markets, thru the sales of
shares of stock."
This necessarily had to be so, because the President's memorandum did not lay down
specific guidelines and ratios. It apparently expressed the policy against a single corporation
obtaining sole management operation of the city public markets (assuming that this could
validly be done) and hence expressed the President's desire that the public should be given
the opportunity to become part owners (with the City) of such markets to be operated by
Asiatic as manager, and that market vendors should form cooperative and should be given
the opportunity to acquire shares of Asiatic, so that the prices in the markets may be brought
down.
(Parenthetically, these are perforce presidential requirements as viewed from the substance
and spirit of the President's of memorandum which is couched in general terms. Unlike the
trial court, I do not think that the President's memorandum contemplated a "change of
ownership " of the city markets, since Asiatic's contract was avowedly per its title one for
management and operation of the markets.)
These specifics have yet to be worked out satisfactorily, and in the event that the conditions
in the President's memoranda (assuming that the City and Asiatic have incorporated faithfully
the presidential requirements which does not appear to be clearly the case) are shown not to
have been duly complied with, then and in such event respondents as well as other taxpayers
should be reserved the right to bring up the matter in a suit for performance or cancellation
of the contract.
I dissent from the main opinion insofar as it would declare "legal and valid" the Amended
Contract executed between the City of Manila and Asiatic only on February 13,
1974 extending the term of the contract from ten (10) years under the original contract of
December 28, 1972 to twenty-five (25) years, notwithstanding that this completely new issue
was not raised in nor passed upon by the trial court which had already rendered its decision
of July 13, 1973 declaring the original contract null and void.
As stated in the main opinion, these facts "which gave rise to new issues took place and
were brought to the attention of the trial court after the original issues were already joined.
Indeed, they were never considered by the trial court," * since as stated above, the trial court had already
rendered its judgment of July 13, 1973 and these new facts or events occurred long after in the following year 1974.

On January 3, 1974, the city municipal board passed Ordinance No. 7451 authorizing the
mayor "to lease vacant, unused and unencumbered patrimonial properties, or other leasable
patrimonial properties to reputable and highly qualified persons, firms or corporations, under
certain conditions." After the ordinance's passage, the parties executed on February 13, 1974

their amended contract extending the term of Asiatic's management and operating contract
from 10 years to 25 years. These new facts certainly have given rise to a host of new issues
which admittedly were never raised below nor considered therein, nor by the President for
that matter.
Off-hand, such new issues would cover the new questions of whether the ordinance does
apply to and cover the lease of the city markets; assuming that it did, whether the contract
violates the condition of the ordinance itself that it "shall not be utilized to create a monopoly
in favor of any corporation or enterprise;" and of course, whether such a long extension of
term up to the turn of the century in 1997 (without even waiting for the results of the original
contract for the stipulated ten-year term which would expire in 1982 and considering the
long-range developments and conditions that may intervene by then) does not place the City
at a gross disadvantage.
No premature judgment declaring "legal and valid" such extension of the term to 25 years
without the issues having been raised nor considered in the trial court nor in its appealed
judgment and which are based on the entirely new matter of an amended contract which was
executed long after the trial court's decision of July 13, 1973 should therefore issue from this
Court as such new matters should properly be the object of a new and separate case.

Separate Opinions
TEEHANKEE, J., concurring and dissenting:
I concur qualifiedly with the main opinion insofar as it reverses the trial court's decision
of July 13, 1973 which declared the Management and Operating Contract of December 28,
1972 between petitioners City of Manila and Asiatic Integrated Corporation null and void ab
initio. I qualify this concurrence because although the serious objections against the contract
(viz, lack of authority, and that the contract is ultra vires and grossly disadvantageous)appear
as per the main opinion to have been overriden by the President's memorandum of January
12, 1973, compliance therewith, in my view, has not been satisfactorily shown.
In the President's memorandum of January 12, 1973, he expressed" (his) desire, in the
interest of the public welfare," that three conditions be incorporated in the contract as
follows:
1. All market vendors should form cooperatives and should be sold shares in
the market thus becoming co-owners.
2. The market cooperatives should be authorized to directly procure from
producers' cooperatives and other sources, domestically or internationally,
and be given allocations for imports, provided they bring from down prices in

accordance with the policy and regulations set forth by the Price Control
Council through its chairman.
3. The public should be part owner of such markets by the public sales of
shares.
While a supplementary contract was executed by the parties on March 30, 1973 in apparent
effort to comply with the President's memorandum, a reading of the same shows that no
specifics have been provided for substantial compliance with the presidential requirements.
As stated by the lower court in its decision, "as a matter of fact, the supplementary
agreement did not embody one of the provisions which the President of the Philippines
desired to be incorporated, more particularly with respect to giving the market vendors and
the public an opportunity to become part owners of the public markets, thru the sales of
shares of stock."
This necessarily had to be so, because the President's memorandum did not lay down
specific guidelines and ratios. It apparently expressed the policy against a single corporation
obtaining sole management operation of the city public markets (assuming that this could
validly be done) and hence expressed the President's desire that the public should be given
the opportunity to become part owners (with the City) of such markets to be operated by
Asiatic as manager, and that market vendors should form cooperative and should be given
the opportunity to acquire shares of Asiatic, so that the prices in the markets may be brought
down.
(Parenthetically, these are perforce presidential requirements as viewed from the substance
and spirit of the President's of memorandum which is couched in general terms. Unlike the
trial court, I do not think that the President's memorandum contemplated a "change of
ownership " of the city markets, since Asiatic's contract was avowedly per its title one for
management and operation of the markets.)
These specifics have yet to be worked out satisfactorily, and in the event that the conditions
in the President's memoranda (assuming that the City and Asiatic have incorporated faithfully
the presidential requirements which does not appear to be clearly the case) are shown not to
have been duly complied with, then and in such event respondents as well as other taxpayers
should be reserved the right to bring up the matter in a suit for performance or cancellation
of the contract.
I dissent from the main opinion insofar as it would declare "legal and valid" the Amended
Contract executed between the City of Manila and Asiatic only on February 13,
1974 extending the term of the contract from ten (10) years under the original contract of
December 28, 1972 to twenty-five (25) years, notwithstanding that this completely new issue
was not raised in nor passed upon by the trial court which had already rendered its decision
of July 13, 1973 declaring the original contract null and void.
As stated in the main opinion, these facts "which gave rise to new issues took place and
were brought to the attention of the trial court after the original issues were already joined.

Indeed, they were never considered by the trial court," * since as stated above, the trial court had already
rendered its judgment of July 13, 1973 and these new facts or events occurred long after in the following year 1974.

On January 3, 1974, the city municipal board passed Ordinance No. 7451 authorizing the
mayor "to lease vacant, unused and unencumbered patrimonial properties, or other leasable
patrimonial properties to reputable and highly qualified persons, firms or corporations, under
certain conditions." After the ordinance's passage, the parties executed on February 13, 1974
their amended contract extending the term of Asiatic's management and operating contract
from 10 years to 25 years. These new facts certainly have given rise to a host of new issues
which admittedly were never raised below nor considered therein, nor by the President for
that matter.
Off-hand, such new issues would cover the new questions of whether the ordinance does
apply to and cover the lease of the city markets; assuming that it did, whether the contract
violates the condition of the ordinance itself that it "shall not be utilized to create a monopoly
in favor of any corporation or enterprise;" and of course, whether such a long extension of
term up to the turn of the century in 1997 (without even waiting for the results of the original
contract for the stipulated ten-year term which would expire in 1982 and considering the
long-range developments and conditions that may intervene by then) does not place the City
at a gross disadvantage.
No premature judgment declaring "legal and valid" such extension of the term to 25 years
without the issues having been raised nor considered in the trial court nor in its appealed
judgment and which are based on the entirely new matter of an amended contract which was
executed long after the trial court's decision of July 13, 1973 should therefore issue from this
Court as such new matters should properly be the object of a new and separate case.
Footnotes
1 The petitions were preceded by motions for extension of time for their filing.
The two separate extension motions were both filed on August 7, 1973.
2 These comments were considered as answers.
3 Employees laid-off as result of legitimate reorganization or abolition of their
offices are entitled to certain benefits as may be provided by law.
3* See discussion of ratification by the Municipal Board of the contract here in
dispute, infra., pp. 31-38.
4 In Zobel vs. City of Manila, 47 Phil. 169, it was held that the municipal board's
action relative to a contract for the purchase of real property may be expressed
in a resolution.
5 Aquino et al. vs. Comelec, et al., G.R. No. L-40004, January 31, 1975; Aquino
vs. Military Commission No. 2, et al., G.R. No. L-37364, May 9, 1975.

6 Section 8 of Article XVII of the 1973 Constitution which provides as follows:

"Sec. 8. All courts existing at the time of ratification of this Constitution shall
continue and exercise their jurisdiction, until otherwise provided by law in
accordance with this Constitution, and all cases pending in said courts shall
be heard, tried, and determined under the laws then in force. The provisions of
the existing Rules of Court not inconsistent with this Constitution shall remain
operative unless amended, modified, or repealed by the Supreme Court or the
National Assembly."
7 Under the contract, what Asiatic is supposed to appropriate for the purposes
indicated in Republic Act 6039 is not only "thirty per centum of the annual
gross receipts" but not less than thirty (30%) of the gross income ... for the
fiscal year 1971-1972" which was P3,653,274.91 or P1,455,932.95, meaning to
say that the city authorities may in the appropriate instances require the
expenditure by Asiatic of more in order to make the works and improvements
which it is bound to undertake come up to the standards and the satisfaction
of said authorities. In other words, it is entirely within the rights of the City to
require Asiatic to make the reserve for improvement of the markets equivalent
to 30% or more of its income every year instead of "thirty per centum (30%) of
gross income for the fiscal year 1971-1972."
* Emphasis supplied.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant
Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294,
which was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure

questions of law, challenging the power of taxation delegated to municipalities under the Local
Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc.,
commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for
that court to declare Section 2 of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and
27, series of 1962, of the municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state
that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that on January 17,
1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager
of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies
and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo
for every bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm,
company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of
the total number of bottles produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies
and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this
municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." 4 For the purpose of computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the
total number of gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under
the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals,
which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as
amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory
and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter
of right to every independent government, without being expressly conferred by the people. 6 It is a
power that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of separation of
powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not
apply. Legislative powers may be delegated to local governments in respect of matters of local
concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative power to
create political corporations for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax. 9 Under the New Constitution, local governments are
granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5,
Article XI provides: "Each local government unit shall have the power to create its sources of revenue and
to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that Section
2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in
local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities and the like, it is meant that there may
be delegated such measure of power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed over
under the guise of the taxing power, except when the taking of the property is in the lawful exercise of the
taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed;
(3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4)
in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are
provided. 11 Due process is usually violated where the tax imposed is for a private as distinguished from a
public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary
or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due
process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury
rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or
the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the
amount of the tax and the manner in which it shall be apportioned are generally not necessary to due
process of law. 12
There is no validity to the assertion that the delegated authority can be declared unconstitutional on
the theory of double taxation. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may not be exercised. 13 The reason is
that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in
general, is not forbidden by our fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the United States and some states of the
Union. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the
same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case where
one tax is imposed by the State and the other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because
these two ordinances cover the same subject matter and impose practically the same tax rate. The
thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is
not so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or
collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for
.every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered
that the producer or manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28,

1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No.
27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was
intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter,
even without words to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are
only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact
that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiffappellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission
shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the
Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No.
27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with
the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or
a specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2,
Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which
are mentioned therein." As long as the text levied under the authority of a city or municipal ordinance
is not within the exceptions and limitations in the law, the same comes within the ambit of the
general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non
excepti 19 The limitation applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on
articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue
Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and
void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or
manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or
other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on
the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is not set ratio between the volume of
sales and the amount of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified
articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and
cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel
oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft
drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all
softdrinks, produced or manufactured, or an equivalent of 1- centavos per case, 23 cannot be
considered unjust and unfair. 24 an increase in the tax alone would not support the claim that the tax is
oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining
the reates of imposable taxes. 25 This is in line with the constutional policy of according the widest
possible autonomy to local governments in matters of local taxation, an aspect that is given expression in
the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not
deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten
crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers,
producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54,

series of 1964, as amended by Ordinance No. 41, series of 1968, of defendant

Municipality, 29 appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are
empowered to impose, not only municipal license taxes upon persons engaged in any business or
occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question
(Ordinance No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the
Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the
Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series,
is hereby declared of valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma, Aquino and
Concepcion, Jr., JJ., concur.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal
taxation, I am only in agreement. If I limit myself to concurrence in the result, it is primarily because
with the article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in
restating doctrines that arose from a different basic premise as to the scope of such power in
accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am
unable to share fully what for me are the nuances and implications that could arise from the
approach taken by my brethren. Likewise as to the constitutional aspect of the thorny question of
double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1
1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "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. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested with
the power of control over all executive departments, bureaus, or offices, he could only . It exercise
general supervision over all local governments as may be provided by law ... 3 As far as legislative power
over local government was concerned, no restriction whatsoever was placed on the Congress of the
Philippines. It would appear therefore that the extent of the taxing power was solely for the legislative
body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing
power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy
Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy
Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the
traditional concept in these words: "The rule is well-settled that municipal corporations, unlike sovereign
states, after clothed with no power of taxation; that its charter or a statute must clearly show an intent to
confer that power or the municipal corporation cannot assume and exercise it, and that any such power

granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality." 7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an
attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to
weakness of a claim "based merely by inferences, implications and deductions, [as they have no place in
the interpretation of the power to tax of a municipal corporation." 10 As the conclusion reached by the
Court finds support in such grant of the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced by
this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is not violative of due process,
Justice Holmes made clear in this language: 'The objection to the taxation as double may be laid down on
one side. ... The 14th Amendment [the due process clause) no more forbids double taxation than it does
doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other grouse With
that decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey of
double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in
the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a
1947 decision, however, we quoted with approval this excerpt from a leading American decision: 'Where,
as here, Congress has clearly expressed its intention, the statute must be sustained even though double
taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal
taxation, I am only in agreement. If I limit myself to concurrence in the result, it is primarily because
with the article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in
restating doctrines that arose from a different basic premise as to the scope of such power in
accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am
unable to share fully what for me are the nuances and implications that could arise from the
approach taken by my brethren. Likewise as to the constitutional aspect of the thorny question of
double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1
1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "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. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested with
the power of control over all executive departments, bureaus, or offices, he could only . It exercise
general supervision over all local governments as may be provided by law ... 3 As far as legislative power
over local government was concerned, no restriction whatsoever was placed on the Congress of the
Philippines. It would appear therefore that the extent of the taxing power was solely for the legislative
body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing
power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy
Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy

Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the
traditional concept in these words: "The rule is well-settled that municipal corporations, unlike sovereign
states, after clothed with no power of taxation; that its charter or a statute must clearly show an intent to
confer that power or the municipal corporation cannot assume and exercise it, and that any such power
granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality." 7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an
attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to
weakness of a claim "based merely by inferences, implications and deductions, [as they have no place in
the interpretation of the power to tax of a municipal corporation." 10 As the conclusion reached by the
Court finds support in such grant of the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced by
this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is not violative of due process,
Justice Holmes made clear in this language: 'The objection to the taxation as double may be laid down on
one side. ... The 14th Amendment [the due process clause) no more forbids double taxation than it does
doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other grouse With
that decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey of
double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in
the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a
1947 decision, however, we quoted with approval this excerpt from a leading American decision: 'Where,
as here, Congress has clearly expressed its intention, the statute must be sustained even though double
taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.
Footnotes

1 "Sec. 2. Taxation. Any provision of law to the contrary notwithstanding, all

chartered cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising private in chartered cities, municipalities and municipal
districts by requiring them to secure licenses at rates fixed by the municipal board or
city council of the city, the municipal council of the municipality, or the municipal
district council of the municipal district to collect fees and charges for service
rendered by the city, municipality or municipal district; to regulate and impose
reasonable for services rendered in connection with any business, profession
occupation being conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes, licenses or fees:
Provided, That municipalities and municipal districts shall, in no case, impose any
percentage tax on sales or other taxes in any form based thereon nor impose taxes
on articles subject to specific tax, except gasoline, under the provisions of the
National Internal Revenue Code: Provided, however, That no city, municipality or
municipal district may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of any newspaper engaged in the printing and publication
of any newspaper, magazine, review or bulletin appearing at regular interval and

having fixed prices for subscription and sale, and which is not published primarily for
the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities except
electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage on wharves owned by the national
government, tonnage and all other kinds of customs fees, charges and dues;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise
tax:
(k) Taxes on premiums paid by owners of property who obtain insurance directly with
foreign insurance companies; and
(i) Taxes, fees or levies, of any kind, which in effect impose a burden on exports of
Philippine finished, manufactured or processed products and products of Philippine
cottage industries.
2 Section 2.
3 Section 3.
4 Section 2.
5 Section 3.
6 Cooley, The Law of Taxation, Vol. 1, Fourth Edition, 149-150.
7 Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of Butuan, L-22814, August 28,
1968, 24 SCRA 793-96.
8 Rubi v. Prov. Brd. of Mindoro, 39 Phil. 702 (1919).
9 Cooley, ante at 190.
10 Idem at 198-200.
11 Malcolm, Philippine Constitutional Law, 513-14.
12 Cooley ante at 334.

13 See footnote 1.
14 Pepsi-Cola Bottling Co. of the Phil. Inc. vs. City of Butuan, 1, 2S 1 4, August 28,
1968, 24 SCRA 793-96. See Sec. 22, Art. VI, 1935
Constitution and Sec. 17 (1), Art. VIII, 1973 Constitution.
15 Commissioner of Internal Revenue v. Lednicky L- 18169, July 31, 1964, 11 SCRA
609.
16 SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280.
17 Punzalan v. Mun. Bd of City of Manila, 50 O.G. 2485; manufacturers Life Ins. Co.
v. Meer, 89 Phil. 351 (1951).
18 McQuillin. Municipal Corporations, 3rd. Ed., Vol. 6, at 206.-210.
19 Villanueva v. City of Iloilo, L-26521, December 28, 1968, 26 SCRA 585-86; Nin
Bay Mining Co. v. Mun. of Roxas, Palawan, L-20125, July 20, 1965, 14 SCRA 66364.
20 Arabay, Inc. v. CFI of Zamboanga del Norte, et al., L-27684, September 10, 1975.
21 SMB, Inc. v. City of Cebu, ante, Footnote 16.
22 Shell Co. of P.I. Ltd. v. Vao, 94 Phil. 394-95 (1954); Sections 123-148, NIRC; RA
No. 953, Narcotic Drugs Law, June 20, 1953.
23 Brief, defendants-appellees, at 14. A regular bottle of Pepsi-Cola soft drinks
contains 8 oz., or 192 oz. per case of 24 bottles; a family-size contains 26 oz., or 312
oz. per case of 12 bottles.
24 See Pepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan, ante, Footnote 14,
where the tax rate is P.10 per case of 24 bottles; City of Bacolod v. Gruet, L-18290,
January 31, 1963, 7 SCRA 168-69, where the tax is P.03 on every case of bottled
Coca-Coal.
25 Northern Philippines Tobacco Corp. v. Mun. of Agoo, La Union, L-26447, January
30, 1971, 31 SCRA 308.
26 William Lines, Inc. v. City of Ozamis, L-350048, April 23, 1974, 56 SCRA 593,
Second Division, per Fernando, J.
27 Victorias Milling Co. v. Mun. of Victorias, L-21183, September 27, 1968, 25 SCRa
205.
28 Procter & Gamble Trading Co. v. Mun. of Medina, Misamis Oriental, L-29125,
January 31, 1973, 43 SCRA 133-34.

29 Subject of plaintiff-appellant's Motion for Admission and consideration of Essential

Newly Dissevered Evidence, dated April 30, 1969.
FERNANDO, J.
1 L-24756, October 31, 1968, 25 SCRA 938.
2 Article XI, Section 5 of the present Constitution.
3 Article VII, Section 10 of the 1935 Constitution.
4 Commonwealth Act 472 entitled: "An Act Revising the General Authority of
Municipal Councils and Municipal District Councils to Levy Taxes, Subject to Certain
Limitations."
5 Republic Act No. 2264.
6 L-18534, December 24,1964,12 SCRA 611.
7 Ibid, 619. Cf. Cuunjieng v. Potspone, 42 Phil. 818 (1922); De Linan v. Municipal
Council of Daet, 44 Phil. 792 (1923); Arquiza Luta v. Municipality of Zamboanga, 50
Phil. 748 (1927; Hercules Lumber Co. v. Zamboanga, 55 Phil. 653 (1931); Yeo Loby
v. Zamboanga, 55 Phil. 656 (1931); People v. Carreon, 65 Phil. 588 (1939); Yap Tak
Wing v. Municipal Board, 68 Phil. 511 (1939); Eastern Theatrical Co. v. Alfonso 83
Phil. 852 (1949); De la Rosa v. City of Baguio, 91 Phil. 720 (I!)52); Medina v. City of
Baguio, 91 Phil. 854 (1952); Standard-Vacuum Oil Co. v. Antigua, 96 Phil. 909
(1955); Municipal Government of Pagsanjan v. Reyes, 98 Phil. 654 (1956), We Wa
Yu v. City of Lipa, Phil. 975 (1956); Municipality of Cotabato v. Santos, 105 Phil. 963
(1959).
8 L-14264, April 30, 1963, 7 SCRA 887.
9 Ibid, 892.
10 Ibid.
11 L-24756, October 31, 1968, 25 SCRA 938.
12 Ibid, 943-944.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-44143 August 31, 1988

THE PEOPLE OF THE PHILIPPINES, plaintiff,

vs.
EUSEBIO NAZARIO, accused-appellant.
The Solicitor General for plaintiff-appellee.
Teofilo Ragodon for accused-appellant.

SARMIENTO, J.:
The petitioner was charged with violation of certain municipal ordinances of the municipal council of
Pagbilao, in Quezon province. By way of confession and avoidance, the petitioner would admit
having committed the acts charged but would claim that the ordinances are unconstitutional, or,
assuming their constitutionality, that they do not apply to him in any event.
The facts are not disputed:
This defendant is charged of the crime of Violation of Municipal Ordinance in an
information filed by the provincial Fiscal, dated October 9, 1968, as follows:
That in the years 1964, 1965 and 1966, in the Municipality of
Pagbilao, Province of Quezon, Philippines, and within the jurisdiction
of this Honorable Court, the above-named accused, being then the
owner and operator of a fishpond situated in the barrio of
Pinagbayanan, of said municipality, did then and there willfully,
unlawfully and feloniously refuse and fail to pay the municipal taxes in
the total amount of THREE HUNDRED SIXTY TWO PESOS AND
SIXTY TWO CENTAVOS (P362.62), required of him as fishpond
operator as provided for under Ordinance No. 4, series of 1955, as
amended, inspite of repeated demands made upon him by the
Municipal Treasurer of Pagbilao, Quezon, to pay the same.
Contrary to law.
For the prosecution the following witnesses testified in substance as follows;
MIGUEL FRANCIA, 39 years of age, married, farmer and resident of Lopez, Quezon

In 1962 to 1967, I resided at Pinagbayanan, Pagbilao, Quezon. I know the accused

as I worked in his fishpond in 1962 to 1964. The fishpond of Nazario is at
Pinagbayanan, Pagbilao, Quezon. I worked in the clearing of the fishpond, the
construction of the dikes and the catching of fish.

On cross-examination, this witness declared:

I worked with the accused up to March 1964.
NICOLAS MACAROLAY, 65 years of age, married, copra maker and resident of
Pinagbayanan, Pagbilao, Quezon
I resided at Pinagbayanan, Pagbilao, Quezon since 1959 up to the present. I know
the accused since 1959 when he opened a fishpond at Pinagbayanan, Pagbilao,
Quezon. He still operates the fishpond up to the present and I know this fact as I am
the barrio captain of Pinagbayanan.
On cross-examination, this witness declared:
I came to know the accused when he first operated his fishpond since 1959.
On re-direct examination, this witness declared:
I was present during the catching of fish in 1967 and the accused was there.
On re-cross examination, this witness declared:
I do not remember the month in 1962 when the accused caught fish.
RODOLFO R. ALVAREZ, 45 years old, municipal treasurer of Pagbilao, Quezon,
married
As Municipal Treasurer I am in charge of tax collection. I know the accused even
before I was Municipal Treasurer of Pagbilao. I have written the accused a letter
asking him to pay his taxes (Exhibit B). Said letter was received by the accused as
per registry return receipt, Exhibit B-1. The letter demanded for payment of P362.00,
more or less, by way of taxes which he did not pay up to the present. The former
Treasurer, Ceferino Caparros, also wrote a letter of demand to the accused (Exhibit
C). On June 28, 1967, I sent a letter to the Fishery Commission (Exhibit D),
requesting information if accused paid taxes with that office. The Commission sent
me a certificate (Exhibits D-1, D-2 & D-3). The accused had a fishpond lease
agreement. The taxes unpaid were for the years 1964, 1965 and 1966.
On cross-examination, this witness declared:
I have demanded the taxes for 38.10 hectares.
On question of the court, this witness declared:
What I was collecting from the accused is the fee on fishpond operation, not rental.

The prosecution presented as part of their evidence Exhibits A, A-1, A-2, B, B-2, C,
D, D-1, D-2, D-3, E, F, F-1 and the same were admitted by the court, except Exhibits
D, D-1, D-2 and D-3 which were not admitted for being immaterial.
For the defense the accused EUSEBIO NAZARIO, 48 years of age, married, owner
and general manager of the ZIP Manufacturing Enterprises and resident of 4801 Old
Sta. Mesa, Sampaloc, Manila, declared in substance as follows:
I have lived in Sta. Mesa, Manila, since 1949. I buy my Residence Certificates at
Manila or at San Juan. In 1964, 1965 and 1966, I was living in Manila and my
business is in Manila and my family lives at Manila. I never resided at Pagbilao,
Quezon. I do not own a house at Pagbilao. I am a lessee of a fishpond located at
Pagbilao, Quezon, and I have a lease agreement to that effect with the Philippine
Fisheries Commission marked as Exhibit 1. In 1964, 1965 and 1966, the contract of
lease, Exhibit 1, was still existing and enforceable. The Ordinances Nos. 4, 15 and
12, series of 1955, 1965 and 1966, were translated into English by the Institute of
National Language to better understand the ordinances. There were exchange of
letters between me and the Municipal Treasurer of Pagbilao regarding the payment
of the taxes on my leased fishpond situated at Pagbilao. There was a letter of
demand for the payment of the taxes by the treasurer (Exhibit 3) which I received by
mail at my residence at Manila. I answered the letter of demand, Exhibit 3, with
Exhibit 3-A. I requested an inspection of my fishpond to determine its condition as it
was not then in operation. The Municipal Treasurer Alvarez went there once in 1967
and he found that it was destroyed by the typhoon and there were pictures taken
marked as Exhibits 4, 4-A, 4-B and 4C. I received another letter of demand, Exhibit
5, and I answered the same (Exhibit 5-A). I copied my reference quoted in Exhibit 5A from Administrative Order No. 6, Exhibit 6. I received another letter of demand from
Tomas Ornedo, Acting Municipal Treasurer of Pagbilao, dated February 16, 1966,
Exhibit 7, and I answered the same with the letter marked as Exhibit 7-A, dated
February 26, 1966. I received another letter of demand from Treasurer Alvarez of
Pagbilao, Exhibit 8, and I answered the same (Exhibit 8-A). In 1964, I went to
Treasurer Caparros to ask for an application for license tax and he said none and he
told me just to pay my taxes. I did not pay because up to now I do not know whether I
am covered by the Ordinance or not. The letters of demand asked me to pay
different amounts for taxes for the fishpond. Because under Sec. 2309 of the
Revised Administrative Code, municipal taxes lapse if not paid and they are
collecting on a lapsed ordinance. Because under the Tax Code, fishermen are
exempted from percentage tax and privilege tax. There is no law empowering the
municipality to pass ordinance taxing fishpond operators.
The defense presented as part of their evidence Exhibits 1, 2, 3, 3-A, 4, 4-B, 4-B, 4C, 5, 5-A, 6, 6-A, 6-B, 6-C, 7, 7-A, 8 and 8-A and the same were admitted by the
court.
From their evidence the prosecution would want to show to the court that the
accused, as lessee or operator of a fishpond in the municipality of Pagbilao, refused,

and still refuses, to pay the municipal taxes for the years 1964, 1965 and 1966, in
violation of Municipal Ordinance No. 4, series of 1955, as amended by Municipal
Ordinance No. 15, series of 1965, and finally amended by Municipal Ordinance No.
12, series of 1966.
On the other hand, the accused, by his evidence, tends to show to the court that the
taxes sought to be collected have already lapsed and that there is no law
empowering municipalities to pass ordinances taxing fishpond operators. The
defense, by their evidence, tried to show further that, as lessee of a forest land to be
converted into a fishpond, he is not covered by said municipal ordinances; and finally
that the accused should not be taxed as fishpond operator because there is no
fishpond yet being operated by him, considering that the supposed fishpond was
under construction during the period covered by the taxes sought to be collected.
Finally, the defendant claims that the ordinance in question is ultra vires as it is
outside of the power of the municipal council of Pagbilao, Quezon, to enact; and that
the defendant claims that the ordinance in question is ambiguous and uncertain.
There is no question from the evidences presented that the accused is a lessee of a
parcel of forest land, with an area of 27.1998 hectares, for fishpond purposes, under
Fishpond Lease Agreement No. 1066, entered into by the accused and the
government, through the Secretary of Agriculture and Natural Resources on August
21, 1959.
There is no question from the evidences presented that the 27.1998 hectares of land
leased by the defendant from the government for fishpond purposes was actually
converted into fishpond and used as such, and therefore defendant is an operator of
a fishpond within the purview of the ordinance in question. 1
The trial Court 2 returned a verdict of guilty and disposed as follows:
VIEWED IN THE LIGHT OF ALL THE FOREGOING, the Court finds the accused guilty beyond
reasonable doubt of the crime of violation of Municipal Ordinance No. 4, series of 1955, as amended
by Ordinance No. 15, series of 1965 and further amended by Ordinance No. 12, series of 1966, of
the Municipal Council of Pagbilao, Quezon; and hereby sentences him to pay a fine of P50.00, with
subsidiary imprisonment in case of insolvency at the rate of P8.00 a day, and to pay the costs of this
proceeding.
SO ORDERED. 3
In this appeal, certified to this Court by the Court of Appeals, the petitioner alleges that:
I.
THE LOWER COURT ERRED IN NOT DECLARING THAT ORDINANCE NO. 4, SERIES OF 1955,
AS AMENDED BY ORDINANCE NO. 15, SERIES OF 1965, AND AS FURTHER AMENDED BY

ORDINANCE NO. 12, SERIES OF 1966, OF THE MUNICIPALITY OF PAGBILAO, QUEZON, IS

NULL AND VOID FOR BEING AMBIGUOUS AND UNCERTAIN.
II.
THE LOWER COURT ERRED IN NOT HOLDING THAT THE ORDINANCE IN QUESTION, AS
AMENDED, IS UNCONSTITUTIONAL FOR BEING EX POST FACTO.
III.
THE LOWER COURT ERRED IN NOT HOLDING THAT THE ORDINANCE IN QUESTION
COVERS ONLY OWNERS OR OVERSEER OF FISHPONDS OF PRIVATE OWNERSHIP AND NOT
TO LESSEES OF PUBLIC LANDS.
IV.
THE LOWER COURT ERRED IN NOT FINDING THAT THE QUESTIONED ORDINANCE, EVEN IF
VALID, CANNOT BE ENFORCED BEYOND THE TERRITORIAL LIMITS OF PAGBILAO AND DOES
NOT COVER NONRESIDENTS. 4
The ordinances in question are Ordinance No. 4, series of 1955, Ordinance No. 15, series of 1965,
and Ordinance No. 12, series of 1966, of the Municipal Council of Pagbilao. Insofar as pertinent to
this appeal, the salient portions thereof are hereinbelow quoted:
Section 1. Any owner or manager of fishponds in places within the territorial limits of
Pagbilao, Quezon, shall pay a municipal tax in the amount of P3.00 per hectare of
fishpond on part thereof per annum. 5
xxx xxx xxx
Sec. l (a). For the convenience of those who have or owners or managers of
fishponds within the territorial limits of this municipality, the date of payment of
municipal tax relative thereto, shall begin after the lapse of three (3) years starting
from the date said fishpond is approved by the Bureau of Fisheries. 6
xxx xxx xxx
Section 1. Any owner or manager of fishponds in places within the territorial limits of
Pagbilao shall pay a municipal tax in the amount of P3.00 per hectare or any fraction
thereof per annum beginning and taking effect from the year 1964, if the fishpond
started operating before the year 1964. 7
The first objection refers to the ordinances being allegedly "ambiguous and uncertain." 8 The
petitioner contends that being a mere lessee of the fishpond, he is not covered since the said ordinances
speak of "owner or manager." He likewise maintains that they are vague insofar as they reckon the date

of payment: Whereas Ordinance No. 4 provides that parties shall commence payment "after the lapse of
three (3) years starting from the date said fishpond is approved by the Bureau of Fisheries." 9 Ordinance
No. 12 states that liability for the tax accrues "beginning and taking effect from the year 1964 if the
fishpond started operating before the year 1964." 10

As a rule, a statute or act may be said to be vague when it lacks comprehensible standards that men
"of common intelligence must necessarily guess at its meaning and differ as to its application." 11 It is
repugnant to the Constitution in two respects: (1) it violates due process for failure to accord persons,
especially the parties targetted by it, fair notice of the conduct to avoid; and (2) it leaves law enforcers
unbridled discretion in carrying out its provisions and becomes an arbitrary flexing of the Government
muscle.
But the act must be utterly vague on its face, that is to say, it cannot be clarified by either a saving
clause or by construction. Thus, in Coates v. City of Cincinnati, 12 the U.S. Supreme Court struck down
an ordinance that had made it illegal for "three or more persons to assemble on any sidewalk and there
conduct themselves in a manner annoying to persons passing by." 13 Clearly, the ordinance imposed no
standard at all "because one may never know in advance what 'annoys some people but does not annoy
others.' " 14
Coates highlights what has been referred to as a "perfectly vague" 15 act whose obscurity is evident on
its face. It is to be distinguished, however, from legislation couched in imprecise language but which
nonetheless specifies a standard though defectively phrased in which case, it may be "saved" by
proper construction.
It must further be distinguished from statutes that are apparently ambiguous yet fairly applicable to
certain types of activities. In that event, such statutes may not be challenged whenever directed
against such activities. In Parker v. Levy, 16 a prosecution originally under the U.S. Uniform Code of
Military Justice (prohibiting, specifically, "conduct unbecoming an officer and gentleman"), the defendant,
an army officer who had urged his men not to go to Vietnam and called the Special Forces trained to fight
there thieves and murderers, was not allowed to invoke the void for vagueness doctrine on the premise
that accepted military interpretation and practice had provided enough standards, and consequently, a fair
notice that his conduct was impermissible.
It is interesting that in Gonzales v. Commission on Elections, 17 a divided Court sustained an act of
Congress (Republic Act No. 4880 penalizing "the too early nomination of candidates" 18 limiting the
election campaign period, and prohibiting "partisan political activities"), amid challenges of vagueness and
overbreadth on the ground that the law had included an "enumeration of the acts deemed included in the
terms 'election campaign' or 'partisan political activity" 19 that would supply the standards. "As thus limited,
the objection that may be raised as to vagueness has been minimized, if not totally set at rest." 20 In his
opinion, however, Justice Sanchez would stress that the conduct sought to be prohibited "is not clearly
defined at all." 21 "As worded in R.A 4880, prohibited discussion could cover the entire spectrum of
expression relating to candidates and political parties." 22 He was unimpressed with the "restrictions"
Fernando's opinion had relied on: " 'Simple expressions of opinions and thoughts concerning the election'
and expression of 'views on current political problems or issues' leave the reader conjecture, to
guesswork, upon the extent of protection offered, be it as to the nature of the utterance ('simple
expressions of opinion and thoughts') or the subject of the utterance ('current political problems or
issues')." 23

The Court likewise had occasion to apply the "balancing-of-interests" test, 24 insofar as the statute's
ban on early nomination of candidates was concerned: "The rational connection between the prohibition
of Section 50-A and its object, the indirect and modest scope of its restriction on the rights of speech and
assembly, and the embracing public interest which Congress has found in the moderation of partisan
political activity, lead us to the conclusion that the statute may stand consistently with and does not offend
the Constitution." 25 In that case, Castro would have the balance achieved in favor of State authority at the
"expense" of individual liberties.
In the United States, which had ample impact on Castro's separate opinion, the balancing test finds
a close kin, referred to as the "less restrictive alternative " 26 doctrine, under which the court searches
for alternatives available to the Government outside of statutory limits, or for "less drastic means" 27 open
to the State, that would render the statute unnecessary. In United States v. Robel, 28 legislation was
assailed, banning members of the (American) Communist Party from working in any defense facility. The
U.S. Supreme Court, in nullifying the statute, held that it impaired the right of association, and that in any
case, a screening process was available to the State that would have enabled it to Identify dangerous
elements holding defense positions. 29 In that event, the balance would have been struck in favor of
individual liberties.
It should be noted that it is in free expression cases that the result is usually close. It is said,
however, that the choice of the courts is usually narrowed where the controversy involves say,
economic rights, 30 or as in the Levycase, military affairs, in which less precision in analysis is required
and in which the competence of the legislature is presumed.
In no way may the ordinances at bar be said to be tainted with the vice of vagueness. It is
unmistakable from their very provisions that the appellant falls within its coverage. As the actual
operator of the fishponds, he comes within the term " manager." He does not deny the fact that he
financed the construction of the fishponds, introduced fish fries into the fishponds, and had
employed laborers to maintain them. 31 While it appears that it is the National Government which owns
them, 32 the Government never shared in the profits they had generated. It is therefore only logical that he
shoulders the burden of tax under the said ordinances.
We agree with the trial court that the ordinances are in the character of revenue
measures 33 designed to assist the coffers of the municipality of Pagbilao. And obviously, it cannot be the
owner, the Government, on whom liability should attach, for one thing, upon the ancient principle that the
Government is immune from taxes and for another, since it is not the Government that had been making
money from the venture.
Suffice it to say that as the actual operator of the fishponds in question, and as the recipient of profits
brought about by the business, the appellant is clearly liable for the municipal taxes in question. He
cannot say that he did not have a fair notice of such a liability to make such ordinances vague.
Neither are the said ordinances vague as to dates of payment. There is no merit to the claim that
"the imposition of tax has to depend upon an uncertain date yet to be determined (three years after
the 'approval of the fishpond' by the Bureau of Fisheries, and upon an uncertain event (if the
fishpond started operating before 1964), also to be determined by an uncertain individual or
individuals." 34 Ordinance No. 15, in making the tax payable "after the lapse of three (3) years starting
from the date said fishpond is approved by the Bureau of Fisheries," 35 is unequivocal about the date of

payment, and its amendment by Ordinance No. 12, reckoning liability thereunder "beginning and taking
effect from the year 1964 if the fishpond started operating before the year 1964 ," 36 does not give rise to
any ambiguity. In either case, the dates of payment have been definitely established. The fact that the
appellant has been allegedly uncertain about the reckoning dates as far as his liability for the years
1964, 1965, and 1966 is concerned presents a mere problem in computation, but it does not make the
ordinances vague. In addition, the same would have been at most a difficult piece of legislation, which is
not unfamiliar in this jurisdiction, but hardly a vague law.

As it stands, then, liability for the tax accrues on January 1, 1964 for fishponds in operation prior
thereto (Ordinance No. 12), and for new fishponds, three years after their approval by the Bureau of
Fisheries (Ordinance No. 15). This is so since the amendatory act (Ordinance No. 12) merely
granted amnesty unto old, delinquent fishpond operators. It did not repeal its mother ordinances
(Nos. 4 and 15). With respect to new operators, Ordinance No. 15 should still prevail.
To the Court, the ordinances in question set forth enough standards that clarify imagined
ambiguities. While such standards are not apparent from the face thereof, they are visible from the
intent of the said ordinances.
The next inquiry is whether or not they can be said to be ex post facto measures. The appellant
argues that they are: "Amendment No. 12 passed on September 19, 1966, clearly provides that the
payment of the imposed tax shall "beginning and taking effect from the year 1964, if the fishpond
started operating before the year 1964.' In other words, it penalizes acts or events occurring before
its passage, that is to say, 1964 and even prior thereto." 37
The Court finds no merit in this contention. As the Solicitor General notes, "Municipal Ordinance No.
4 was passed on May 14, 1955. 38 Hence, it cannot be said that the amendment (under Ordinance No.
12) is being made to apply retroactively (to 1964) since the reckoning period is 1955 (date of enactment).
Essentially, Ordinances Nos. 12 and 15 are in the nature of curative measures intended to facilitate and
enhance the collection of revenues the originally act, Ordinance No. 4, had prescribed. 39 Moreover, the
act (of non-payment of the tax), had been, since 1955, made punishable, and it cannot be said that
Ordinance No. 12 imposes a retroactive penalty. As we have noted, it operates to grant amnesty to
operators who had been delinquent between 1955 and 1964. It does not mete out a penalty, much less, a
retrospective one.
The appellant assails, finally, the power of the municipal council of Pagbilao to tax "public forest
land." 40 In Golden Ribbon Lumber Co., Inc. v. City of Butuan 41 we held that local governments' taxing
power does not extend to forest products or concessions under Republic Act No. 2264, the Local
Autonomy Act then in force. (Republic Act No. 2264 likewise prohibited municipalities from imposing
percentage taxes on sales.)
First of all, the tax in question is not a tax on property, although the rate thereof is based on the area
of fishponds ("P3.00 per hectare" 42). Secondly, fishponds are not forest lands, although we have held
them to the agricultural lands. 43By definition, "forest" is "a large tract of land covered with a natural growth
of trees and underbush; a large wood." 44(Accordingly, even if the challenged taxes were directed on the
fishponds, they would not have been taxes on forest products.)

They are, more accurately, privilege taxes on the business of fishpond maintenance. They are not
charged against sales, which would have offended the doctrine enshrined by Golden Ribbon
Lumber, 45 but rather on occupation, which is allowed under Republic Act No. 2264. 46 They are what have
been classified as fixed annual taxes and this is obvious from the ordinances themselves.
There is, then, no merit in the last objection.
WHEREFORE, the appeal is DISMISSED. Costs against the appellant.
Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Padilla, Bidin, Cortes, Grio-Aquino
and Medialdea, JJ., concur.
Melencio-Herrera, and Regalado, J., took no part.
Gancayco, J., is on leave.

Footnotes
1 Rollo, 7-13.
2 Court of First Instance of Quezon, Branch 11, Hon. Manolo Madella, Presiding
Judge.
3 Rollo, Id., 14.
4 Brief of Appellant, 1-2.
5 Mun. Ord. No. 4 (1955), Id., 3.
6 Mun. Ord. No. 15 (1965), Id., 4.
7 Mun. Ord. No. 12 (1966), Id.
8 Id., 6.
9 Id., 4.
10 Id.
11 TRIBE, AMERICAN CONSTITUTIONAL LAW 718 (1978), citing Connally v.
General Construction Co., 269 U.S. 385 (1926).
12 402 U.S. 611 (1971); see TRIBE, Id., 720-721.

13 See TRIBE, Id.

14 Id., 721.
15 Id., 720.
16 417 U.S. 733 (1974); see TRIBE, Id., 721.
17 No. L-27833, April 8, 1969, 27 SCRA 835, per Fernando, J.
18 Supra, 850.
19 Supra, 867.
20 Supra, 868.
21 Supra, 884; Sanchez, J., concurring and dissenting.
22 Supra.
23 Supra, 885.
24 Supra; see Castro, J., Separate Opinion, 888-913.
25 Supra, 902.
26 TRIBE, Id., 722.
27 Id.; see Shelton v. Tucker, 364 U.S. 479 (1960).
28 389 U.S. 258 (1967).
29 See TRIBE, Id., 723.
30 Id., 721.
31 Brief for the Appellee, 5.
32 It was the then Undersecretary of Agriculture and Natural Resources who signed
the lease contract.
33 Rollo, Id., 13.
34 Brief of Appellant, Id., 8.
35 Id., 4.

36 Id.
37 Id., 10.
38 Brief for the Appellee, Id., 8.
39 MARTIN, STATUTORY CONSTRUCTION 31-32 (1984).
40 Brief of Appellant, Id., 11 -12.
41 No. L-18535, December 24, 1964,12 SCRA 611.
42 Brief of Appellant, Id., 3.
43 Santiago v. Insular Government, 12 Phil. 593 (1909).
44 Ramos v. Director of Lands, 39 Phil. 175 (1918).
45 Supra.
46 See Northern Philippines Tobacco Corporation v. Municipality of Agoo, La Union,
No. L-26447, January 30, 1970, 31 SCRA 304.

SECOND DIVISION

[G.R. No. 125948. December 29, 1998]

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT

OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS
CITY and ADORACION C. ARELLANO, in her official capacity as
City Treasurer of Batangas, respondents.
DECISION
MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.

Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967[1] and renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent
City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year
1993 pursuant to the Local Government Code.[3] The respondent City Treasurer assessed a
business tax on the petitioner amounting to P956,076.04 payable in four installments based on
the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted
to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in
the amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

"Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on
gross receipts under Section 133 of the Local Government Code of 1991 x x x x
"Moreover, Transportation contractors are not included in the enumeration of
contractors under Section 131, Paragraph (h) of the Local Government
Code. Therefore, the authority to impose tax 'on contractors and other independent
contractors' under Section 143, Paragraph (e) of the Local Government Code does not
include the power to levy on transportation contractors.
"The imposition and assessment cannot be categorized as a mere fee authorized under
Section 147 of the Local Government Code. The said section limits the imposition of
fees and charges on business to such amounts as may be commensurate to the cost of
regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable
for the license fee, the imposition thereof based on gross receipts is violative of the
aforecited provision. The amount of P956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing. The fee is already a
revenue raising measure, and not a mere regulatory imposition." [4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against respondents
City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to

impose and collect a tax on the gross receipts of "contractors and independent contractors" under
Sec. 141 (e) and 151 does not include the authority to collect such taxes on transportation
contractors for, as defined under Sec. 131 (h), the term "contractors" excludes transportation
contractors; and, (3) the City Treasurer illegally and erroneously imposed and collected the said
tax, thus meriting the immediate refund of the tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the term
"common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under the said code pertains to
the mode or manner by which a product is delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in
this wise:

"xxx Plaintiff is either a contractor or other independent contractor.

xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that
tax exemptions are to be strictly construed against the taxpayer, taxes being the
lifeblood of the government. Exemption may therefore be granted only by clear and
unequivocal provisions of law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387,
(Exhibit A) whose concession was lately renewed by the Energy Regulatory Board
(Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption
upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137
of the Local Tax Code. Such being the situation obtained in this case (exemption
being unclear and equivocal) resort to distinctions or other considerations may be of
help:
1.

That the exemption granted under Sec. 133 (j) encompasses

only common carriers so as not to overburden the riding public or
commuters with taxes. Plaintiff is not a common carrier, but a
special carrier extending its services and facilities to a single
specific or "special customer" under a "special contract."

2.

The Local Tax Code of 1992 was basically enacted to give

more and effective local autonomy to local governments than the
previous enactments, to make them economically and financially
viable to serve the people and discharge their functions with a

concomitant obligation to accept certain devolution of powers, x x

x So, consistent with this policy even franchise grantees are taxed
(Sec. 137) and contractors are also taxed under Sec. 143 (e) and
151 of the Code."[9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and
adjudication.[10] On November 29, 1995, the respondent court rendered a decision [11] affirming the
trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was
denied on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this Court in
a Resolution[14] of January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm
or association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:

1.

He must be engaged in the business of carrying goods for others as a

public employment, and must hold himself out as ready to engage in the
transportation of goods for person generally as a business and not as a
casual occupation;

2.

He must undertake to carry goods of the kind to which his business is

confined;

3.

He must undertake to carry by the method by which his business is

conducted and over his established roads; and

4.

The transportation must be for hire.[15]

Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum
products, for hire as a public employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services, and transports the goods by land and for

compensation. The fact that petitioner has a limited clientele does not exclude it from the
definition of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that:

"The above article (Art. 1732, Civil Code) makes no distinction between one whose
principal business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as a 'sideline'). Article
1732 x x x avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the 'general public,' i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to
coincide neatly with the notion of 'public service,' under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b)
of the Public Service Act, 'public service' includes:
'every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation
of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and
power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services.' "(Underscoring Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does
not provide that the transportation of the passengers or goods should be by motor vehicle. In
fact, in the United States, oil pipe line operators are considered common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:

"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the
preferential right to utilize installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by others for transport, and
to charge without discrimination such rates as may have been approved by the
Secretary of Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:

"that everything relating to the exploration for and exploitation of petroleum x x and
everything relating to the manufacture, refining, storage, or transportation by special
methods of petroleum, is hereby declared to be a public utility." (Underscoring
Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In
BIR Ruling No. 069-83, it declared:

"x x x since [petitioner] is a pipeline concessionaire that is engaged only in

transporting petroleum products, it is considered a common carrier under Republic
Act No. 387 x x x. Such being the case, it is not subject to withholding tax prescribed
by Revenue Regulations No. 13-78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:

"Section 133. Common Limitations on the Taxing Powers of Local Government

Units. - Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following :
xxx

(j)

xxx

xxx

Taxes on the gross receipts of transportation contractors and persons

engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code."

The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:

"MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now
Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." x
xx
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This
appears to be one of those being deemed to be exempted from the taxing powers of
the local government units. May we know the reason why the transportation
business is being excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now
Sec. 131), line 16, paragraph 5. It states that local government units may not impose
taxes on the business of transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can
see there that provinces have the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1 percent of the gross annual
receipts. So, transportation contractors who are enjoying a franchise would be subject
to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by
local government units on the carrier business. Local government units may
impose taxes on top of what is already being imposed by the National Internal
Revenue Code which is the so-called "common carriers tax." We do not want a
duplication of this tax, so we just provided for an exception under Section 125
[now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.[19] To tax petitioner again on its gross
receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court
of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET
ASIDE.
SO ORDERED.

Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.

[1]

Rollo, pp. 90-94.

[2]

Decision of the Energy Regulatory Board in ERB Case No. 92-94, renewing the Pipeline Concession of petitioner
First Philippine Industrial Corporation, formerly known as Meralco Securities Industrial Corporation , (Rollo, pp.
95-100).
[3]

Sec. 143. Tax on Business. The municipality may impose taxes on the following business:

xxx
xxx
xxx
(e) On contractors and other independent contractors, in accordance with the following schedule:
With gross receipts for the preceding
Amount of Tax Per Annum
Calendar year in the amount:
xxx
xxx
P2,000,000.00 or more
at a rate not exceeding fifty
Percent (50%) of one (1%)
[4]

Letter Protest dated January 20, 1994, Rollo, pp. 110-111.

[5]

Letter of respondent City Treasurer, Rollo, p. 112.

[6]

Complaint, Annex "C", Rollo, pp. 51-56.

[7]

Rollo, pp. 51-57.

[8]

Answer, Annex "J", Rollo, pp. 122-127.

[9]

RTC Decision, Rollo, pp. 58-62.

[10]

Rollo, p. 84.

[11]

CA-G.R. SP No.36801; Penned by Justice Jose C. De la Rama and concurred in by Justice Jaime M. Lantin and
Justice Eduardo G. Montenegro; Rollo, pp. 33-47.
[12]

Rollo, p. 49.

[13]

Resolution dated November 11, 1996 excerpts of which are hereunder quoted:

"The petition is unmeritorious.

"As correctly ruled by respondent appellate court, petitioner is not a common carrier as it is not offering
its services to the public.
"Art. 1732 of the Civil Code defines Common Carriers as: persons, corporations, firms or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
"We sustain the view that petitioner is a special carrier. Based on the facts on hand, it appears that
petitioner is not offering its services to the public.
"We agree with the findings of the appellate court that the claim for exemption from taxation must be
strictly construed against the taxpayer. The present understanding of the concept of "common carriers" does not
include carriers of petroleum using pipelines. It is highly unconventional to say that the business of transporting
petroleum through pipelines involves "common carrier" business. The Local Government Code intended to give
exemptions from local taxation to common carriers transporting goods and passengers through moving vehicles or
vessels and not through pipelines. The term common carrier under Section 133 (j) of the Local Government Code
must be given its simple and ordinary or generally accepted meaning which would definitely not include operators
of pipelines."

[14]

G.R. No. 125948 (First Philippine Industrial Corporation vs. Court of Appeals, et. al.)- Considering the grounds
of the motion for reconsideration, dated December 23, 1996, filed by counsel for petitioner, of the resolution of
November 11, 1996 which denied the petition for review oncertiorari, the Court Resolved:
(a)
(b)

to GRANT the motion for reconsideration and to REINSTATE the petition; and
to require respondent to COMMENT on the petition, within ten (10) days from notice.

[15]

Agbayani, Commercial Laws of the Phil., 1983 Ed., Vol. 4, p. 5.

[16]

168 SCRA 617-618 [1998].

[17]

Giffin v. Pipe Lines, 172 Pa. 580, 33 Alt. 578; Producer Transp. Co. v. Railroad Commission, 241 US 228, 64 L
ed 239, 40 S Ct 131.
[18]

Journal and Record of the House of Representatives, Fourth Regular Session, Volume 2, pp. 87-89, September 6,
1990; Underscoring Ours.
[19]

Annex "D" of Petition, Rollo, pp. 101-109.

2/7/00 3:50 PM

THIRD DIVISION
[G. R. No. 131512. January 20, 2000]

LAND TRANSPORTATION OFFICE [LTO], represented by Assistant Secretary

Manuel F. Bruan, LTO Regional Office, Region X represented by its Regional
Director, Timoteo A. Garcia; and LTO Butuan represented by Rosita G. Sadiaga,
its Registrar, petitioners, vs. CITY OF BUTUAN, represented in this case by
Democrito D. Plaza II, City Mayor, respondents.
DECISION
VITUG, J.:
The 1987 Constitution enunciates the policy that the territorial and political subdivisions shall
enjoy local autonomy. In obedience to that, mandate of the fundamental law, Republic Act
("R.A.") No.7160, otherwise known as the Local Government Code, expresses that the
territorial and political subdivisions of the State shall enjoy genuine and meaningful local
autonomy in order to enable them to attain their fullest development as self-reliant communities
and make them more effective partners in the attainment of national goals, and that it is a basic
aim of the State to 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.
[1]

[2]

While the Constitution seeks to strengthen local units and ensure their viability, clearly, however,
it has never been the intention of that organic law to create an imperium in imperio and install
an intra sovereign political subdivision independent of a single sovereign state.

The Court is asked in this instance to resolve the issue of whether under the present set up the
power of the Land Registration Office ("LTO") to register, tricycles in particular, as well as
to issue licenses for the driving thereof, has likewise devolved to local government units.
The Regional Trial Court (Branch 2) of Butuan City held: that the authority to register tricycles,
the grant of the corresponding franchise, the issuance of tricycle drivers' license, and the
collection of fees therefor had all been vested in the Local Government Units ("LGUs").
Accordingly, it decreed the issuance of a permanent writ of injunction against LTO, prohibiting
and enjoining LTO, as well as its employees and other persons acting in its behalf, from (a)
registering tricycles and (b) issuing licenses to drivers of tricycles. The Court of Appeals, on
appeal to it, sustained the trial court.
[3]

The adverse rulings of both the court a quo and the appellate court prompted the LTO to file the
instant petition for review on certiorari to annul and set aside the decision, dated 17 November
1997, of the Court of Appeals affirming the permanent injunctive writ order of the Regional Trial
Court (Branch 2) of Butuan City.
[4]

Respondent City of Butuan asserts that one of the salient provisions introduced by the Local
Government Code is in the area of local taxation which allows LGUs to collect registration fees
or charges along with, in its view, the corresponding issuance of all kinds of licenses or permits
for the driving of tricycles.
The 1987 Constitution provides:
"Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments."
[5]

Section 129 and Section 133 of the Local Government Code read:
"SEC. 129. Power to Create Sources of Revenue. - Each local government unit
shall exercise its power to create its own sources of revenue and to levy taxes,
fees, and charges subject to the provisions herein, consistent with the basic policy
of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the
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 barangays shall not extend to the levy of the
following:
"xxx.......xxx.......xxx.

"(I) Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except
tricycles."
Relying on the foregoing provisions of the law, the Sangguniang Panglungsod ("SP") of Butuan,
on 16 August 1992, passed SP Ordinance No.916-92 entitled "An Ordinance Regulating the
Operation of Tricycles-for-Hire, providing mechanism for the issuance of Franchise,
Registration and Permit, and Imposing Penalties for Violations thereof and for other
Purposes." The ordinance provided for, among other things, the payment of franchise fees for the
grant of the franchise of tricycles-for-hire, fees for the registration of the vehicle, and fees for the
issuance of a permit for the driving thereof.
Petitioner LTO explains that one of the functions of the national government that, indeed, has
been transferred to local government units is the franchising authority over tricycles-for-hire of
the Land Transportation Franchising and Regulatory Board ("LTFRB") but not, it asseverates, the
authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to
drive such vehicles.
In order to settle the variant positions of the parties, the City of Butuan, represented by its City
Mayor Democrito D. Plaza, filed on 28 June 1994 with the trial court a petition for
"prohibition, mandamus, injunction with a prayer for preliminary restraining order exparte" seeking the declaration of the validity of SP Ordinance No.962-93 and the prohibition of
the registration of tricycles-for-hire and the issuance of licenses for the driving thereof by the
LTO.
LTO opposed the prayer in the petition.
On 20 March 1995, the trial court rendered a resolution; the dispositive portion read:
"In view of the foregoing, let a permanent injunctive writ be issued against the
respondent Land Transportation Office and the other respondents, prohibiting and
enjoining them, their employees, officers, attorney's or other persons acting in
their behalf from forcing or compelling Tricycles to be registered with, and
drivers to secure their licenses from respondent LTO or secure franchise from
LTFRB and from collecting fees thereon. It should be understood that the
registration, franchise of tricycles and driver's license/permit granted or issued by
the City of Butuan are valid only within the territorial limits of Butuan City.
"No pronouncement as to costs."

[6]

Petitioners timely moved for a reconsideration of the above resolution but it was to no avail.
Petitioners then appealed to the Court of Appeals. In its now assailed decision, the appellate
court, on 17 November 1997, sustained the trial court. It ruled:

"WHEREFORE, the petition is hereby DISMISSED and the questioned

permanent injunctive writ issued by the court a quo dated March 20, 1995
AFFIRMED."
[7]

Coming up to this Court, petitioners raise this sole assignment of error, to wit:

"The Court of Appeals [has] erred in sustaining the validity of the writ of
injunction issued by the trial court which enjoined LTO from (1) registering
tricycles-for-hire and (2) issuing licenses for the driving thereof since the Local
Government Code devolved only the franchising authority of the LTFRB.
Functions of the LTO were not devolved to the LGU's."
[8]

The petition is impressed with merit.

The Department of Transportation and Communications ("DOTC"), through the LTO and the
LTFRB, has since been tasked with implementing laws pertaining to land transportation. The
LTO is a line agency under the DOTC whose powers and functions, pursuant to Article III,
Section 4 (d) (1), of R.A. No.4136, otherwise known as Land Transportation and Traffic
Code, as amended, deal primarily with the registration of all motor vehicles and the licensing of
drivers thereof. The LTFRB, upon the other hand, is the governing body tasked by E.O. No. 202,
dated 19 June 1987, to regulate the operation of public utility or "for hire" vehicles and to grant
franchises or certificates of public convenience ("CPC"). Finely put, registration
and licensing functions are vested in the LTO while franchising and regulatory responsibilities
had been vested in the LTFRB.
[9]

[10]

[11]

Under the Local Government Code, certain functions of the DOTC were transferred to the
LGUs, thusly:
"SEC. 458. Powers, Duties, Functions and Compensation. -
"xxx.......xxx.......xxx
"(3) Subject to the provisions of Book II of this Code, enact ordinances granting
franchises and authorizing the issuance of permits or licenses, upon such
conditions and for such purposes intended to promote the general welfare of the
inhabitants of the city and pursuant to this legislative authority shall:
"xxx.......xxx.......xxx.
"(VI) Subject to the guidelines prescribed by the Department of Transportation
and Communications, regulate the operation of tricycles and grant franchises
for the operation thereof within the territorial jurisdiction of the city." (Emphasis
supplied)
LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant
franchises for the operation thereof. "To regulate" means to fix, establish, or control; to adjust by

rule, method, or established mode; to direct by rule or restriction; or to subject to governing

principles or laws. A franchise is defined to be a special privilege to do certain things conferred
by government on an individual or corporation, and which does not belong to citizens generally
of common right. On the other hand, "to register" means to record formally and exactly, to
enroll, or to enter precisely in a list or the like, and a "driver's license" is the certificate or
license issued by the government which authorizes a person to operate a motor vehicle. The
devolution of the functions of the DOTC, performed by the LTFRB, to the LGUs, as so aptly
observed by the Solicitor General, is aimed at curbing the alarming increase of accidents in
national highways involving tricycles. It has been the perception that local governments are in
good position to achieve the end desired by the law-making body because of their proximity to
the situation that can enable them to address that serious concern better than the national
government.
[12]

[13]

[14]

[15]

It may not be amiss to state, nevertheless, that under Article 458 (a)[3-VI] of the Local
Government Code, the power of LGUs to regulate the operation of tricycles and to grant
franchises for the operation thereof is still subject to the guidelines prescribed by the DOTC. In
compliance therewith, the Department of Transportation and Communications ("DOTC")
issued "Guidelines to Implement the Devolution of LTFRBs Franchising Authority over
Tricycles-For-Hire to Local Government units pursuant to the Local Government
Code." Pertinent provisions of the guidelines state:
"In lieu of the Land Transportation Franchising and Regulatory Board (LTFRB) in
the DOTC, the Sangguniang Bayan/Sangguniang Panglungsod (SB/SP) shall
perform the following:
"(a) Issue, amend, revise, renew, suspend, or cancel MTOP and prescribe the
appropriate terms and conditions therefor;
"xxx.......xxx.......xxx.
"Operating Conditions:
"1. For safety reasons, no tricycles should operate on national highways utilized
by 4 wheel vehicles greater than 4 tons and where normal speed exceed 40 KPH.
However, the SB/SP may provide exceptions if there is no alternative routs.
"2. Zones must be within the boundaries of the municipality/city. However,
existing zones within more than one municipality/city shall be maintained,
provided that operators serving said zone shall secure MTOP's from each of the
municipalities/cities having jurisdiction over the areas covered by the zone.
"3. A common color for tricycles-for-hire operating in the same zone may be
imposed. Each unit shall be assigned and bear an identification number, aside
from its LTO license plate number.

"4. An operator wishing to stop service completely, or to suspend service for more
than one month, should report in writing such termination or suspension to the
SB/SP which originally granted the MTOP prior thereto. Transfer to another zone
may be permitted upon application.
"5. The MTOP shall be valid for three (3) years, renewable for the same period.
Transfer to another zone, change of ownership of unit or transfer of MTOP shall
be construed as an amendment to an MTOP and shall require appropriate approval
of the SB/SP.
"6. Operators shall employ only drivers duly licensed by LTO for tricycles-forhire.
"7. No tricycle-for-hire shall be allowed to carry more passengers and/or goods
than it is designed for.
"8. A tricycle-for-hire shall be allowed to operate like a taxi service, i.e., service is
rendered upon demand and without a fixed route within a zone."
[16]

Such as can be gleaned from the explicit language of the statute, as well as the corresponding
guidelines issued by DOTC, the newly delegated powers pertain to the franchising and
regulatory powers theretofore exercised by the LTFRB and not to the functions of the LTO
relative to the registration of motor vehicles and issuance of licenses for the driving thereof.
Clearly unaffected by the Local Government Code are the powers of LTO under R.A. No.4136
requiring the registration of all kinds of motor vehicles "used or operated on or upon any public
highway" in the country. Thus "SEC. 5. All motor vehicles and other vehicles must be registered. - (a) No motor
vehicle shall be used or operated on or upon any public highway of the
Philippines unless the same is properly registered for the current year in
accordance with the provisions of this Act (Article 1, Chapter II, R.A. No.
4136).
The Commissioner of Land Transportation and his deputies are empowered at anytime to
examine and inspect such motor vehicles to determine whether said vehicles are registered, or
are unsightly, unsafe, improperly marked or equipped, or otherwise unfit to be operated on
because of possible excessive damage to highways, bridges and other infrastructures. The LTO
is additionally charged with being the central repository and custodian of all records of all motor
vehicles.
[17]

[18]

The Court shares the apprehension of the Solicitor General if the above functions were to
likewise devolve to local government units; he states:
"If the tricycle registration function of respondent LTO is decentralized, the
incidence of theft of tricycles will most certainly go up, and stolen tricycles

registered in one local government could be registered in another with ease. The
determination of ownership thereof will also become very difficult.
"Fake driver's licenses will likewise proliferate. This likely scenario unfolds
where a tricycle driver, not qualified by petitioner LTO's testing, could secure a
license from one municipality, and when the same is confiscated, could just go
another municipality to secure another license.
"Devolution will entail the hiring of additional personnel charged with inspecting
tricycles for road worthiness, testing drivers, and documentation. Revenues raised
from tricycle registration may not be enough to meet salaries of additional
personnel and incidental costs for tools and equipment."
[19]

The reliance made by respondents on the broad taxing power of local government units,
specifically under Section 133 of the Local Government Code, is tangential. Police power and
taxation, along with eminent domain, are inherent powers of sovereignty which the State might
share with local government units by delegation given under a constitutional or a statutory fiat.
All these inherent powers are for a public purpose and legislative in nature but the similarities
just about end there. The basic aim of police power is public good and welfare. Taxation, in its
case, focuses on the power of government to raise revenue in order to support its existence and
carry out its legitimate objectives. Although correlative to each other in many respects, the grant
of one does not necessarily carry with it the grant of the other. The two powers are, by tradition
and jurisprudence, separate and distinct powers, varying in their respective concepts, character,
scopes and limitations. To construe the tax provisions of Section 133(1) indistinctively would
result in the repeal to that extent of LTO's regulatory power which evidently has not been
intended. If it were otherwise, the law could have just said so in Section 447 and 458 of Book III
of the Local Government Code in the same manner that the specific devolution of LTFRB's
power on franchising of tricycles has been provided. Repeal by implication is not favored. The
power over tricycles granted under Section 458(a)(3)(VI) of the Local Government Code to
LGUs is the power to regulate their operation and to grant franchises for the operation thereof.
The exclusionary clause contained in the tax provisions of Section 133(1) of the Local
Government Code must not be held to have had the effect of withdrawing the express power of
LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving
thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the
police power of the State, whose basic objectives are to achieve road safety by insuring the road
worthiness of these motor vehicles and the competence of drivers prescribed by R. A. 4136. Not
insignificant is the rule that a statute must not be construed in isolation but must be taken in
harmony with the extant body of laws.
[20]

[21]

The Court cannot end this decision without expressing its own serious concern over the
seeming laxity in the grant of franchises for the operation of tricycles-for-hire and in
allowing the indiscriminate use by such vehicles on public highways and principal
thoroughfares. Senator Aquilino C. Pimentel, Jr., the principal author, and sponsor of the bill
that eventually has become to be known as the Local Government Code, has aptly remarked:

"Tricycles are a popular means of transportation, specially in the

countryside. They are, unfortunately, being allowed to drive along highways
and principal thoroughfares where they pose hazards to their passengers
arising from potential collisions with buses, cars and jeepneys.
"The operation of tricycles within a municipality may be regulated by
the Sangguniang Bayan. In this connection, the Sangguniang concerned
would do well to consider prohibiting the operation of tricycles along or
across highways invite collisions with faster and bigger vehicles and impede
the flow of traffic."
[22]

The need for ensuring public safety and convenience to commuters and pedestrians alike is
paramount. It might be well, indeed, for public officials concerned to pay heed to a number of
provisions in our laws that can warrant in appropriate cases an incurrence of criminal and civil
liabilities. Thus The Revised Penal Code "Art. 208. Prosecution of offenses; negligence and tolerance. - The penalty of
prision correccional in its minimum period and suspension shall be imposed upon
any public officer, or officer of the law, who, in dereliction of the duties of his
office, shall maliciously refrain from instituting prosecution for the punishment of
violators of the law, or shall tolerate the commission of offenses."
The Civil Code "Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may
file an action for damages and other relief against the latter, without prejudice to
any disciplinary administrative action that may be taken."
"Art. 34. When a member of a city or municipal police force refuses or fails to
render aid or protection to any person in case of danger to life or property, such
peace officer shall be primarily liable for damages, and the city or municipality
shall be subsidiarily responsible therefor. The civil action herein recognized shall
be independent of any criminal, proceedings, and a preponderance of evidence
shall suffice to support such action."
"Art. 2189. Provinces, cities and municipalities shall be liable for damages for the
death of, or injuries suffered by, any person by reason of the defective condition
of roads, streets, bridges, public buildings, and other public works under their
control or supervision."
The Local Government Code -

"Sec. 24. Liability for Damages. - Local government units and their officials are
not exempt from liability for death or injury to persons or damage to property."
WHEREFORE, the assailed decision which enjoins the Land Transportation Office from
requiring the due registration of tricycles and a license for the driving thereof is REVERSED and
SET ASIDE.
No pronouncements on costs.
Let copies of this decision be likewise furnished the Department of Interior and Local
Governments, the Department of Public Works and Highways and the Department of
Transportation and Communication.
SO ORDERED.
Melo, (Chairman), Panganiban, Purisima, and Gonzaga-Reyes, JJ., concur.

Section 2, Article X of the 1987 Constitution.

The law was approved on 10 October 1991 and it became effective on 01 January 1992.
[3]
Per Judge Rosarito Dabalos.
[4]
Penned by Justice Jorge S. Imperial, concurred in by Justices Ramon U. Mabutas, Jr. and Hilarion L. Aquino.
[5]
Sec. 5, Art. X.
[6]
Rollo, p. 34.
[7]
Rollo, p. 31.
[8]
Rollo, pp.10-11.
[1]
[2]

[9]

Book IV, Title XV, Chapter 1, Section 2 of the Administrative Code of 1987 reads:

"SEC. 2. Mandate. The Department of Transportation and Communications shall be the primary policy, planning,
programming, coordinating, implementing, regulating and administrative entity of the Executive Branch of the
government in the promotion, development and regulation of dependable and coordinated networks of transportation
and communication system as well as in the fast, safe, efficient and reliable postal, transportation and
communications services."
[10]
(1) With the approval of the Secretary of Public Works (Transportation) and Communications, to issue rules and
regulations not in conflict with the provisions of this Act, prescribing the procedure for the examination,
licensing and bonding of drivers; the registration and re-registration of motor vehicles, transfer of ownership,
change of status; the replacement of lost certificates, licenses, badges, permits or number plates; and to prescribe the
minimum standards and specifications including allowable gross weight, allowable length, width and height of
motor vehicles, distribution of loads, allowable loads on tires, change of tire sizes, body design or carrying capacity
subsequent to registration and all other special cases which may arise for which no specific provision is otherwise
made in this Act." (Emphasis supplied)
"SEC. 5. Powers and Functions of the Land Transportation Franchising and Regulatory Board. -The Board shall
have the following powers and functIons:
[11]

a. To prescribe and regulate routes of service. economically viable capacities and zones or areas of operation of
public land transportation services provided by motorized vehicles in accordance with the public land transportation
development plans and programs approved by the Department of T ransportation and Communications; b. To issue,

amend, revise, suspend or cancel Certificates of Public Convenience or permits authorizing the operation of public
land transportation services provided by motorized vehicles. and to prescribe the appropriate terms and conditions
therefor;"
[12]
Black's Law Dictionary, Sixth edition, p. 1286.
[13]
Ibid., p.658.
[14]
Ibid., p. 1283.
[15]
Ibid., p. 495.
[16]
Rollo, pp. 153-154.
[17]
Section 4(d)(6). Article III, Chapter I.
[18]
Section 4(d)(2). Article III, Chapter I. reads in full: "(2) To compile and arrange all applications, certificates,
permits, licenses, and to enter, note and record thereon transfers, notifications, suspensions, revocations, or
judgments of conviction rendered by competent courts concerning violations of this Act, with the end in view of
preserving and making easily available such documents and records to public officers and private persons properly
and legitimately interested therein."
[19]
Rollo, pp. 159-160.
[20]
In Laguna Lake Development Authority vs. Court of Appeals, 20 this Court has ruled that a special law cannot be
repealed, amended or altered by a subsequent general law by mere supposition, and that the charter of LLDA which
embodies a valid exercise of police power should prevail over the Local Government Code on matters affecting the
lake.
[21]
Sajonas vs. CA, 258 SCRA 79.
[22]
Rollo, pp. 152.153.

Manila Internationa Airport Authority v. CA, City of

Paranaque
EN BANC

MANILA INTERNATIONAL

G.R. No. 155650

AIRPORT AUTHORITY,
Petitioner,

Present:

PANGANIBAN, C.J.,
PUNO,
QUISUMBING,
YNARES-SANTIAGO,

SANDOVALGUTIERREZ,
- versus -

CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
CALLEJO, SR.,
AZCUNA,

COURT OF APPEALS, CITY OF

TINGA,

PARAAQUE, CITY MAYOR OF

CHICO-NAZARIO,

PARAAQUE, SANGGUNIANG

GARCIA, and

PANGLUNGSOD NG PARAAQUE,

VELASCO, JR., JJ.

CITY ASSESSOR OF PARAAQUE,

and CITY TREASURER OF

Promulgated:

PARAAQUE,
Respondents.

July 20, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---x

D E C I S I ON

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority

(MIAA)
operates the Ninoy Aquino International Airport (NAIA) Complex
in Paraaque City under Executive Order No. 903, otherwise
known as theRevised Charter of the Manila International Airport
Authority (MIAA Charter). Executive Order No. 903 was issued
on 21 July 1983 by then President Ferdinand E. Marcos.
Subsequently, Executive Order Nos. 909[1] and 298[2] amended the
MIAA Charter.

As operator of the international airport, MIAA administers the

land,
improvements
and
equipment
within
the
NAIA
Complex. The MIAA Charter transferred to MIAA approximately
600 hectares of land,[3] including the runways and buildings
(Airport Lands and Buildings) then under the Bureau of Air
Transportation.[4] The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of
through sale or any other mode unless specifically approved by
the President of the Philippines.[5]

On 21 March 1997, the Office of the Government

Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC
opined that the Local Government Code of 1991 withdrew the
exemption from real estate tax granted to MIAA under Section
21 of the MIAA Charter. Thus, MIAA negotiated with respondent
City of Paraaque to pay the real estate tax imposed by the
City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real

Estate Tax Delinquency from the City of Paraaque for the
taxable years 1992 to 2001. MIAAs real estate tax
delinquency is broken down as follows:

TAX DECLARATION

TAXABLE
YEAR

TAX DUE

PENALTY

E-016-01370

1992-2001

19,558,160.
00

11,201,083
.20

30,789,24
3.20

E-016-01374

1992-2001

111,689,424.
90

68,149,479
.59

179,838,90
4.49

E-016-01375

1992-2001

20,276,058.
00

12,371,832
.00

32,647,89
0.00

E-016-01376

1992-2001

58,144,028.
00

35,477,712
.00

93,621,74
0.00

E-016-01377

1992-2001

18,134,614.
65

11,065,188
.59

29,199,80
3.24

E-016-01378

1992-2001

111,107,950.
40

67,794,681
.59

178,902,63
1.99

E-016-01379

1992-2001

2,637,360

6,959,70
0.00

4,744,944

12,521,38
0.00

2,900,164

9,344,97
4.50

5,694,560

50,571,36
0.00

4,322,340.
00

E-016-01380

1992-2001

.00
7,776,436.

00
*E-016-013-85

*E-016-01387

*E-016-01396

GRAND TOTAL

1998-2001

1998-2001

.00
6,444,810

.00

.50

34,876,800
.00

.00

1998-2001

75,240

TOTAL

33,858

109,09

.00

.00

8.00

P392,435,861
.95

P232,070,863
.47

P 624,506,72
5.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101
for P28,676,480.00
#9476103 for P49,115.00[6]

On 17 July 2001, the City of Paraaque, through its City

Treasurer, issued notices of levy and warrants of levy on
the Airport Lands and
Buildings. The Mayor
of
the City
of Paraaque threatened
to
sell
at
public
auction
the Airport Lands and Buildings should MIAA fail to pay the real
estate tax delinquency. MIAA thus sought a clarification of OGCC
Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147

clarifying OGCC Opinion No. 061. The OGCC pointed out that
Section 206 of the Local Government Code requires persons
exempt from real estate tax to show proof of exemption. The
OGCC opined that Section 21 of the MIAA Charter is the proof
that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals
an original petition for prohibition and injunction, with prayer
for preliminary injunction or temporary restraining order. The
petition sought to restrain the City of Paraaque from imposing
real estate tax on, levying against, and auctioning for public
sale
the Airport Lands and
Buildings. The
petition
was
docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the

petition
because
MIAA
filed
it
beyond
the
60day reglementary period. The Court of Appeals also denied on 27
September
2002 MIAAs motion
for
reconsideration
and
supplemental motion for reconsideration. Hence, MIAA filed on 5
December 2002 the present petition for review.[7]

Meanwhile, in January 2003, the City of Paraaque posted

notices of auction sale at the Barangay Halls of Barangays Vitalez,
Sto. Nio, and Tambo, Paraaque City; in the public market
of Barangay La
Huerta;
and
in
the
main
lobby
of
the Paraaque City Hall. The City of Paraaque published the
notices in the 3 and 10 January 2003 issues of the Philippine Daily
Inquirer,
a
newspaper
of
general
circulation
in
the Philippines. The notices announced the public auction sale of
the Airport Lands and Buildings to the highest bidder on 7
February 2003, 10:00 a.m., at the Legislative Session Hall Building
of ParaaqueCity.

A day before the public auction, or on 6 February 2003, at

5:10 p.m., MIAA filed before this Court an Urgent ExParte and Reiteratory Motion for the Issuance of a Temporary
Restraining Order. The motion sought to restrain respondents
the
City
of Paraaque,
City
Mayor
of Paraaque, Sangguniang Panglungsod ng Paraaque,
City
Treasurer
of Paraaque,
and
the
City
Assessor
of Paraaque(respondents) from auctioning the Airport Lands
and Buildings.

On 7 February 2003, this Court issued a temporary

restraining order (TRO) effective immediately. The Court
ordered respondents to cease and desist from selling at public

auction the Airport Landsand Buildings. Respondents received

the TRO on the same day that the Court issued it. However,
respondents received the TRO only at 1:25 p.m. or three hours
after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution
confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral

arguments. In compliance with the directive issued during the
hearing, MIAA, respondent City of Paraaque, and the Solicitor
General subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to
the Airport Lands and Buildings in the name of MIAA. However,
MIAA points out that it cannot claim ownership over these
properties since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The MIAA Charter
mandates MIAA to devote the Airport Lands and Buildings for
the benefit of the general public. Since the Airport Lands and
Buildings are devoted to public use and public service, the
ownership
of
these
properties
remains
with
the
State. The Airport Lands and Buildings are thus inalienable and
are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the
MIAA Charter specifically exempts MIAA from the payment of
real estate tax. MIAA insists that it is also exempt from real
estate tax under Section 234 of the Local Government Code
because the Airport Lands and Buildings are owned by the

Republic. To justify the exemption, MIAA invokes the principle

that the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its taxation
would not inure to any public advantage, since in such a case
the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government
Code, which expressly withdrew the tax exemption privileges
of government-owned and-controlled corporations upon
the effectivity of the Local Government Code. Respondents also
argue that a basic rule of statutory construction is that the
express mention of one person, thing, or act excludes all
others. An international airport is not among the exceptions
mentioned in Section 193 of the Local Government Code. Thus,
respondents
assert
that
MIAA
cannot
claim
that
the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court

in Mactan International Airport v. Marcos[8] where we held
that the Local Government Code has withdrawn the exemption
from
real
estate
tax
granted
to
international
airports. Respondents further argue that since MIAA has already
paid some of the real estate tax assessments, it is now estopped
from claiming that the Airport Lands and Buildings are exempt
from real estate tax.

The Issue

This petition raises the threshold issue of whether

the Airport Lands and Buildings of MIAA are exempt from real
estate tax under existing laws. If so exempt, then the real
estate tax assessments issued by the City of Paraaque, and all
proceedings taken pursuant to such assessments, are void. In
such event, the other issues raised in this petition become
moot.

The Courts Ruling

We rule that MIAAs Airport Lands and Buildings are exempt

from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled

corporation but an instrumentality of the National Government
and thus exempt from local taxation. Second, the real properties
of MIAA areowned by the Republic of the Philippines and thus
exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled

Corporation

Respondents argue that MIAA, being a government-owned

or controlled corporation, is not exempt from real estate
tax. Respondents claim that the deletion of the phrase any
government-owned or controlled so exempt by its charter in
Section 234(e) of the Local Government Code withdrew the
real estate tax exemption of government-owned or controlled
corporations. The deleted phrase appeared in Section 40(a) of
the 1974 Real Property Tax Code enumerating the entities
exempt from real estate tax.

There is no dispute that a government-owned or controlled

corporation is not exempt from real estate tax. However, MIAA
is not a government-owned or controlled corporation. Section
2(13) of the Introductory Provisions of the Administrative Code of
1987 defines a government-owned or controlled corporation as
follows:

SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any

agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-one (51)
percent of its capital stock: x x x. (Emphasis supplied)

A government-owned or controlled corporation must be

organized as a stock or non-stock corporation. MIAA is
not organized as a stock or non-stock corporation. MIAA is not a
stock corporation because it has no capital stock divided into
shares. MIAA has no stockholders or voting shares. Section 10
of the MIAA Charter[9] provides:
SECTION 10. Capital. The capital of the Authority to be
contributed by the National Government shall be increased from Two
and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion
(P10,000,000,000.00) Pesos to consist of:

(a)
The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,] which may be
contributed by the National Government or transferred by it from any of its
agencies, the valuation of which shall be determined jointly with the Department
of Budget and Management and the Commission on Audit on the date of such
contribution or transfer after making due allowances for depreciation and other

deductions taking into account the loans and other liabilities of the Authority at
the time of the takeover of the assets and other properties;

(b)
That the amount of P605 million as of December 31,
1986 representing about seventy percentum (70%) of the unremitted
share of the National Government from 1983 to 1986 to be remitted to
the National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government contribution
to the capital of the Authority shall be provided in the General
Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is
divided into shares.

Section 3 of the Corporation Code[10] defines a stock

corporation as one whose capital stock is divided into
shares and x x x authorized to distribute to the holders of
such shares dividends xx x. MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting
shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no

members. Section 87 of the Corporation Code defines a nonstock corporation as one where no part of its income is
distributable as dividends to its members, trustees or
officers. A non-stock corporation must have members. Even
if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part

of their income to their members. Section 11 of the MIAA

Charter mandates MIAA to remit 20% of its annual gross
operating income to the National Treasury. [11] This prevents
MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that nonstock corporations are organized for charitable, religious,
educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers. MIAA is not
organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for
public use.
Since MIAA is neither a stock nor a non-stock corporation,
MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the
only difference is that MIAA is vested with corporate
powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government instrumentality as
follows:
SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National

Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x (Emphasis
supplied)

When the law vests in a government instrumentality

corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized
as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental
powers of eminent domain,[12] police authority[13] and the levying
of fees and charges.[14] At the same time, MIAA exercises all the
powers of a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions of this
Executive Order.[15]

Likewise,
when
the
law
makes
a
government
instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not
integrated with the department framework. The MIAA Charter
expressly states that transforming MIAA into a separate and
autonomous body[16] will make its operation more financially
viable.[17]

Many government instrumentalities are vested with

corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled
corporation. Examples are the Mactan International Airport

Authority, the Philippine Ports Authority, the University of

the Philippines and Bangko Sentral ngPilipinas. All
these
government instrumentalities exercise corporate powers but they
are not organized as stock or non-stock corporations as required
by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are
sometimes
loosely
called
government
corporate
entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the
Administrative Code, which is the governing law defining the legal
relationship and status of government entities.

A government instrumentality like MIAA falls under Section

133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:

xxxx

(o) Taxes, fees or charges of any kind on the

National
Government, its agencies and instrumentalities and
local government units. (Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local

governments cannot tax the national government, which
historically merely delegated to local governments the power to
tax. While the 1987 Constitution now includes taxation as one of
the powers of local governments, local governments may only

exercise such power subject to such guidelines and limitations as

the Congress may provide.[18]

When local governments invoke the power to tax on

national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is
never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax
national government instrumentalities.
Another rule is that a tax exemption is strictly construed
against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed
liberally in favor of the national government instrumentality. As
this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In such
case the practical effect of an exemption is merely to reduce the
amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non taxliability of such agencies.[19]

There is, moreover, no point in national and local governments

taxing each other, unless a sound and compelling policy requires

such transfer of public funds from one government pocket to

another.

There is also no reason for local governments to tax national

government instrumentalities for rendering essential public
services to inhabitants of local governments. The only
exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential
public services for sound and compelling policy
considerations. There must be express language in the law
empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is
resolved against local governments.

Thus, Section 133 of the Local Government Code states that

unless otherwise provided in the Code, local governments
cannot tax national government instrumentalities. As this Court
held inBasco v. Philippine Amusements and Gaming
Corporation:

The states have no power by taxation or otherwise, to

retard, impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the
powers
vested
in
the
federal
government.
(MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the supremacy of the National

Government over local governments.

Justice Holmes, speaking for the Supreme Court,

made reference to the entire absence of power on the

part of the States to touch, in that way (taxation) at least,

the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state
or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them.
(Antieau, Modern Constitutional Law, Vol. 2, p. 140,
emphasis supplied)

Otherwise, mere creatures 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 tool for
regulation (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the

power to destroy (Mc Culloch v. Maryland, supra) cannot be allowed
to defeat an instrumentality or creation of the very entity which has
the inherent power to wield it. [20]

2.

Airport Lands and Buildings of MIAA are Owned by the

Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property

of public dominion and therefore owned by the State or
the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private
ownership.

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. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial property.

ARTICLE 422. Property of public dominion, when no longer

intended for public use or for public service, shall form part of the
patrimonial property of the State.

No one can dispute that properties of public dominion

mentioned in Article 420 of the Civil Code, like roads, canals,
rivers, torrents, ports and bridges constructed by the
State, are owned by the State. The term ports includes
seaports and airports. The MIAA Airport Lands and Buildings

constitute a port constructed by the State. Under Article 420

of the Civil Code, the MIAA AirportLands and Buildings are
properties of public dominion and thus owned by the State or the
Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use

because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA
collects terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as
properties for public use. The operation by the government of
a tollway does not change the character of the road as one for
public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the
government, or only those among the public who actually use the
road through the toll fees they pay upon using the
road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the

character of the property whether it is of public dominion or
not. Article 420 of the Civil Code defines property of public
dominion as one intended for public use. Even if the
government collects toll fees, the road is still intended for
public use if anyone can use the road under the same terms
and conditions as the rest of the public. The charging of fees,
the limitation on the kind of vehicles that can use the road, the
speed restrictions and other conditions for the use of the road
do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as

the landing fees MIAA charges to airlines, constitute the bulk of
the income that maintains the operations of MIAA. The collection
of such fees does not change the character of MIAA as an airport
for public use. Such fees are often termed users tax. This means
taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the
particular public facility. A users tax is more equitable a
principle of taxation mandated in the 1987 Constitution. [21]
The Airport Lands and Buildings of MIAA, which its Charter
calls the principal airport of the Philippines for both international
and domestic air traffic, [22] are properties of public dominion
because they are intended for public use. As properties of
public dominion, they indisputably belong to the State or
the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the Commerce

of Man

The Airport Lands and Buildings of MIAA are devoted to

public use and thus are properties of public dominion. As
properties of public dominion, the Airport Lands and
Buildings are outside the commerce of man. The Court has
ruled repeatedly that properties of public dominion are outside
the commerce of man. As early as 1915, this Court already ruled
in Municipality of Cavite v. Rojas that properties devoted to
public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: Property for public

use in provinces and in towns comprises the provincial and town roads,
the squares, streets, fountains, and public waters, the promenades,
and public works of general service supported by said towns or
provinces.

The said Plaza Soledad being a promenade for public use, the municipal
council of Cavite could not in 1907 withdraw or exclude from public use a portion
thereof in order to lease it for the sole benefit of the defendant HilariaRojas. In
leasing a portion of said plaza or public place to the defendant for private use the
plaintiff municipality exceeded its authority in the exercise of its powers by
executing a contract over a thing of which it could not dispose, nor is it
empowered so to do.

The Civil Code, article 1271, prescribes that everything which is

not outside the commerce of man may be the object of a contract, and
plazas and streets are outside of this commerce, as was decided by
the supreme court of Spain in its decision of February 12, 1895, which
says: Communal things that cannot be sold because they are
by their very nature outside of commerce are those for public
use, such as the plazas, streets, common lands, rivers,
fountains, etc. (Emphasis supplied) [23]

Again in Espiritu v. Municipal Council, the Court declared

that properties of public dominion are outside the commerce of
man:
xxx Town plazas are properties of public dominion, to be
devoted to public use and to be made available to the public in
general. They are outside the commerce of man and cannot be
disposed of or even leased by the municipality to private parties. While
in case of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was tolerated
by the Municipality of Pozorrubio, when the emergency has ceased,

said temporary occupation or use must also cease, and the town
officials should see to it that the town plazas should ever be kept open
to the public and free from encumbrances or illegal private
constructions.[24](Emphasis supplied)

The Court has also ruled that property of public dominion, being
outside the commerce of man, cannot be the subject of an
auction sale.[25]

Properties of public dominion, being for public use, are not

subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction
sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if
properties of public dominion are subject to encumbrances,
foreclosures and auction sale. This will happen if the City
of Paraaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate
tax.
Before
MIAA
can
encumber[26] the Airport Lands and
Buildings, the President must first withdraw from public
use the Airport Lands and Buildings. Sections 83 and 88 of the
Public Land Law or Commonwealth Act No. 141, which remains to
this day the existing general law governing the classification and
disposition of lands of the public domain other than timber and
mineral lands,[27] provide:
SECTION 83. Upon the recommendation of the Secretary of
Agriculture and Natural Resources, the President may designate by

proclamation any tract or tracts of land of the public domain as

reservations for the use of the Republic of the Philippines or of any of
its branches, or of the inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for quasi-public uses or
purposes when the public interest requires it, including reservations for
highways, rights of way for railroads, hydraulic power sites, irrigation
systems, communal pastures or lequas communales, public parks,
public quarries, public fishponds, working mens village and other
improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the

provisions of Section eighty-three shall be non-alienable and
shall not be subject to occupation, entry, sale, lease, or other
disposition until again declared alienable under the provisions
of this Act or by proclamation of the President. (Emphasis and
underscoring supplied)

Thus, unless the President issues a proclamation

withdrawing the Airport Lands and Buildings from public use,
these properties remain properties of public dominion and
are inalienable. Since
theAirport Lands and
Buildings
are
inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or foreclosure
sale. As long as the Airport Lands and Buildings are reserved for
public use, their ownership remains with the State or the Republic
of the Philippines.

The authority of the President to reserve lands of the

public domain for public use, and to withdraw such public use,
is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private

Domain of the Government. (1) The President shall have the
power to reserve for settlement or public use, and for specific
public purposes, any of the lands of the public domain, the use
of which is not otherwise directed by law. The reserved land
shall thereafter remain subject to the specific public purpose
indicated until otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and

Buildings are withdrawn by law or presidential proclamation from
public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and

Buildings in trust for the Republic. Section 48, Chapter 12, Book I
of the Administrative Code allows instrumentalities like
MIAA to hold title to real properties owned by the
Republic, thus:
SEC. 48. Official Authorized to Convey Real Property.
Whenever real property of the Government is authorized by law to be
conveyed, the deed of conveyance shall be executed in behalf of the
government by the following:

(1)
For property belonging to and titled in the name of the Republic of
the Philippines, by the President, unless the authority therefor is expressly vested
by law in another officer.

(2)
For property belonging to the Republic of
the Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by
the executive head of the agency or instrumentality. (Emphasis
supplied)

In MIAAs case, its status as a mere trustee of

the Airport Lands and Buildings is clearer because even its
executive head cannot sign the deed of conveyance on behalf of
the Republic. Only the President of the Republic can sign such
deed of conveyance.[28]

d. Transfer

to

MIAA

was

Meant

to Implement

Reorganization

The MIAA Charter, which is a law, transferred to MIAA the

title to the Airport Lands and Buildings from the Bureau of Air
Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:
SECTION
3. Creation
the Manila International Airport Authority. x x x x

of

The land where the Airport is presently located as well as

the surrounding land area of approximately six hundred
hectares, are hereby transferred, conveyed and assigned to
the ownership and administration of the Authority, subject to
existing rights, if any. The Bureau of Lands and other appropriate
government agencies shall undertake an actual survey of the area
transferred within one year from the promulgation of this Executive
Order and the corresponding title to be issued in the name of the
Authority. Any portion thereof shall not be disposed through
sale or through any other mode unless specifically approved by
the President of the Philippines.(Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible

Assets. All existing public airport facilities, runways, lands,
buildings and other property, movable or immovable, belonging to
the Airport, and all assets, powers, rights, interests and
privileges belonging to the Bureau of Air Transportation relating
to airport works or air operations, including all equipment which are
necessary for the operation of crash fire and rescue facilities, are
hereby transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a

Division in the Bureau of Air Transportation and Transitory
Provisions.
The Manila International Airport including
the Manila Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to

MIAA without the Republic receiving cash, promissory notes or
even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the

rationale for the transfer of the Airport Lands and Buildings to
MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the

Philippines for both international and domestic air traffic, is required to provide
standards of airport accommodation and service comparable with the best airports
in the world;

WHEREAS, domestic and other terminals, general aviation and

other facilities, have to be upgraded to meet the current and future air
traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated

that the
objectives
of
providing
high
standards
of
accommodation and service within the context of a financially
viable operation, will best be achieved by a separate and
autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by

Presidential Decree No. 1772, the President of the Philippines is given
continuing authority to reorganize the National Government,
which authority includes the creation of new entities, agencies
and instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the

Bureau of Air Transportation to MIAA was not meant to transfer
beneficial ownership of these assets from the Republic to
MIAA. The purpose was merely to reorganize a division in the
Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial owner of
the Airport Lands and Buildings. MIAA itself is owned solely by

the
Republic. No
party
claims
any
over MIAAs assets adverse to the Republic.

ownership

rights

The
MIAA
Charter
expressly
provides
that
the Airport Lands and Buildings shall not be disposed
through sale or through any other mode unless specifically
approved by the President of thePhilippines. This only
means that the Republic retained the beneficial ownership of
the Airport Lands and Buildings because under Article 428 of the
Civil Code, only the owner has the right to x x xdispose of a
thing. Since MIAA cannot dispose of the Airport Lands and
Buildings, MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the

Republic title to the Airport Lands and Buildings without the
Republic paying MIAA any consideration. Under Section 3 of
the MIAA Charter, the President is the only one who can
authorize the sale or disposition of the Airport Lands and
Buildings. This only confirms that the Airport Lands and
Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts

from real estate tax any [r]eal property owned by the Republic
of the Philippines.
Section 234(a) 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 has been granted, for consideration or
otherwise, to a taxable person;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section

133(o) of the same Code, which prohibits local governments
from imposing [t]axes, fees or charges of any kind on the
National
Government,
its
agencies
and instrumentalities x x x. The real properties owned by
the Republic are titled either in the name of the Republic itself
or in the name of agencies or instrumentalities of the National
Government. The Administrative Code allows real property
owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be
exempt from real estate tax.

The Republic may grant the beneficial use of its real property
to an agency or instrumentality of the national government. This
happens when title of the real property is transferred to an
agency or instrumentality even as the Republic remains the owner
of the real property. Such arrangement does not result in the
loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic

loses its tax exemption only if the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable
person. MIAA, as a government instrumentality, is not a taxable
person under Section 133(o) of the Local Government
Code. Thus, even if we assume that the Republic has granted to
MIAA the beneficial use of the Airport Lands and Buildings, such
fact does not make these real properties subject to real estate
tax.

However, portions of the Airport Lands and Buildings that

MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA
leases to private corporations is subject to real estate tax. In
such a case, MIAA has granted the beneficial use of such land
area for a consideration to a taxable person and therefore such
land area is subject to real estate tax. In Lung Center of the
Philippines v. Quezon City, the Court ruled:
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.[29]

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real
estate tax because Section 193 of the Local Government Code of
1991 withdrew the tax exemption of all persons, whether
natural orjuridical upon the effectivity of the Code. Section
193 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. No.
6938, non-stock and non-profit hospitals and educational institutions
are hereby withdrawn upon effectivity of this Code. (Emphasis
supplied)

The minority states that MIAA is indisputably a juridical

person. The minority argues that since the Local Government
Code withdrew the tax exemption of all juridical persons, then
MIAA is not exempt from real estate tax. Thus, the minority
declares:
It is evident from the quoted provisions of the Local
Government Code that the withdrawn exemptions from realty
tax cover not just GOCCs, but all persons. To repeat, the
provisions lay down the explicit proposition that the withdrawal of
realty tax exemption applies to all persons. The reference to or the
inclusion of GOCCs is only clarificatory or illustrative of the explicit
provision.

The term All persons encompasses the two classes of

persons recognized under our laws, natural and juridical
persons. Obviously, MIAA is not a natural person. Thus, the

determinative test is not just whether MIAA is a GOCC, but

whether MIAA is a juridical person at all. (Emphasis and
underscoring in the original)

The minority posits that the determinative test whether

MIAA is exempt from local taxation is its status whether MIAA
is a juridical person or not. The minority also insists that
Sections 193 and 234 may be examined in isolation from
Section 133(o) to ascertain MIAAs claim of exemption.
The argument of the minority is fatally flawed. Section 193
of the Local Government Code expressly withdrew the tax
exemption of all juridical persons [u]nless otherwise provided
in this Code. Now, Section 133(o) of the Local Government
Code expressly
provides
otherwise,
specifically prohibiting local governments from imposing any
kind of tax on national government instrumentalities. Section
133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National

Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local

governments cannot impose any kind of tax on national
government
instrumentalities
like
the
MIAA. Local
governments are devoid of power to tax the national
government, its agencies and instrumentalities.
The
taxing powers of local governments do not extend to the national
government,
its
agencies
and
instrumentalities,
[u]nlessotherwise provided in this Code as stated in the saving
clause of Section 133. The saving clause refers to Section 234(a)
on the exception to the exemption from real estate tax of real
property owned by the Republic.

The minority, however, theorizes that unless exempted in

Section 193 itself, all juridical persons are subject to tax by
local governments. The minority insists that the juridical
persons exempt from local taxation are limited to the
three classes of entities specifically enumerated as
exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local
water districts; (b) cooperatives duly registered under
Republic Act No. 6938; and (c) non-stock and non-profit
hospitals and educational institutions. It would be belaboring the
obvious why the MIAA does not fall within any of the exempt entities
under Section 193. (Emphasis supplied)

The minoritys theory directly contradicts and completely

negates Section 133(o) of the Local Government Code. This
theory will result in gross absurdities. It will make the national
government,which itself is a juridical person, subject to
tax by local governments since the national government is not
included in the enumeration of exempt entities in Section

193. Under this theory, local governments can impose any kind
of local tax, and not only real estate tax, on the national
government.

Under the minoritys theory, many national government

instrumentalities with juridical personalities will also be subject
to any kind of local tax, and not only real estate tax. Some
of the national government instrumentalities vested by law with
juridical
personalities are: Bangko Sentral ng Pilipinas,
[30]
Philippine Rice Research Institute,[31] Laguna Lake
Development Authority,[32] Fisheries Development Authority,
[33]
Bases Conversion Development Authority, [34] Philippine Ports
Authority,[35] Cagayan de Oro Port Authority,[36] San Fernando Port
Authority,[37] Cebu Port
Authority,[38] and
Philippine
National
Railways.[39]

The minoritys theory violates Section 133(o) of the Local

Government Code which expressly prohibits local governments
from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish
between national government instrumentalities with or
without juridical personalities. Where the law does not
distinguish, courts should not distinguish. Thus, Section 133(o)
applies to all national government instrumentalities, with or
without juridical personalities. The determinative test whether
MIAA is exempt from local taxation is not whether MIAA is a
juridical person, but whether it is a national government
instrumentality under Section 133(o) of the Local Government
Code. Section 133(o) is the specific provision of law prohibiting
local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the

saving
clause
[u]nless otherwise
provided
in
this
Code. This means that unless the Local Government Code
grants an express authorization, local governments have no
power to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments have no
power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments
may tax the national government, its agencies and
instrumentalities only if the Local Government Code expressly so
provides.

The saving clause in Section 133 refers to the exception to

the exemption in Section 234(a) of the Code, which makes the
national government subject to real estate tax when it gives the
beneficial use of its real properties to a taxable
entity. Section 234(a) of the Local Government Code 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 has been granted, for consideration or
otherwise, to a taxable person.

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is

exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of
the real property to a taxable entity.

The exception to the exemption in Section 234(a) is

the only instance when the national government, its
agencies and instrumentalities are subject to any kind of
tax by local governments. The exception to the exemption
applies only to real estate tax and not to any other tax. The
justification for the exception to the exemption is that the real
property, although owned by the Republic, is not devoted to
public use or public service but devoted to the private gain of a
taxable person.

The
minority
also
argues
that
since
Section
133 precedes Section 193 and 234 of the Local Government
Code, the later provisions prevail over Section 133. Thus, the
minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and
234. Following an accepted rule of construction, in case of conflict
the subsequent provisions should prevail. Therefore, MIAA, as a
juridical person, is subject to real property taxes, the general
exemptions attaching to instrumentalities under Section 133(o) of the
Local Government Code being qualified by Sections 193 and 234 of the
same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict

between Section 133 on one hand, and Sections 193 and 234 on
the other. No one has urged that there is such a conflict, much
less has any one presented
a persuasive argument that
there is such a conflict. The minoritys assumption of an
irreconcilable conflict in the statutory provisions is an egregious
error for two reasons.

First, there is no conflict whatsoever between Sections 133

and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section
193 states [u]nlessotherwise provided in this Code. By its
own words, Section 193 admits the superiority of other
provisions of the Local Government Code that limit the exercise of
the taxing power in Section 193. When a provision of law grants a
power but withholds such power on certain matters, there is no
conflict between the grant of power and the withholding of
power. The grantee of the power simply cannot exercise the
power on matters withheld from its power.

Second, Section 133 is entitled Common Limitations on

the Taxing Powers of Local Government Units. Section 133
limits the grant to local governments of the power to tax, and not
merely the exercise of a delegated power to tax. Section 133
states that the taxing powers of local governments shall not
extend to the levy of any kind of tax on the national
government, its agencies and instrumentalities. There is no
clearer limitation on the taxing power than this.

Since Section 133 prescribes the common limitations on

the taxing powers of local governments, Section 133 logically
prevails over Section 193 which grants local governments such
taxing powers. By their very meaning and purpose, the
common limitations on the taxing power prevail over
the grant or exercise of the taxing power. If the taxing
power of local governments in Section 193 prevails over the
limitations on such taxing power in Section 133, then local
governments can impose any kind of tax on the national
government, its agencies and instrumentalities a gross
absurdity.

Local governments have no power to tax the national

government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code pursuant to
the saving clause in Section 133 stating [u]nless otherwise
provided in this Code. This exception which is an exception
to the exemption of the Republic from real estate tax imposed
by local governments refers to Section 234(a) of the
Code. The exception to the exemption in Section 234(a)
subjects real property owned by the Republic, whether titled in
the name of the national government, its agencies or
instrumentalities, to real estate tax if the beneficial use of such
property is given to a taxable entity.

The minority also claims that the definition in the

Administrative Code of the phrase government-owned or
controlled corporation is not controlling. The minority points out
that Section 2 of the Introductory Provisions of the Administrative
Code admits that its definitions are not controlling when it
provides:

SEC. 2. General Terms Defined. Unless the specific words of

the text, or the context as a whole, or a particular statute, shall require
a different meaning:

xxxx

The minority then concludes that reliance on the Administrative

Code definition is flawed.

The minoritys argument is a non sequitur. True, Section 2

of the Administrative Code recognizes that a statute may require
a different meaning than that defined in the Administrative
Code. However, this does not automatically mean that the
definition in the Administrative Code does not apply to the Local
Government Code. Section 2 of the Administrative Code clearly
states that unless the specific words x x x of a particular
statute shall require a different meaning, the definition in
Section 2 of the Administrative Code shall apply. Thus, unless
there is specific language in the Local Government Code defining
the phrase government-owned or controlled corporation
differently from the definition in the Administrative Code, the
definition in the Administrative Code prevails.

The minority does not point to any provision in the Local

Government Code defining the phrase government-owned or
controlled corporation differently from the definition in the
Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase
government-owned
or
controlled
corporation. The
Administrative Code, however, expressly defines the phrase
government-owned or controlled corporation. The inescapable
conclusion is that the Administrative Code definition of the phrase
government-owned or controlled corporation applies to the
Local Government Code.

The third whereas clause of the Administrative Code states

that the Code incorporates in a unified document the major

structural, functional and procedural principles and rules

of
governance. Thus,
the
Administrative
Code
is
the governing law defining the status and relationship of
government departments, bureaus, offices, agencies and
instrumentalities. Unless a statute expressly provides for a
different status and relationship for a specific government unit or
entity, the provisions of the Administrative Code prevail.

The minority also contends that the phrase governmentowned or controlled corporation should apply only to
corporations organized under the Corporation Code, the general
incorporation law, and not to corporations created by special
charters. The minority sees no reason why government
corporations with special charters should have a capital
stock. Thus, the minority declares:

I submit that the definition of government-owned or controlled

corporations under the Administrative Code refer to those
corporations owned by the government or its instrumentalities which
are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities
and Exchange Commission. In short, these are GOCCs without original
charters.

xxxx

It might as well be worth pointing out that there is no point in

requiring a capital structure for GOCCs whose full ownership is limited
by its charter to the State or Republic. Such GOCCs are not empowered
to declare dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in

accord with the Constitution and existing legislations. It will also
result in gross absurdities.

First, the Administrative Code definition of the phrase

government-owned or controlled corporation does not
distinguish between one incorporated under the Corporation Code
or under a special charter. Where the law does not distinguish,
courts should not distinguish.

Second, Congress has created through special charters

several government-owned corporations organized as stock
corporations. Prime examples are the Land Bank of
the Philippines and
the
Development
Bank
of
the Philippines. The special charter[40] of the Land Bank of
the Philippines provides:
SECTION 81. Capital. The authorized capital stock of the
Bank shall be nine billion pesos, divided into seven hundred
and eighty million common shares with a par value of ten
pesos each, which shall be fully subscribed by the Government, and
one hundred and twenty million preferred shares with a par value of
ten pesos each, which shall be issued in accordance with the provisions
of Sections seventy-seven and eighty-three of this Code. (Emphasis
supplied)

Likewise, the special charter[41] of the Development Bank of

the Philippines provides:
SECTION 7. Authorized Capital Stock Par value. The
capital stock of the Bank shall be Five Billion Pesos to be
divided into Fifty Million common shares with par value
of P100 per share. These shares are available for subscription by the
National Government. Upon the effectivity of this Charter, the National
Government shall subscribe to Twenty-Five Million common shares of
stock worth Two Billion Five Hundred Million which shall be deemed
paid for by the Government with the net asset values of the Bank
remaining after the transfer of assets and liabilities as provided in
Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock

corporations under their special charters are the Philippine Crop
Insurance
Corporation,[42] Philippine
International
Trading
[43]
[44]
Corporation, and the Philippine National Bank
before it was
reorganized as a stock corporation under the Corporation
Code. All these government-owned corporations organized under
special charters as stock corporations are subject to real estate
tax on real properties owned by them. To rule that they are not
government-owned or controlled corporations because they are
not registered with the Securities and Exchange Commission
would remove them from the reach of Section 234 of the Local
Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations

created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the Constitution.
The first condition is that the government-owned or controlled
corporation must be established for the common good. The
second condition is that the government-owned or
controlled corporation must meet the test of economic

viability. Section 16, Article XII of the 1987 Constitution

provides:

SEC. 16. The Congress shall not, except by general law, provide
for
the
formation,
organization,
or
regulation
of
private
corporations. Government-owned or controlled corporations may
be created or established by special charters in the interest of
the common good and subject to the test of economic
viability. (Emphasis and underscoring supplied)

The Constitution expressly authorizes the legislature to

create government-owned or controlled corporations through
special charters only if these entities are required to meet the
twin conditions of common good and economic viability. In
other words, Congress has no power to create
government-owned or controlled corporations with special
charters unless they are made to comply with the two
conditions of common good and economic viability. The
test of economic viability applies only to government-owned or
controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being
essentially economic vehicles of the State for the common good
meaning for economic development purposes these
government-owned or controlled corporations with special
charters are usually organized as stock corporations just like
ordinary private corporations.

In contrast, government instrumentalities vested with

corporate powers and performing governmental or public
functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the
common good, services that every modern State must provide

its citizens. These instrumentalities need not be economically

viable since the government may even subsidize their entire
operations. These instrumentalities are not the governmentowned or controlled corporations referred to in Section 16,
Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the
legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create
government instrumentalities vested with corporate
powers provided these instrumentalities perform essential
government functions or public services. However, when the
legislature creates through special charters corporations that
perform economic or commercial activities, such entities known
as government-owned or controlled corporations must meet
the test of economic viability because they compete in the market
place.

This
is
the
situation
of
the
Land
Bank
of
the Philippines and
the
Development
Bank
of
the Philippines and similar government-owned or controlled
corporations, which derive their income to meet operating
expenses solely from commercial transactions in competition
with the private sector. The intent of the Constitution is to
prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market
place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of

economic viability, explained to the Constitutional Commission
the purpose of this test, as follows:
MR. OPLE:
Madam President, the reason for this concern is
really that when the government creates a corporation, there is a
sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a
government corporation loses, then it makes its claim upon the
taxpayers money through new equity infusions from the government
and what is always invoked is the common good. That is the reason
why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity infusions to
support a few government financial institutions. And this is all
taxpayers money which could have been relocated to agrarian reform,
to social services like health and education, to augment the salaries of
grossly underpaid public employees. And yet this is all going down the
drain.

Therefore, when we insert the phrase ECONOMIC VIABILITY

together with the common good, this becomes a restraint on future
enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committees consideration
and I am glad that I am joined in this proposal by Commissioner Foz,
the insertion of the standard of ECONOMIC VIABILITY OR THE
ECONOMIC TEST, together with the common good. [45]

Father Joaquin G. Bernas, a leading member of the

Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase in the
interest of the common good and subject to the test of
economic viability. The addition includes the ideas that they must

show capacity to function efficiently in business and that they

should not go into activities which the private sector can do
better. Moreover, economic viability is more than financial viability but
also includes capability to make profit and generate benefits not
quantifiable in financial terms.[46] (Emphasis supplied)

Clearly, the test of economic viability does not apply to

government entities vested with corporate powers and
performing essential public services. The State is obligated to
render essential public services regardless of the economic
viability of providing such service. The non-economic viability
of rendering such essential public service does not excuse the
State from withholding such essential services from the public.
However, government-owned or controlled corporations
with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic
viability. These are the government-owned or controlled
corporations that are usually organized under their special
charters as stock corporations, like the Land Bank of
the Philippines and the Development Bank of the Philippines.
These are the government-owned or controlled corporations,
along with government-owned or controlled corporations
organized under the Corporation Code, that fall under the
definition of government-owned or controlled corporations in
Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability

because the legislature did not create MIAA to compete in the

market place. MIAA does not compete in the market place

because there is no competing international airport operated
by the private sector. MIAA performs an essential public
service as the primary domestic and international airport of
the Philippines. The operation of an international airport
requires the presence of personnel from the following
government agencies:
1. The Bureau of Immigration and Deportation, to document
the arrival and departure of passengers, screening out those
without visas or travel documents, or those with hold
departure orders;
2. The Bureau of Customs, to collect import duties or
enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to
enforce health measures against the spread of infectious
diseases into the country;
4. The Department of Agriculture, to enforce measures
against the spread of plant and animal diseases into the
country;
5. The Aviation Security Command of the Philippine National
Police, to prevent the entry of terrorists and the escape of
criminals, as well as to secure the airport premises from
terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation
and Communications, to authorize aircraft to enter or leave

Philippine airspace, as well as to land on, or take off from,

the airport; and
7. The MIAA, to provide the proper premises such as
runway and buildings for the government personnel,
passengers, and airlines, and to manage the airport
operations.
All these agencies of government perform government
functions essential to the operation of an international airport.
MIAA performs an essential public service that every
modern State must provide its citizens. MIAA derives its
revenues principally from the mandatory fees and charges
MIAA imposes on passengers and airlines. The terminal fees
that MIAA charges every passenger are regulatory or
administrative fees[47] and not income from commercial
transactions.
MIAA
falls
under
the
definition
of
a
government instrumentality under
Section
2(10)
of the
Introductory Provisions of the Administrative Code, which
provides:
SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National

Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x (Emphasis
supplied)

The fact alone that MIAA is endowed with corporate powers does
not
make
MIAA
a
government-owned
or
controlled
corporation. Without a change in its capital structure, MIAA
remains a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code. More
importantly, as long as MIAA renders essential public services, it
need not comply with the test of economic viability. Thus, MIAA is
outside the scope of the phrase government-owned or controlled
corporations under Section 16, Article XII of the 1987
Constitution.

The minority belittles the use in the Local Government Code

of the phrase government-owned or controlled corporation as
merely clarificatory or illustrative. This is fatal. The 1987
Constitution prescribes explicit conditions for the creation of
government-owned
or
controlled
corporations. The
Administrative Code defines what constitutes a governmentowned or controlled corporation. To belittle this phrase as
clarificatory or illustrative is grave error.

To summarize, MIAA is not a government-owned or

controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not
organized as a stock or non-stock corporation. Neither is MIAA
a government-owned or controlled corporation under Section
16, Article XII of the 1987 Constitution because MIAA is not
required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and

performing essential public services pursuant to Section 2(10)

of the Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local
Government Code. The exception to the exemption in Section
234(a) does not apply to MIAA because MIAA is not a taxable
entity under the Local Government Code. Such exception
applies only if the beneficial use of real property owned by the
Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are
properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the
State or the Republic.
Article 420 of the Civil Code provides:
Art. 420. The
dominion:

following

things

are property

of

public

(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. (Emphasis supplied)

The
term
ports
x x x constructed
by
the
State includes airports and
seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public use

or public service, the Airport Lands and Buildings are properties

of public dominion. As properties of public dominion,
the Airport Lands and Buildings are owned by the Republic and
thus exempt from real estate tax under Section 234(a) of the
Local Government Code.

4.

Conclusion

Under Section 2(10) and (13) of the Introductory Provisions

of the Administrative Code, which governs the legal relation and
status of government units, agencies and offices within the entire
government
machinery,
MIAA
is
a
government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a governmentinstrumentality is not
a taxable person because it is not subject to [t]axes, fees or
charges of any kind by local governments. The only exception is
when MIAA leases its real property to a taxable person as
provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to
real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Paraaque.

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
thePhilippines. 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.

WHEREFORE, we GRANT the petition. We SET ASIDE the

assailed Resolutions of the Court of Appeals of 5 October
2001 and
27
September
2002 in
CA-G.R.
SP
No.
66878. WeDECLARE the Airport Lands and Buildings of the
Manila International Airport Authority EXEMPT from the real
estate
tax
imposed
by
the
City
of Paraaque. We
declare VOID all the real estate tax assessments, including the
final notices of real estate tax delinquencies, issued by the City
of Paraaque on the Airport Lands and Buildings of the Manila
International Airport Authority, except for the portions that the
Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all
its effects, of the Airport Lands and Buildings of the Manila
International Airport Authority.

No costs.

SO ORDERED.

[1]

Dated 16 September 1983.

[2]

Dated 26 July 1987.

[3]

Section 3, MIAA Charter.

[4]

Section 22, MIAA Charter.

[5]

Section 3, MIAA Charter.

[6]

Rollo, pp. 22-23.

[7]

Under Rule 45 of the 1997 Rules of Civil Procedure.

[8]

330 Phil. 392 (1996).

[9]

MIAA Charter as amended by Executive Order No. 298. See note 2.

[10]

Batas Pambansa Blg. 68.

[11]

Section 11 of the MIAA Charter provides:

Contribution to the General Fund for the Maintenance and Operation of other
Airports. Within thirty (30) days after the close of each quarter, twenty percentum (20%) of the
gross operating income, excluding payments for utilities of tenants and concessionaires and
terminal fee collections, shall be remitted to the General Fund in the National Treasury to be used
for the maintenance and operation of other international and domestic airports in the country.
Adjustments in the amount paid by the Authority to the National Treasury under this Section shall
be made at the end of each year based on the audited financial statements of the Authority.
[12]

Section 5(j), MIAA Charter.

[13]

Section 6, MIAA Charter.

[14]

Section 5(k), MIAA Charter.

[15]

Section 5(o), MIAA Charter.

[16]

Third Whereas Clause, MIAA Charter.

[17]

Id.

[18]

[19]

CONSTITUTION, Art. X, Sec. 5.

274
Phil.
1060,
1100
(1991)
STATUTORY CONSTRUCTION 207.

quoting C. Dallas

Sands,

STATUTES and

[20]

[21]

[22]

[23]

[24]

[25]

274 Phil. 323, 339-340 (1991).

CONSTITUTION, Art. VI, Sec. 28(1).
First Whereas Clause, MIAA Charter.
30 Phil. 602, 606-607 (1915).
102 Phil. 866, 869-870 (1958).
PNB v. Puruganan, 130 Phil. 498 (1968). See also Martinez v. CA, 155 Phil. 591 (1974).

[26]

MIAA Charter, Sec.16.

[27]

Chavez v. Public Estates Authority, 433 Phil. 506 (2002).

[28]

Section 3, MIAA Charter.

[29]

[30]

G.R. No. 144104, 29 June 2004, 433 SCRA 119, 138.

Republic Act No. 7653, 14 June 1993, Sec. 5.

[31]

Executive Order No. 1061, 5 November 1985, Sec. 3(p).

[32]

Republic Act No. 4850, 18 July 1966, Sec. 5.

[33]

Presidential Decree No. 977, 11 August 1976, Section 4(j).

[34]

Republic Act No. 7227, 13 March 1992, Sec. 3.

[35]

Presidential Decree No. 857, 23 December 1975, Sec. 6(b)(xvi).

[36]

Republic Act No. 4663, 18 June 1966, Sec. 7(m).

[37]

Republic Act No. 4567, 19 June 1965, Sec. 7(m).

[38]

Republic Act No. 7621, 26 June 1992, Sec. 7(m).

[39]

Republic Act No. 4156, 20 June 1964. Section 4(b).

[40]

Republic Act No. 3844, 8 August 1963, as amended by Republic Act No. 7907, 23 February 1995.

[41]

Executive Order No. 81, 3 December 1986.

[42]

[43]

[44]

[45]

[46]

[47]

Republic Act No. 8175, 29 December 1995.

Presidential Decree No. 252, 21 July 1973, as amended by Presidential Decree No. 1071, 25 January
1977 and Executive Order No. 1067, 25 November 1985.
Executive Order No. 80, 3 December 1986.
III RECORDS, CONSTITUTIONAL COMMISSION 63 (22 August 1986).
2003 ed., 1181.
Manila International Airport Authority v. Airspan Corporation, G.R. No. 157581, 1 December 2004,
445 SCRA 471.