ORMOC SUGAR CO. V.

TREASURER OF ORMOC CITY

Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municpal tax
equivalent to 1% per export sale to the United States and other foreign countries. The company paid
the said tax under protest. It subsequently filed a case seeking to invalidate the ordinance for being
unconstitutional.
Issue: Whether the ordinance violates the equal protection clause.
Held: The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Co.
Inc. and none other. At the time of the taxing ordinances enacted, the company was the only sugar
central in Ormoc City. 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 the present company, from 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 the company as the entity to be levied upon.

BRITISH AMERICAN TOBACCO V. CAMACHO AND PARAYNO

Facts: To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No.
1-97, 2 which classified the existing brands of cigarettes as those duly registered or active brands
prior to January 1, 1997. New brands, or those registered after January 1, 1997, shall be initially
assessed at their suggested retail price until such time that the appropriate survey to determine their
current net retail price is conducted. In June 2001 British American Tobacco introduced into the
market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a
suggested retail price of P9.90 per pack. Pursuant to Sec. 145 (c) quoted above, the Lucky Strike
brands were initially assessed the excise tax at P8.96 per pack. On February 17, 2003, Revenue
Regulations No. 9-2003, amended Revenue Regulations No. 1-97 by providing, among others, a
periodic review every two years or earlier of the current net retail price of new brands and variants
thereof for the purpose of establishing and updating their tax classification. Pursuant thereto,
Revenue Memorandum Order No. 62003 was issued on March 11, 2003, prescribing the guidelines
and procedures in establishing current net retail prices of new brands of cigarettes and alcohol
products. Subsequently, Revenue Regulations No. 22-2003 was issued on August 8, 2003 to
implement the revised tax classification of certain new brands introduced in the market after January
1, 1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike
Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the current net retail price of
P22.54, P22.61 and P21.23, per pack, respectively. Respondent Commissioner of the Bureau of
Internal Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky
Strike's average net retail price is above P10.00 per pack. Thus filed before the Regional Trial Court
(RTC) of Makati, Branch 61, a petition for injunction with prayer for the issuance of a temporary
restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 03-1032.
Said petition sought to enjoin the implementation of Section 145 of the NIRC, Revenue
Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on
the ground that they discriminate against new brands of cigarettes, in violation of the
equal protection and uniformity provisions of the Constitution. The trial court rendered a
decision upholding the constitutionality of Section 145 of the NIRC, Revenue Regulations Nos. 1-97,
9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003

Issue/ Held: W/N the classification freeze provision violates the equal protection and uniformity of
taxation clauses of the Constitution.- NO
Ratio: In the instant case, there is no question that the classification freeze provision meets the
geographical uniformity requirement because the assailed law applies to all cigarette brands in the
Philippines. And, for reasons already adverted to in our August 20, 2008 Decision, the four-fold test
has been met in the present case. As held in the assailed Decision, the instant case neither involves
a suspect classification nor impinges on a fundamental right. Consequently, the rational basis test
was properly applied to gauge the constitutionality of the assailed law in the face of an equal
protection challenge. It has been held that "in the areas of social and economic policy, a statutory
classification that neither proceeds along suspect lines nor infringes constitutional rights must be
upheld against equal protection challenge if there is any reasonably conceivable state of facts that
could provide a rational basis for the classification." Under the rational basis test, it is sufficient that
the legislative classification is rationally related to achieving some legitimate State interest.
Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal
ordinance specifically named and taxed only the Ormoc Sugar Company, and excluded any
subsequently established sugar central from its coverage. Thus, the ordinance was found
unconstitutional on equal protection grounds because its terms do not apply to future conditions as
well. This is not the case here. The classification freeze provision uniformly applies to all cigarette
brands whether existing or to be introduced in the market at some future time. It does not purport to
exempt any brand from its operation nor single out a brand for the purpose of imposition of excise
taxes.

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., et al. vs.

THE SECRETARY OF DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT
Facts: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other
electric cooperatives organized and existing under PD 269 which are members of petitioner
Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners, electric
cooperatives of Agusan del Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1) are non-stock,
non-profit electric cooperatives organized and existing under PD 269, as amended, and registered
with the National Electrification Administration (NEA).
Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National
Government, local government, and municipal taxes and fee, including franchise, fling recordation,
license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative
proceedings in which it may be party.
From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, as amended,
the Philippine Government, acting through the National Economic council (now National Economic
Development Authority) and the NEA, entered into six loan agreements with the government of the
United States of America, through the United States Agency for International Development (USAID)
with electric cooperatives as beneficiaries. The loan agreements contain similarly worded provisions
on the tax application of the loan and any property or commodity acquired through the proceeds of
the loan.
Petitioners allege that with the passage of the Local Government Code their tax exemptions have
been validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said
code. Sec. 193 provides for the withdrawal of tax exemption privileges granted to all persons,
whether natural or juridical, except cooperatives duly registered under RA 6938, while Sec. 234
exempts the same cooperatives from payment of real property tax.
Issue: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection
clause since the provisions unduly discriminate against petitioners who are duly registered

cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the
Philippines?
(2) Is there an impairment of the obligations of contract under the loan entered into between the
Philippine and the US Governments?
Held: (1) No. The guaranty of the equal protection clause is not violated by a law based on a
reasonable classification. Classification, to be reasonable must (a) rest on substantial classifications;
(b) germane to the purpose of the law; (c) not limited to the existing conditions only; and (d) apply
equally to all members of the same class. We hold that there is reasonable classification under the
Local Government Code to justify the different tax treatment between electric cooperatives covered
by PD 269 and electric cooperatives under RA 6938.
First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938. In
the former, the government is the one that funds those so-called electric cooperatives, while in the
latter, the members make equitable contribution as source of funds.
a. Capital Contributions by Members Nowhere in PD 269 doe sit require cooperatives to make
equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an
electric cooperative under PD 269, only the payment of a P5.00 membership fee is required which is
even refundable the moment the member is no longer interested in getting electric service from the
cooperative or will transfer to another place outside the area covered by the cooperative. However,
under the Cooperative Code, the articles of cooperation of a cooperative applying for registration
must be accompanied with the bonds of the accountable officers and a sworn statement of the
treasurer elected by the subscribers showing that at least 25% of the authorized share capital has
been subscribed and at least 25% of the total subscription has been paid and in no case shall the
paid-up share capital be less than P2,000.00.
b. Extent of Government Control over Cooperatives The extent of government control over electric
cooperatives covered by PD 269 is largely a function of the role of the NEA as a primary source of
funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to
finance the development and operations of these electric cooperatives. Consequently, amendments
were primarily geared to expand the powers of NEA over the electric cooperatives to ensure that
loans granted to them would be repaid to the government. In contrast, cooperatives under RA 6938
are envisioned to be self-sufficient and independent organizations with minimal government
intervention or regulation.
Second, the classification of tax-exempt entities in the Local Government Code is germane to the
purpose of the law. The Constitutional mandate that every local government unit shall enjoy local
autonomy, does not mean that the exercise of the power by the local governments is beyond the
regulation of Congress. Sec. 193 of the LGC is indicative of the legislative intent to vet broad taxing
powers upon the local government units and to limit exemptions from local taxation to entities
specifically provided therein.
Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions are not
limited to existing conditions and apply equally to all members of the same class.
(2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the
obligations of contracts does not prohibit every change in existing laws. To fall within the prohibition,
the change must not only impair the obligation of the existing contract, but the impairment must be
substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the
parties with reference to each other and not with respect to non-parties.
The quoted provision under the loan agreement does not purport to grant any tax exemption in favor
of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax
burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of
the loan. Thus, the withdrawal by the Local Government Code under Sec. 193 and 234 of the tax
exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the
lender or the beneficiary under the loan agreements as, in fact, no tax exemption is granted therein.

ABRA VALLEY COLLEGE INC. V. AQUINO

FACTS: Petitioner, an educational corporation and institution of higher learning duly incorporated
with the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void
the Notice of Seizure and the Notice of Sale of its lot and building located at Bangued, Abra, for
non-payment of real estate taxes and penalties amounting to P5,140.31. Said Notice of Seizure by
respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the
satisfaction of the said taxes thereon.
The parties entered into a stipulation of facts adopted and embodied by the trial court in its
questioned decision. The trial court ruled for the government, holding that the second floor of the
building is being used by the director for residential purposes and that the ground floor used and
rented by Northern Marketing Corporation, a commercial establishment, and thus the property is not
being used exclusively for educational purposes. Instead of perfecting an appeal, petitioner availed
of the instant petition for review on certiorari with prayer for preliminary injunction before the
Supreme Court, by filing said petition on 17 August 1974.
ISSUE: Whether or not the lot and building are used exclusively for educational purposes.
HELD: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants
exemption from realty taxes for cemeteries, churches and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or
educational purposes. Reasonable emphasis has always been made that the exemption extends to
facilities which are incidental to and reasonably necessary for the accomplishment of the main
purposes. The use of the school building or lot for commercial purposes is neither contemplated by
law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the Northern
Marketing Corporation cannot by any stretch of the imagination be considered incidental to the
purpose of education. The test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution.
The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the
assessed tax be returned to the petitioner. The modification is derived from the fact that the ground
floor is being used for commercial purposes (leased) and the second floor being used as incidental to
education (residence of the director).

LUNG CENTER V. QUEZON CITY

Facts:
The lung center is a charitable institution within the context of 1973 and 1987 constitutions. The
elements considered in determining a charitable institution are: the statue creating the enterprise; its
corporate purposes; constitution and by-laws, methods of administration, nature of actual work
performed, character of the services rendered, indefiniteness of the beneficiaries, and the use
occupation of properties. As a gen. principle, a charitable institution doe not lose its character as
such and its exemption form taxes simply because it derives income from paying patients, or
receives subsidies from government; and no money insures to the private benefit of the persons
managing or operating the institution.

Issue:
Whether or not the real properties of the lung center are exempt from real property taxes.
Ruling:
Partly No. Those portions of its real property that are leased to private entities are not exempt from
actually, direct and exclusively used for charitable purpose. Under PD 1823, the lung center does not
enjoy any property tax exemption privileges for its real properties as well as the building constructed
thereon.
The property tax exemption under Sec. 28(3), Art. Vi of the property taxes only. This provision was
implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the exemption, the
lung center must be able to prove that: it is a charitable institution and; its real properties are
actually, directly and exclusively used for charitable purpose. Accordingly, the portions occupied by
the hospital used for its patients are exempt from real property taxes while those leased to private
entities are not exempt from such taxes.

CIR V. ST. LUKES MEDICAL CENTER

Facts:
St. Lukes Medical Center, Inc. (St. Lukes) is a hospital organized as a non-stock and non-profit
corporation. St. Lukes accepts both paying and non-paying patients. The BIR assessed St. Lukes
deficiency taxes for 1998 comprised of deficiency income tax, value-added tax, and withholding tax.
The BIR claimed that St. Lukes should be liable for income tax at a preferential rate of 10% as
provided for by Section 27(B). Further, the BIR claimed that St. Lukes was actually operating for
profit in 1998 because only 13% of its revenues came from charitable purposes. Moreover, the
hospitals board of trustees, officers and employees directly benefit from its profits and assets.
On the other hand, St. Lukes maintained that it is a non-stock and non-profit institution for charitable
and social welfare purposes exempt from income tax under Section 30(E) and (G) of the NIRC. It
argued that the making of profit per se does not destroy its income tax exemption.
Issue:
The sole issue is whether St. Lukes is liable for deficiency income tax in 1998 under Section
27(B) of the NIRC, which imposes a preferential tax rate of 10^ on the income of proprietary nonprofit hospitals.
Ruling:
Section 27(B) of the NIRC does not remove the income tax exemption of proprietary nonprofit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on
the other hand, can be construed together without the removal of such tax exemption.
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary
non-profit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for
hospitals are that they must be proprietary and non-profit. Proprietary means private, following the
definition of a proprietary educational institution as any private school maintained and

administered by private individuals or groups with a government permit. Non-profit means no

net income or asset accrues to or benefits any member or specific person, with all the net income or
asset devoted to the institutions purposes and all its activities conducted not for profit.
Non-profit does not necessarily mean charitable. In Collector of Internal Revenue v. Club Filipino
Inc. de Cebu, this Court considered as non-profit a sports club organized for recreation and
entertainment of its stockholders and members. The club was primarily funded by membership fees
and dues. If it had profits, they were used for overhead expenses and improving its golf course. The
club was non-profit because of its purpose and there was no evidence that it was engaged in a
profit-making enterprise.
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The Court
defined charity in Lung Center of the Philippines v. Quezon City as a gift, to be applied
consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing
their minds and hearts under the influence of education or religion, by assisting them to establish
themselves in life or [by] otherwise lessening the burden of government. However, despite its
being a tax exempt institution, any income such institution earns from activities conducted for profit
is taxable, as expressly provided in the last paragraph of Sec. 30.
To be a charitable institution, however, an organization must meet the substantive test of charity
in Lung Center. The issue in Lung Center concerns exemption from real property tax and not
income tax. However, it provides for the test of charity in our jurisdiction. Charity is essentially a gift
to an indefinite number of persons which lessens the burden of government. In other words,
charitable institutions provide for free goods and services to the public which would otherwise fall
on the shoulders of government. Thus, as a matter of efficiency, the government forgoes taxes which
should have been spent to address public needs, because certain private entities already
assume a part of the burden. This is the rationale for the tax exemption of charitable institutions.
The loss of taxes by the government is compensated by its relief from doing public works which
would have been funded by appropriations from the Treasury
The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress
decided to extend the exemption to income taxes. However, the way Congress crafted Section 30(E)
of the NIRC is materially different from Section 28(3), Article VI of the Constitution.
Section 30(E) of the NIRC defines the corporation or association that is exempt from income tax. On
the other hand, Section 28(3), Article VI of the Constitution does not define a charitable institution,
but requires that the institution actually, directly and exclusively use the property for a charitable
purpose.
To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires that a
charitable institution use the property actually, directly and exclusively for charitable purposes.
To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable institution
must be organized and operated exclusively for charitable purposes. Likewise, to be exempt
from income taxes, Section 30(G) of the NIRC requires that the institution be operated exclusively
for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words organized and operated
exclusively by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from

any of their activities conducted for profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code.
In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts
any activity for profit, such activity is not tax exempt even as its not-for-profit activities remain
tax exempt.
Thus, even if the charitable institution must be organized and operated exclusively for charitable
purposes, it is nevertheless allowed to engage in activities conducted for profit without losing its
tax exempt status for its not-for-profit activities. The only consequence is that the income of
whatever kind and character of a charitable institution from any of its activities conducted
for profit, regardless of the disposition made of such income, shall be subject to tax. Prior to the
introduction of Section 27(B), the tax rate on such income from for-profit activities was the ordinary
corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate is now 10%.
The Court finds that St. Lukes is a corporation that is not operated exclusively for charitable or
social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is
based not only on a strict interpretation of a provision granting tax exemption, but also on the clear
and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution
be operated exclusively for charitable or social welfare purposes to be completely exempt from
income tax. An institution under Section 30(E) or (G) does not lose its tax exemption if it earns
income from its for-profit activities. Such income from for-profit activities, under the last paragraph of
Section 30, is merely subject to income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B).
St. Lukes fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely
tax exempt from all its income. However, it remains a proprietary non-profit hospital under Section
27(B) of the NIRC as long as it does not distribute any of its profits to its members and such profits
are reinvested pursuant to its corporate purposes. St. Lukes, as a proprietary non-profit hospital, is
entitled to the preferential tax rate of 10% on its net income from its for-profit activities.
St. Lukes is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC.
However, St. Lukes has good reasons to rely on the letter dated 6 June 1990 by the BIR, which
opined that St. Lukes is a corporation for purely charitable and social welfare purposes and thus
exempt from income tax.
In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that good faith and
honest belief that one is not subject to tax on the basis of previous interpretation of government
agencies tasked to implement the tax law, are sufficient justification to delete the imposition of
surcharges and interest.
WHEREFORE, St. Lukes Medical Center, Inc. is ORDERED TO PAY the deficiency income tax in
1998 based on the 10% preferential income tax rate under Section 27(8) of the National Internal
Revenue Code. However, it is not liable for surcharges and interest on such deficiency income
tax under Sections 248 and 249 of the National Internal Revenue Code. All other parts of the
Decision and Resolution of the Court of Tax Appeals are AFFIRMED.

CIR V. CA & YMCA

Facts: The main question in this case is: is the income derived from rentals of real property owned
by Young Mens Christian Association of the Philippines (YMCA) established as a welfare,
educational and charitable non-profit corporation subject to income tax under the NIRC and the
Constitution? In 1980, YMCA earned an income of P676,829 from leasing out a portion of its premises
to small shop owners, like restaurants and canteen operators and P44k form parking fees.
Issue: Is the rental income of the YMCA taxable?
Held: Yes. The exemption claimed by the YMCA is expressly disallowed by the very wording of the
last paragraph of then Sec. 27 of the NIRC; court is duty-bound to abide strictly by its literal meaning
and to refrain from resorting to any convoluted attempt at construction. The said provision mandates
that the income of exempt organizations (such as YMCA) from any of their properties, real or
personal, be subject to the tax imposed by the same Code. Private respondent is exempt from the
payment of property tax, but nit income tax on rentals from its property.

TOLENTINO V. SECRETARY OF FINANCE

Facts:
House of Rep. filed House Bill 11197 (An Act Restructuring the VAT System to Widen its Tax
Base and Enhance its Admin., Amending for these Purposes)
Upon receipt of Senate, Senate filed another bill completely different from that of the House
Bill
Senate finished debates on the bill and had the 2nd and 3rd reading of the Bill on the same
day
Bill was deliberated upon in the Conference Committee and become enrolled bill which
eventually became the EVAT law.
Procedural Issue:
(1) WoN RA 7716 originated exclusively from the House of Rep. in accordance with sec 24, art 6 of
Consti
(2) WoN the Senate bill violated the three readings on separate days requirement of the Consti
(3) WoN RA 7716 violated sec 26(1), art 6 - one subject, one title rule.
NOTE: This case was filed by PAL because before the EVAT Law, they were exempt from taxes. After
the passage of EVAT, they were already included. PAL contended that neither the House or Senate bill
provided for the removal of the exemption from taxes of PAL and that it was inly made after the
meeting of the Conference Committee w/c was not expressed in the title of RA 7166
Held:
(1)
YES! Court said that it is not the law which should originate from the House of Rep, but the
revenue bill which was required to originate from the House of Rep. The inititiative must ocme from
the Lower House because they are elected in the district level meaning they are expected to be
more sensitive to the needs of the locality.
Also, a bill originating from the Lower House may undergo extensive changes while in the Senate.
Senate can introduce a separate and distinct bill other than the one the Lower House proposed. The
Constitution does not prohibit the filing in the Senate of a substitute bill in anticipation of its receipt
of the House bill, so long as action by Senate is withheld pending the receipt of the House bill.
(2)
NO. The Pres. certified that the Senate bill was urgent. Presidential certification dispensed the
requirement not only of printing but also reading the bill in 3 separate days. In fact, the Senate
accepted the Pres. certification
(3) No. Court said that the title states that the purpose of the statute is to expand the VAT system
and one way of doing this is to widen its base by withdrawing some of the exemptions granted
before. It is also in the power of Congress to amend, alter, repeal grant of franchises for operation of
public utility when the common good so requires.

JOHN HAY PEOPLES ALTERNATIVE COALITION VS. LIM

Facts: Republic Act 7227, entitled "An Act Accellerating the Convetsion of Military Reservations into
other Productive uses, Creating the Bases Conversion and Development Authority for this Purpose,
Providing Funds Therefor and for other purposes," otherwise known as the "Bases Conversion and
Development Act of 1992," was enacted on 13 March 1992. The law set out the policy of the
government to accelerate the sound and balanced conversion into alternative productive uses of the
former military bases under the 1947 Philippines-United States of America Military Bases Agreement,
namely, the Clark and Subic military reservations as well as their extensions including the John Hay
Station (Camp John Hay) in the City of Baguio. RA 7227 created the Bases Conversion and
Development Authority' (BCDA), vesting it with powers pertaining to the multifarious aspects of
carrying out the ultimate objective of utilizing the base areas in accordance with the declared
government policy. RA 7227 likewise created the Subic Special Economic [and Free Port] Zone (Subic
SEZ) the metes and bounds of which were to be delineated in a proclamation to be issued by the
President of the Philippines; and granted the Subic SEZ incentives ranging from tax and duty-free
importations, exemption of businesses therein from local and national taxes, to other hall-narks of a
liberalized financial and business climate. RA 7227 expressly gave authority to the President to
create through executive proclamation, subject to the concurrence of the local government units
directly affected, other Special Economic Zones (SEZ) in the areas covered respectively by the Clark
military reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay. On 16
August 1993, BCDA entered into a Memorandum of Agreement and Escrow Agreement with Tuntex
(B.V.L) Co., Ltd. (TUNTEX) and Asiaworld Internationale Group, Inc. (ASIAWORLD), private
corporations registered under the laws of the British Virgin Islands, preparatory to the formation of a
joint venture for the development of Poro Point in La Union and Camp John Hay as premier tourist
destinations and recreation centers. 4 months later or on 16 December 16, 1993, BCDA, TUNTEX and
ASIAWORLD executed a Joint Venture Agreements whereby they bound themselves to put up a joint
venture company known as the Baguio International Development and Management Corporation
which would lease areas within Camp John Hay and Poro Point for the purpose of turning such places
into principal tourist and recreation spots, as originally envisioned by the parties under their
AZemorandmn of Agreement. The Baguio City government meanwhile passed a number of
resolutions in response to the actions taken by BCDA as owner and administrator of Camp John Hay.
By Resolution of 29 September 1993, the Sangguniang Panlungsod of Baguio City officially asked
BCDA to exclude all the barangays partly or totally located within Camp John Hay from the reach or
coverage of any plan or program for its development. By a subsequent Resolution dated 19 January
1994, the sanggunian sought from BCDA an abdication, waiver or quitclaim of its ownership over the
home lots being occupied by residents of 9 barangays surrounding the military reservation. Still by
another resolution passed on 21 February 1994, the sanggunian adopted and submitted to BCDA a
15-point concept for the development of Camp John Hay. The sanggunian's vision expressed, among
other things, a kind of development that affords protection to the environment, the making of a
family-oriented type of tourist destination, priority in employment opportunities for Baguio residents
and free access to the base area, guaranteed participation of the city government in the
management and operation of the camp, exclusion of the previously named nine barangays from the
area for development, and liability for local taxes of businesses to be established within the camp."
BCDA, TUNTEX and ASIAWORLD agreed to some, but rejected or modified the other proposals of the
sanggunian." They stressed the need to declare Camp John Hay a SEZ as a condition precedent to its
full development in accordance with the mandate of RA 7227. On 11 May 1994, the sanggunian
passed a resolution requesting the Mayor to order the determination of realty taxes which may
otherwise be collected from real properties of Camp John Hay. The resolution was intended to
intelligently guide the sanggunian in determining its position on whether Camp John Hay be declared
a SEZ, the sanggunian being of the view that such declaration would exempt the camp's property
and the economic activity therein from local or national taxation. More than a month later, however,
the sanggunian passed Resolution 255, (Series of 1994)," seeking and supporting, subject to its
concurrence, the issuance by then President Ramos of a presidential proclamation declaring an area
of 285.1 hectares of the camp as a SEZ in accordance with the provisions of RA 7227. Together with
this resolution was submitted a draft of the proposed proclamation for consideration by the President.
On 5 July 1994 then President Ramos issued Proclamation 420 (series of 1994), "creating and

designating a portion of the area covered by the former Camp John Hay as the John Hay Special
Economic Zone pursuant to Republic Act 7227." The John Hay Peoples Alternative Coalition, et. al.
filed the petition for prohibition, mandamus and declaratory relief with prayer for a temporary
restraining order (TRO) and/or writ of preliminary injunction on 25 April 1995 challenging, in the
main, the constitutionality or validity of Proclamation 420 as well as the legality of the Memorandum
of Agreement and Joint Venture Agreement between the BCDA, and TUNTEX and ASIAWORLD.
Issue: Whether the petitioners have legal standing in filing the case questioning the validity of
Presidential Proclamation 420.
Held: It is settled that when questions of constitutional significance are raised, the court can
exercise its power of judicial review only if the following requisites are present: (1) the existence of
an actual and appropriate case; (2) a personal and substantial interest of the party raising the
constitutional question; (3) the exercise of judicial review is pleaded at the earliest opportunity; and
(4) the constitutional question is the lis mota of the case." RA 7227 expressly requires the
concurrence of the affected local government units to the creation of SEZs out of all the base areas in
the country.'" The grant by the law on local government units of the right of concurrence on the
bases' conversion is equivalent to vesting a legal standing on them, for it is in effect a recognition of
the real interests that communities nearby or surrounding a particular base area have in its
utilization. Thus, the interest of petitioners, being inhabitants of Baguio, in assailing the legality of
Proclamation 420, is personal and substantial such that they have sustained or will sustain direct
injury as a result of the government act being challenged." Theirs is a material interest, an interest in
issue affected by the proclamation and not merely an interest in the question involved or an
incidental interest," for what is at stake in the enforcement of Proclamation 420 is the very economic
and social existence of the people of Baguio City. Moreover, Petitioners Edilberto T. Claravall and Lilia
G. Yaranon were duly elected councilors of Baguio at the time, engaged in the local governance of
Baguio City and whose duties included deciding for and on behalf of their constituents the question
of whether to concur with the declaration of a portion of the area covered by Camp John Hay as a
SEZ. Certainly then, Claravall and Yaranon, as city officials who voted against" the sanggunian
Resolution No. 255 (Series of 1994) supporting the issuance of the now challenged Proclamation 420,
have legal standing to bring the present petition.