G.R. No.
183137 April 10, 2013 The appeal/petition was filed within the thirty (30)-day period from the effectivity of a tax
PELIZLOY REALTY CORPORATION, represented herein by its President, GREGORY
K. LOY, Petitioner, vs. THE PROVINCE OF BENGUET, Respondent.
LEONEN, J.:
The principal issue in this case is the scope of authority of a province to impose an amusement
tax.
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the
December 10, 2007 decision of the Regional Trial Court,- Branch 62, La Trinidad, Benguet in
Civil Case No. 06-CV-2232 be reversed and set aside and a new one issued in which: ( 1)
respondent Province of Benguet is declared as having no authority to levy amusement taxes on
admission fees for resorts, swimming pools, bath houses, hot springs, tourist spots, and other
places for recreation; (2) Section 59, Article X of the Benguet Provincial Revenue Code of 2005
is declared null and void; and (3) the respondent Province of Benguet is permanently enjoined
from enforcing Section 59, Article X of the Benguet Provincial Revenue Code of 2005.
Petitioner Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove Resort, which is designed
for recreation and which has facilities like swimming pools, a spa and function halls. It is located
at Asin, Angalisan, Municipality of Tuba, Province of Benguet.
On December 8, 2005, the Provincial Board of the Province of Benguet approved Provincial
Tax Ordinance No. 05-107, otherwise known as the Benguet Revenue Code of 2005 ("Tax
Ordinance"). Section 59, Article X of the Tax Ordinance levied a ten percent (10%) amusement
tax on gross receipts from admissions to "resorts, swimming pools, bath houses, hot springs and
tourist spots." Specifically, it provides the following:
Article Ten: Amusement Tax on Admission
Section 59. Imposition of Tax. There is hereby levied a tax to be collected from the proprietors,
lessees, or operators of theaters, cinemas, concert halls, circuses, cockpits, dancing halls,
dancing schools, night or day clubs, and other places of amusement at the rate of thirty percent
(30%) of the gross receipts from admission fees; and
A tax of ten percent (10%) of gross receipts from admission fees for boxing, resorts, swimming
pools, bath houses, hot springs, and tourist spots is likewise levied. [Emphasis and underscoring
supplied]
Section 162 of the Tax Ordinance provided that the Tax Ordinance shall take effect on January
1, 2006.
It was Pelizloy's position that the Tax Ordinance's imposition of a 10% amusement tax on gross
receipts from admission fees for resorts, swimming pools, bath houses, hot springs, and tourist
spots is an ultra vires act on the part of the Province of Benguet. Thus, it filed an appeal/petition
before the Secretary of Justice on January 27, 2006.
ordinance allowed by Section 187 of Republic Act No. 7160, otherwise known as the Local
Government Code (LGC).1 The appeal/petition was docketed as MSO-OSJ Case No. 03-2006.
Under Section 187 of the LGC, the Secretary of Justice has sixty (60) days from receipt of the
appeal to render a decision. After the lapse of which, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.
Treating the Secretary of Justice's failure to decide on its appeal/petition within the sixty (60)
days provided by Section 187 of the LGC as an implied denial of such appeal/petition, Pelizloy
filed a Petition for Declaratory Relief and Injunction before the Regional Trial Court, Branch
62, La Trinidad, Benguet. The petition was docketed as Civil Case No. 06-CV-2232.
Pelizloy argued that Section 59, Article X of the Tax Ordinance imposed a percentage tax in
violation of the limitation on the taxing powers of local government units (LGUs) under Section
133 (i) of the LGC. Thus, it was null and void ab initio. Section 133 (i) of the LGC provides:
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
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions
on goods or services except as otherwise provided herein
The Province of Benguet assailed the Petition for Declaratory Relief and Injunction as an
improper remedy. It alleged that once a tax liability has attached, the only remedy of a taxpayer
is to pay the tax and to sue for recovery after exhausting administrative remedies. 2
On substantive grounds, the Province of Benguet argued that the phrase other places of
amusement in Section 140 (a) of the LGC3 encompasses resorts, swimming pools, bath houses,
hot springs, and tourist spots since "Article 220 (b) (sic)" of the LGC defines "amusement" as
"pleasurable diversion and entertainment x x x synonymous to relaxation, avocation, pastime,
or fun."4 However, the Province of Benguet erroneously cited Section 220 (b) of the LGC.
Section 220 of the LGC refers to valuation of real property for real estate tax purposes. Section
131 (b) of the LGC, the provision which actually defines "amusement", states:
Section 131. Definition of Terms. - When used in this Title, the term:
xxx
(b) "Amusement" is a pleasurable diversion and entertainment. It is synonymous to relaxation,
avocation, pastime, or fun On December 10, 2007, the RTC rendered the assailed Decision
dismissing the Petition for Declaratory Relief and Injunction for lack of merit.
Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. On the validity of
Section 59, Article X of the Tax Ordinance, the RTC noted that, while Section 59, Article X
imposes a percentage tax, Section 133 (i) of the LGC itself allowed for exceptions. It noted that
what the LGC prohibits is not the imposition by LGUs of percentage taxes in general but the
"imposition and levy of percentage tax on sales, barters, etc., on goods and services only."5It
further gave credence to the Province of Benguet's assertion that resorts, swimming pools, bath
houses, hot springs, and tourist spots are encompassed by the phrase other places of
amusement in Section 140 of the LGC.
On May 21, 2008, the RTC denied Pelizloys Motion for Reconsideration.
Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure questions of law. It
assailed the legality of Section 59, Article X of the Tax Ordinance as being a (supposedly)
prohibited percentage tax per Section 133 (i) of the LGC.
In its Comment, the Province of Benguet, erroneously citing Section 40 of the LGC, argued that
Section 59, Article X of the Tax Ordinance does not levy a percentage tax "because the
imposition is not based on the total gross receipts of services of the petitioner but solely and
actually limited on the gross receipts of the admission fees collected."6 In addition, it argued
that provinces can validly impose amusement taxes on resorts, swimming pools, bath houses,
hot springs, and tourist spots, these being amusement places.
For resolution in this petition are the following issues:
1. Whether or not Section 59, Article X of Provincial Tax Ordinance No. 05-107, otherwise
known as the Benguet Revenue Code of 2005, levies a percentage tax.
2. Whether or not provinces are authorized to impose amusement taxes on admission fees to
resorts, swimming pools, bath houses, hot springs, and tourist spots for being "amusement
places" under the Local Government Code.
The power to tax "is an attribute of sovereignty,"7 and as such, inheres in the State. Such,
however, is not true for provinces, cities, municipalities and barangays as they are not the
sovereign;8 rather, they are mere "territorial and political subdivisions of the Republic of the
Philippines".9
The rule governing the taxing power of provinces, cities, muncipalities and barangays is
summarized in Icard v. City Council of Baguio:10
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent
power of taxation. The charter or statute must plainly show an intent to confer that power or the
municipality, cannot assume it. And the power when granted is to be construed in strictissimi
juris. Any doubt or ambiguity arising out of the term used in granting that power must be
resolved against the municipality. Inferences, implications, deductions all these have no
place in the interpretation of the taxing power of a municipal corporation. 11 [Underscoring
supplied]
Therefore, the power of a province to tax is limited to the extent that such power is delegated to
it either by the Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear
on this point:
Section 5. 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. [Underscoring supplied]
Per Section 5, Article X of the 1987 Constitution, "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."12 Nevertheless, such authority is "subject to such guidelines and
limitations as the Congress may provide".13
In conformity with Section 3, Article X of the 1987 Constitution, 14 Congress enacted Republic
Act No. 7160, otherwise known as the Local Government Code of 1991. Book II of the LGC
governs local taxation and fiscal matters.
Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of
LGUS found below.
First, Section 130 provides for the following fundamental principles governing the taxing
powers of LGUs:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any
private person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit
of, and be subject to the disposition by, the LGU levying the tax, fee, charge or other imposition
unless otherwise specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
Second, Section 133 provides for the common limitations on the taxing powers of LGUs.
Specifically, Section 133 (i) prohibits the levy by LGUs of percentage or value-added tax (VAT)
on sales, barters or exchanges or similar transactions on goods or services except as otherwise
provided by the LGC.
As it is Pelizloys contention that Section 59, Article X of the Tax Ordinance levies a prohibited
percentage tax, it is crucial to understand first the concept of a percentage tax.
In Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc., 15 the Supreme Court
defined percentage tax as a "tax measured by a certain percentage of the gross selling price or
gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings
derived by any person engaged in the sale of services." Also, Republic Act No. 8424, otherwise
known as the National Internal Revenue Code (NIRC), in Section 125, Title V, 16 lists
amusement taxes as among the (other) percentage taxes which are levied regardless of whether
or not a taxpayer is already liable to pay value-added tax (VAT).
Amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain
specified establishments.
Thus, applying the definition in CIR v. Citytrust and drawing from the treatment of amusement
taxes by the NIRC, amusement taxes are percentage taxes as correctly argued by Pelizloy.
However, provinces are not barred from levying amusement taxes even if amusement taxes are
a form of percentage taxes. Section 133 (i) of the LGC prohibits the levy of percentage taxes
"except as otherwise provided" by the LGC.
Section 140 of the LGC provides:
SECTION 140. Amusement Tax - (a) The province may levy an amusement tax to be collected
from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the gross
receipts from admission fees.
(b) In the case of theaters of cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the provincial treasurer before the gross receipts
are divided between said proprietors, lessees, or operators and the distributors of the
cinematographic films.
(c) The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows,
musical programs, literary and oratorical presentations, except pop, rock, or similar concerts
shall be exempt from the payment of the tax herein imposed.
(d) The Sangguniang Panlalawigan may prescribe the time, manner, terms and conditions for
the payment of tax. In case of fraud or failure to pay the tax, the Sangguniang Panlalawigan may
impose such surcharges, interests and penalties.
(e) The proceeds from the amusement tax shall be shared equally by the province and the
municipality where such amusement places are located. [Underscoring supplied]
Evidently, Section 140 of the LGC carves a clear exception to the general rule in Section 133
(i). Section 140 expressly allows for the imposition by provinces of amusement taxes on "the
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and
other places of amusement."
However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among
those places expressly mentioned by Section 140 of the LGC as being subject to amusement
taxes. Thus, the determination of whether amusement taxes may be levied on admissions to
resorts, swimming pools, bath houses, hot springs, and tourist spots hinges on whether the
phrase other places of amusement encompasses resorts, swimming pools, bath houses, hot
springs, and tourist spots.
Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration
of particular and specific words of the same class or where the latter follow the former, the
general word or phrase is to be construed to include, or to be restricted to persons, things or
cases akin to, resembling, or of the same kind or class as those specifically mentioned."17
The purpose and rationale of the principle was explained by the Court in National Power
Corporation v. Angas18 as follows:
The purpose of the rule on ejusdem generis is to give effect to both the particular and general
words, by treating the particular words as indicating the class and the general words as including
all that is embraced in said class, although not specifically named by the particular words. This
is justified on the ground that if the lawmaking body intended the general terms to be used in
their unrestricted sense, it would have not made an enumeration of particular subjects but would
have used only general terms. [2 Sutherland, Statutory Construction, 3rd ed., pp. 395-400].19
In Philippine Basketball Association v. Court of Appeals,20 the Supreme Court had an
opportunity to interpret a starkly similar provision or the counterpart provision of Section 140
of the LGC in the Local Tax Code then in effect. Petitioner Philippine Basketball Association
(PBA) contended that it was subject to the imposition by LGUs of amusement taxes (as opposed
to amusement taxes imposed by the national government).1wphi1 In support of its contentions,
it cited Section 13 of Presidential Decree No. 231, otherwise known as the Local Tax Code of
1973, (which is analogous to Section 140 of the LGC) providing the following:
Section 13. Amusement tax on admission. - The province shall impose a tax on admission to be
collected from the proprietors, lessees, or operators of theaters, cinematographs, concert halls,
circuses and other places of amusement xxx.
Applying the principle of ejusdem generis, the Supreme Court rejected PBA's assertions and
noted that:
In determining the meaning of the phrase 'other places of amusement', one must refer to the
prior enumeration of theaters, cinematographs, concert halls and circuses with artistic
expression as their common characteristic. Professional basketball games do not fall under the
same category as theaters, cinematographs, concert halls and circuses as the latter basically
belong to artistic forms of entertainment while the former caters to sports and
gaming.21 [Underscoring supplied]
However, even as the phrase other places of amusement was already clarified in Philippine
Basketball Association, Section 140 of the LGC adds to the enumeration of 'places of
amusement' which may properly be subject to amusement tax. Section 140 specifically mentions
'boxing stadia' in addition to "theaters, cinematographs, concert halls and circuses" which were
already mentioned in PD No. 231. Also, 'artistic expression' as a characteristic does not pertain
to 'boxing stadia'.
In the present case, the Court need not embark on a laborious effort at statutory construction.
Section 131 (c) of the LGC already provides a clear definition of amusement places:
Section 131. Definition of Terms. - When used in this Title, the term:
xxx
(c) "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of
amusement where one seeks admission to entertain oneself by seeing or viewing the show or
performances [Underscoring supplied]
Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a common
typifying characteristic in that they are all venues primarily for the staging of spectacles or the
holding of public shows, exhibitions, performances, and other events meant to be viewed by an
audience. Accordingly, other places of amusement must be interpreted in light of the typifying
characteristic of being venues "where one seeks admission to entertain oneself by seeing or
viewing the show or performances" or being venues primarily used to stage spectacles or hold
public shows, exhibitions, performances, and other events meant to be viewed by an audience.
As defined in The New Oxford American Dictionary,22 show means "a spectacle or display of
something, typically an impressive one";23 while performance means "an act of staging or
presenting a play, a concert, or other form of entertainment."24 As such, the ordinary definitions
of the words show and performance denote not only visual engagement (i.e., the seeing or from enforcing the second paragraph of Section 59, Article X of the Benguet Provincial Revenue
viewing of things) but also active doing (e.g., displaying, staging or presenting) such that actions
are manifested to, and (correspondingly) perceived by an audience.
Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist
spots cannot be considered venues primarily "where one seeks admission to entertain oneself by
seeing or viewing the show or performances". While it is true that they may be venues where
people are visually engaged, they are not primarily venues for their proprietors or operators to
actively display, stage or present shows and/or performances.
cockpits, dancing halls, dancing schools, night or day clubs, and other places of
amusement".1wphi1 In any case, the issues raised by Pelizloy are pertinent only with respect
to the second paragraph of Section 59, Article X of the Tax Ordinance. Thus, there is no reason
to invalidate the first paragraph of Section 59, Article X of the Tax Ordinance. Any declaration
as to the Province of Benguet's lack of authority to levy amusement taxes must be limited to
admission fees to resorts, swimming pools, bath houses, hot springs and tourist spots.
Moreover, the second paragraph of Section 59, Article X of the Tax Ordinance is not limited to
resorts, swimming pools, bath houses, hot springs, and tourist spots but also covers admission
fees for boxing. As Section 140 of the LGC allows for the imposition of amusement taxes on
gross receipts from admission fees to boxing stadia, Section 59, Article X of the Tax Ordinance
must be sustained with respect to admission fees from boxing stadia.
WHEREFORE, the petition for review on certiorari is GRANTED. The second paragraph of
Section 59, Article X of the Benguet Provincial Revenue Code of 2005, in so far as it imposes
amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs and
tourist spots, is declared null and void. Respondent Province of Benguet is permanently enjoined
Code of 2005 with respect to resorts, swimming pools, bath houses, hot springs and tourist spots.
SO ORDERED.

Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the
same category or class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows
that they cannot be considered as among the other places of amusement contemplated by
Section 140 of the LGC and which may properly be subject to amusement taxes.

At this juncture, it is helpful to recall this Courts pronouncements in Icard:

The power to tax when granted to a province is to be construed in strictissimi juris. Any doubt
or ambiguity arising out of the term used in granting that power must be resolved against the
province. Inferences, implications, deductions all these have no place in the interpretation
of the taxing power of a province.25

In this case, the definition of' amusement places' in Section 131 (c) of the LGC is a clear basis
for determining what constitutes the 'other places of amusement' which may properly be subject
to amusement tax impositions by provinces. There is no reason for going beyond such basis. To
do otherwise would be to countenance an arbitrary interpretation/application of a tax law and to
inflict an injustice on unassuming taxpayers.

The previous pronouncements notwithstanding, it will be noted that it is only the second
paragraph of Section 59, Article X of the Tax Ordinance which imposes amusement taxes on
"resorts, swimming pools, bath houses, hot springs, and tourist spots". The first paragraph of
Section 59, Article X of the Tax Ordinance refers to "theaters, cinemas, concert halls, circuses,
G.R. No. 181756 June 15, 2015
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner, vs.
CITY OF LAPU-LAPU and ELENA T. PACALDO, Respondents.
LEONARDO-DE CASTRO, J.:
This is a clear opportunity for this Court to clarify the effects of our two previous decisions,
issued a decade apart, on the power of local government units to collect real property taxes from
airport authorities located within their area, and the nature or the juridical personality of said
airport authorities.
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure seeking to reverse and set aside the October 8, 2007 Decision1 of the Court of Appeals
(Cebu City) in CA-G.R. SP No. 01360 and the February 12, 2008 Resolution 2 denying
petitioner's motion for reconsideration.
THE FACTS
Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on
July 31, 1990 under Republic Act No. 69583 to "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." It is represented in this case by the Office of the Solicitor
General. Respondent City of Lapu-Lapu is a local government unit and political subdivision,
created and existing under its own charter with capacity to sue and be sued. Respondent Elena
T. Pacaldo was impleaded in her capacity as the City Treasurer of respondent City.
Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision
of Republic Act No. 6958:
Section 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:
Provided, That no tax exemption herein granted shall extend to any subsidiary which may be
organized by the Authority.
On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International
Airport Authority v. Marcos4 (the 1996 MCIAA case) declaring that upon the effectivity of
Republic Act No. 7160 (The Local Government Code of 1991), petitioner was no longer exempt
from real estate taxes. The Court held:
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. x x x.
On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax
assessing the lots comprising the Mactan International Airport in the amount of
162,058,959.52. Petitioner complained that there were discrepancies in said Statement of Real
Estate Tax as follows:
(a) [T]he statement included lots and buildings not found in the inventory of petitioners real
properties;
(b) [S]ome of the lots were covered by two separate tax declarations which resulted in double
assessment;
(c) [There were] double entries pertaining to the same lots; and
(d) [T]he statement included lots utilized exclusively for governmental purposes.5
Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner
in the amount of 151,376,134.66. Petitioner averred that this amount covered real estate taxes
on the lots utilized solely and exclusively for public or governmental purposes such as the
airfield, runway and taxiway, and the lots on which they are situated. 6
Petitioner paid respondent City the amount of four million pesos (4,000,000.00) monthly,
which was later increased to six million pesos (6,000,000.00) monthly. As of December 2003,
petitioner had paid respondent City a total of 275,728,313.36.7
Upon request of petitioners General Manager, the Secretary of the Department of Justice (DOJ)
issued Opinion No. 50, Series of 1998,8 and we quote the pertinent portions of said Opinion
below:
You further state that among the real properties deemed transferred to MCIAA are the airfield,
runway, taxiway and the lots on which the runway and taxiway are situated, the tax declarations
of which were transferred in the name of the MCIAA. In 1997, the City of Lapu-Lapu imposed
real estate taxes on these properties invoking the provisions of the Local Government Code.
It is your view that these properties are not subject to real property tax because they are
exclusively used for airport purposes. You said that the runway and taxiway are not only used
by the commercial airlines but also by the Philippine Air Force and other government agencies.
As such and in conjunction with the above interpretation of Section 15 of R.A. No. 6958, you
believe that these properties are considered owned by the Republic of the Philippines. Hence,
this request for opinion.
The query is resolved in the affirmative. The properties used for airport purposes (i.e. airfield,
runway, taxiway and the lots on which the runway and taxiway are situated) are owned by the
Republic of the Philippines.
xxxx
Under the Law on Public Corporations, the legislature has complete control over the property
which a municipal corporation has acquired in its public or governmental capacity and which is
devoted to public or governmental use. The municipality in dealing with said property is subject
to such restrictions and limitations as the legislature may impose. On the other hand, property
which a municipal corporation acquired in its private or proprietary capacity, is held by it in the
same character as a private individual. Hence, the legislature in dealing with such property, is
subject to the constitutional restrictions concerning property (Martin, Public Corporations
[1997], p. 30; see also Province of Zamboanga del [Norte] v. City of Zamboanga [131 Phil.
446]). The same may be said of properties transferred to the MCIAA and used for airport
purposes, such as those involved herein. Since such properties are of public dominion, they are
deemed held by the MCIAA in trust for the Government and can be alienated only as may be
provided by law.
Based on the foregoing, it is our considered opinion that the properties used for airport purposes,
such as the airfield, runway and taxiway and the lots on which the runway and taxiway are
located, are owned by the State or by the Republic of the Philippines and are merely held in trust
by the MCIAA, notwithstanding that certificates of titles thereto may have been issued in the
name of the MCIAA. (Emphases added.)
Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement to the
City Treasurer of Lapu-Lapu dated August 3, 1998,9 which reads:
The distinction as to which among the MCIAA properties are still considered "owned by the
State or by the Republic of the Philippines," such as the resolution in the above-cited DOJ
Opinion No. 50, for purposes of real property tax exemption is hereby deemed tenable
considering that the subject "airfield, runway, taxiway and the lots on which the runway and
taxiway are situated" appears to be the subject of real property tax assessment and collection of
the city government of Lapu-Lapu, hence, the same are definitely located within the jurisdiction
of Lapu-Lapu City. Moreover, then Undersecretary Antonio P. Belicena of the Department of
Finance, in his 1st Indorsement dated May 18, 1998, advanced that "this Department (DOF)
interposes no objection to the request of Mactan Cebu International Airport Authority for
exemption from payment of real property tax on the property used for airport purposes"
mentioned above.
The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject
airfield, runway, taxiway and the lots on which the runway and taxiway are situated, from the
"Taxable Roll" to the "Exempt Roll" of real properties.
The City Treasurer thereat should be informed on the action taken for his immediate appropriate
action. (Emphases added.)
Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax
Balances up to the year 2002 reflecting the amount of 246,395,477.20. Petitioner claimed that
the statement again included the lots utilized solely and exclusively for public purpose such as
the airfield, runway, and taxiway and the lots on which these are built. Respondent Pacaldo then
issued Notices of Levy on 18 sets of real properties of petitioner. 10
prohibition11
Petitioner filed a petition for with the Regional Trial Court (RTC) of Lapu-Lapu
City with prayer for the issuance of a temporary restraining order (TRO) and/or a writ of
preliminary injunction, docketed as SCA No. 6056-L. Branch 53 of RTC Lapu-Lapu City then
issued a 72-hour TRO. The petition for prohibition sought to enjoin respondent City from
issuing a warrant of levy against petitioners properties and from selling them at public auction
for delinquency in realty tax obligations. The petition likewise prayed for a declaration that the
airport terminal building, the airfield, runway, taxiway and the lots on which they are situated
are exempted from real estate taxes after due hearing. Petitioner based its claim of exemption
on DOJ Opinion No. 50.
The RTC issued an Order denying the motion for extension of the TRO. Thus, on December10,
2003, respondent City auctioned 27 of petitioners properties. As there was no interested bidder
who participated in the auction sale, respondent City forfeited and purchased said properties.
The corresponding Certificates of Sale of Delinquent Property were issued to respondent City. 12
Petitioner claimed before the RTC that it had discovered that respondent City did not pass any
ordinance authorizing the collection of real property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment. Petitioner argued that without the
corresponding tax ordinances, respondent City could not impose and collect real property tax,
an additional tax for the SEF, and penalty interest from petitioner. 13
The RTC issued an Order14 on December 28, 2004 granting petitioners application for a writ
of preliminary injunction. The pertinent portions of the Order are quoted below:
The supervening legal issue has rendered it imperative that the matter of the consolidation of
the ownership of the auctioned properties be placed on hold. Furthermore, it is the view of the
Court that great prejudice and damage will be suffered by petitioner if it were to lose its
dominion over these properties now when the most important legal issue has still to be resolved
by the Court. Besides, the respondents and the intervenor have not sufficiently shown cause why
petitioners application should not be granted.
WHEREFORE, the foregoing considered, petitioners application for a writ of preliminary
injunction is granted. Consequently, upon the approval of a bond in the amount of one million
pesos (1,000,000.00), let a writ of preliminary injunction issue enjoining the respondents, the
intervenor, their agents or persons acting in [their] behalf, to desist from consolidating and
exercising ownership over the properties of the petitioner.
However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an
Order15 dated December 5, 2005. The RTC reasoned as follows:
The respondent City, in the courseof the hearing of its motion, presented to this Court a certified
copy of its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25
whereof authorized the collection of a rate of one and one-half (1 1/2) [per centum] from owners,
executors or administrators of any real estate lying within the jurisdiction of the City of Lapu-
Lapu, based on the assessed value as shown in the latest revision.
Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local
Government Code of 1991), to the mind of the Court this ordinance is still a valid and effective
ordinance in view of Sec. 529 of RA 7160 x x x [and the] Implementing Rules and Regulations
of RA 7160 x x x.
xxxx
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the
25% penalty collected is higher than the 2% interest allowed under Sec. 255 of the said law
which provides:
In case of failure to pay the basic real property tax or any other tax levied under this Title upon
the expiration of the periods as provided in Section 250, or when due, as the case may be, shall
subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the
unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid: Provided,
however, That in no case shall the total interest on the unpaid tax or portion thereof exceed
thirty-six (36) months.
This difference does not however detract from the essential enforceability and effectivity of
Ordinance No. 44 pursuant to Section 529 of RA 7160 and Article 278 of the Implementing
Rules and Regulations. The outcome of this disparity is simply that respondent City can only
collect an interest of 2% per month on the unpaid tax. Consequently, respondent City [has] to
recompute the petitioners tax liability.
It is also the Courts perception that respondent City can still collect the additional 1% tax on
real property without an ordinance to this effect. It may be recalled that Republic Act No. 5447
has created the Special Education Fund which is constituted from the proceeds of the additional
tax on real property imposed by the law. Respondent City has collected this tax as mandated by
this law without any ordinance for the purpose, as there is no need for it. Even when RA 5447
was amended by PD 464 (Real Property Tax Code), respondent City had continued to collect
the tax, as it used to.
It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3,
a(3) and b(2) which concern the allocation of the additional tax, considering that under RA 7160,
the proceeds of the additional 1% tax on real property accrue exclusively to the Special
Education Fund. Nevertheless, RA 5447 has not been totally repealed; there is only a partial
repeal.
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax. This is so since RA 5447 is still in force and
effect, and the declared policy of the government in enacting the law, which is to contribute to
the financial support of the goals of education as provided in the Constitution, necessitates the
continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would
be to place the collection of the tax at the option of the local legislature. This would run counter
to the declared policy of the government when the SEF was created and the tax imposed.
As regards the allegation of respondents that this Court has no jurisdiction to entertain the instant
petition, the Court deems it proper, at this stage of the proceedings, not to treat this issue, as it
involves facts which are yet to be established.
x x x [T]he Courts issuance of a writ of preliminary injunction may appear to be a futile gesture
in the light of Section 263 of RA 7160. x x x.
xxxx
It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the
one-year period, ownership fully vests on the local government unit concerned. Thus, when in
the present case petitioner failed to redeem the parcels of land acquired by respondent City, the
ownership thereof became fully vested on respondent City without the latter having to perform
any other acts to perfect its ownership. Corollary thereto, ownership on the part of respondent
City has become a fait accompli.
WHEREFORE, in the light of the foregoing considerations, respondents motion for
reconsideration is granted, and the order of this Court dated December 28, 2004 is hereby
reconsidered. Consequently, the writ of preliminary injunction issued by this Court is hereby
lifted.
Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals (Cebu City), with
urgent prayer for the issuance of a TRO and/or writ of preliminary injunction, docketed as CA-
G.R. SP No. 01360. The Court of Appeals (Cebu City) issued a TRO17 on January 5, 2006 and
shortly thereafter, issued a writ of preliminary injunction 18 on February 17, 2006.
RULING OF THE COURT OF APPEALS
The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007,
holding that petitioner is a government-owned or controlled corporation and its properties are
subject to realty tax. The dispositive portion of the questioned Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:
a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on
which they are situated NOT EXEMPT from the real estate tax imposed by the respondent City
of Lapu-Lapu;
b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the
Special Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to
Section 255 of the Local Government Code, respondent city can only collect an interest of 2%
per month on the unpaid tax which total interest shall, in no case, exceed thirty-six (36) months;
c. We DECLARE the sale in public auction of the aforesaid properties and the eventual
forfeiture and purchase of the subject property by the respondent City of Lapu-Lapu as NULL
and VOID. However, petitioner MCIAAs property is encumbered only by a limited lien
possessed by the respondent City of Lapu-Lapu in accord with Section 257 of the Local
Government Code.19Petitioner filed a Motion for Partial Reconsideration 20 of the questioned
Decision covering only the portion of said decision declaring that petitioner is a GOCC and,
therefore, not exempt from the realty tax and special education fund imposed by respondent
City. Petitioner cited Manila International Airport Authority v. Court of Appeals 21 (the 2006
MIAA case) involving the City of Paraaque and the Manila International Airport Authority.
Petitioner claimed that it had been described by this Court as a government instrumentality, and
that it followed "as a logical consequence that petitioner is exempt from the taxing powers of
respondent City of Lapu-Lapu."22 Petitioner alleged that the 1996 MCIAA case had been
overturned by the Court in the 2006 MIAA case. Petitioner thus prayed that it be declared
exempt from paying the realty tax, special education fund, and interest being collected by
respondent City.
On February 12, 2008, the Court of Appeals denied petitioners motion for partial
reconsideration in the questioned Resolution.
The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case
and refused to apply the 2006 MIAA case. The Court of Appeals wrote in the questioned
Decision: "We find that our position is in line with the coherent and cohesive interpretation of
the relevant provisions of the Local Government Code on local taxation enunciated in the [1996
MCIAA] case which to our mind is more elegant and rational and provides intellectual clarity
than the one provided by the Supreme Court in the [2006] MIAA case."23
In the questioned Decision, the Court of Appeals held that petitioners airport terminal building,
airfield, runway, taxiway, and the lots on which they are situated are not exempt from real estate
tax reasoning as follows:
Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional
mandate of local autonomy, all natural and juridical persons, including government-owned or
controlled corporations (GOCCs), instrumentalities and agencies, are no longer exempt from
local taxes even if previously granted an exemption. The only exemptions from local taxes are
those specifically provided under the Code itself, or those enacted through subsequent
legislation.
Thus, 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 local taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units. x x x.
xxxx
The above-stated provision, however, qualified the exemption of the National Government, its
agencies and instrumentalities from local taxation with the phrase "unless otherwise provided
herein."
Section 232 of the LGC provides for the power of the local government units (LGUs for brevity)
to levy real property tax. x x x.
xxxx
Section 234 of the LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions granted to natural and juridical persons, including government-
owned and controlled corporations, except as provided therein. x x x.
xxxx
Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. x x
x.24 (Citations omitted.)
The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the
2006 MIAA case, it finds and rules that:
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the
National Government, its agencies and instrumentalities as the same is qualified by Sections
193, 232 and 234 which "otherwise provided"; and
b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)
The Court of Appeals ratiocinated in the following manner:
Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by
persons, whether natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon
the effectivity of the Code. Further, the last paragraph of Section 234 of the Code also
unequivocally withdrew, upon the Codes effectivity, exemptions from payment of real property
taxes previously granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section. Petitioner MCIAA, undoubtedly
a juridical person, it follows that its exemption from such tax granted under Section 14 of R.A.
6958 has been withdrawn.
xxxx
From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC,
instrumentalities were generally exempt from all forms of local government taxation, unless
otherwise provided in the Code. On the other hand, Section 232 "otherwise provided" insofar as
it allowed local government units to levy an ad valorem real property tax, irrespective of who
owned the property. At the same time, the imposition of real property taxes under Section 232
is, in turn, qualified by the phrase "not hereinafter specifically exempted." The exemptions from
real property taxes are enumerated in Section 234 of the Code which specifically states that only
real properties owned by the Republic of the Philippines or any of its political subdivisions are
exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within
the exceptions under Section 234 of the LGC.
Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government,
its agencies and instrumentalities under Section 133 is qualified by Sections 232 and 234, and
accordingly, the only relevant exemption now applicable to these bodies is what is now provided
under Section 234(a) of the Code. It may be noted that the express withdrawal of previously
granted exemptions to persons from the payment of real property tax by the LGC does not even
make any distinction as to whether the exempt person is a governmental entity or not. As
Sections 193 and 234 of the Code both state, the withdrawal applies to "all persons, including
GOCCs," thus encompassing the two classes of persons recognized under our laws, natural
persons and juridical persons.
xxxx
The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already
been lengthily but soundly, cogently and lucidly answered in the [1996 MCIAA] case x x x.
xxxx
Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA]
case that MIAA (and also petitioner MCIAA) is not a government-owned or controlled
corporation but an instrumentality based on Section 2(10) of the Administrative Code of 1987
appears to be unsound. In the [2006 MIAA] case, the majority justifies MIAAs purported
exemption on Section 133(o)of the Local Government Code which places "agencies and
instrumentalities: as generally exempt from the taxation powers of the LGUs. It further went on
to hold that "By express mandate of the Local Government Code, local governments cannot
impose any kind of tax on national government instrumentalities like the MIAA." x x
x.26 (Citations omitted.)
The Court of Appeals further cited Justice Tingas dissent in the 2006 MIAA case as well as
provisions from petitioner MCIAAs charter to show that petitioner is a GOCC. 27 The Court of
Appeals wrote:
These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal
relations. Under its charter, it has the power to acquire, possess and incur obligations. It also has
the power to contract in its own name and to acquire title to movable or immovable property.
More importantly, it may likewise exercise powers of a corporation under the Corporation Code.
Moreover, based on its own allegation, it even recognized itself as a GOCC when it alleged in
its petition for prohibition filed before the lower court that it "is a body corporate organized and
existing under Republic Act No. 6958 x x x."
We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city
can no longer challenge the tax-exempt character of the properties since it is estopped from
doing so when respondent City of Lapu-Lapu, through its former mayor, Ernest H. Weigel, Jr.,
had long ago conceded that petitioners properties are exempt from real property tax.
It is not denied by the respondent city that it considered, through its former mayor, Ernest H.
Weigel, Jr., petitioners subject properties, specifically the runway and taxiway, as exempt from
taxes. However, as astutely pointed out by the respondent city it "can never be in estoppel,
particularly in matters involving taxes. It is a well-known rule that erroneous application and
enforcement of the law by public officers do not preclude subsequent correct application of the
statute, and that the Government is never estopped by mistake or error on the part of its
agents."28 (Citations omitted.)
The Court of Appeals established the following:
a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance
for the imposition of realty tax against petitioner MCIAA;
b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is
authorized by law, Republic Act No. 5447; and
c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is
likewise [sanctioned] by respondent Citys ordinance.29
The Court of Appeals likewise held that respondent City has a valid and existing local tax
ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which
provided for the imposition of real property tax. The relevant provision reads:
Chapter 5 Tax on Real Property Ownership
Section 25. RATE OF TAX. - A rate of one and one-half (1 1/2) percentum shall be collected
from owners, executors or administrators of any real estate lying within the territorial
jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in the latest
revision.30
The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity
of the LGC, it remained in force and effect, citing Section 529 of the LGC and Article 278 of
the LGCs Implementing Rules and Regulations.31
As regards the Special Education Fund, the Court of Appeals held that respondent City can still
collect the additional 1% tax on real property even without an ordinance to this effect, as this is
authorized by Republic Act No. 5447, as amended by Presidential Decree No. 464 (the Real
Property Tax Code), which does not require an enabling tax ordinance. The Court of Appeals
affirmed the RTCs ruling that Republic Act No. 5447 was still in force and effect
notwithstanding the passing of the LGC, as the latter only partially repealed the former law.
What Section 534 of the LGC repealed was Section 3 a(3) and b(2) of Republic Act No. 5447,
and not the entire law that created the Special Education Fund.32 The repealed provisions
referred to allocation of taxes on Virginia type cigarettes and duties on imported leaf tobacco
and the percentage remittances to the taxing authority concerned. The Court of Appeals, citing
The Commission on Audit of the Province of Cebu v. Province of Cebu,33 held that "[t]he failure
to add a specific repealing clause particularly mentioning the statute to be repealed indicates
that the intent was not to repeal any existing law on the matter, unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new and the old laws."34 The Court of
Appeals quoted the RTCs discussion on this issue, which we reproduce below:
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax. This is so since R.A. 5447 is still in force and
effect, and the declared policy of the government in enacting the law, which is to contribute to
the financial support of the goals of education as provided in the Constitution, necessitates the
continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would
be to place the collection of the tax at the option of the local legislature. This would run counter
to the declared policy of the government when the SEF was created and the tax
imposed.35 Regarding the penalty interest, the Court of Appeals found that Section 30 of
Ordinance No. 44 of respondent City provided for a penalty surcharge of 25% of the tax due for
a given year. Said provision reads:
Section 30. PENALTY FOR FAILURE TO PAY TAX. Failure to pay the tax provided for
under this Chapter within the time fixed in Section 27, shall subject the taxpayer to a surcharge
of twenty-five percent (25%), without interest.36
The Court of Appeals however declared that after the effectivity of the Local Government Code,
the respondent City could only collect penalty surcharge up to the extent of 72%, covering a
period of three years or 36 months, for the entire delinquent property.37 This was lower than the
25% per annum surcharge imposed by Ordinance No. 44.38The Court of Appeals affirmed
the findings of the RTC in the decision quoted below:
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the
25% penalty collected is higher than the 2% allowed under Sec. 255 of the said law which
provides:
xxxx
This difference does not however detract from the essential enforceability and effectivity of
Ordinance No. 44 pursuant to Section 529 of RA No. 7160 and Article 278 of the Implementing
Rules and Regulations. The outcome of this disparity is simply that respondent City can only
collect an interest of 2% per month on the unpaid tax. Consequently, respondent city will have
to [recompute] the petitioners tax liability.39
It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that
respondent City has the power to impose real property taxes over petitioner, "it is also
evident and categorical that, under Republic Act No. 6958, the properties of petitioner
MCIAA may not be conveyed or transferred to any person or entity except to the national
government."40 The relevant provisions of the said law are quoted below:
Section 4. Functions, Powers and Duties. The Authority shall have the following functions,
powers and duties:
xxxx
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any
land, building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or mortgage by the
Authority nor to transfer to any entity other than the National Government[.]
Section 13. Borrowing Power. The Authority may, in accordance with Section 21, Article XII
of the Constitution and other existing laws, rules and regulations on local or foreign borrowing,
raise funds, either from local or international sources, by way of loans, credit or securities, and
other borrowing instruments with the power to create pledges, mortgages and other voluntary
liens or encumbrances on any of its assets or properties, subject to the prior approval of the
President of the Philippines.
All loans contracted by the Authority under this section, together with all interests and other
sums payable in respect thereof, shall constitute a charge upon all the revenues and assets of the
Authority and shall rank equally with one another, but shall have priority over any other claim
or charge on the revenue and assets of the Authority: Provided, That this provision shall not be
construed as a prohibition or restriction on the power of the Authority to create pledges,
mortgages and other voluntary liens or encumbrances on any asset or property of the Authority.
The payment of the loans or other indebtedness of the Authority may be guaranteed by the
National Government subject to the approval of the President of the Philippines.
The Court of Appeals concluded that "it is clear that petitioner MCIAA is denied by its charter
the absolute right to dispose of its property to any person or entity except to the national
government and it is not empowered to obtain loans or encumber its property without the
approval of the President."41 The questioned Decision contained the following conclusion:
With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested
exclusively on Congress. LGUs, through its 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. And one of the most significant provisions of the LGC is the removal of the blanket
inclusion of instrumentalities and agencies of the national government from the coverage of
local taxation. The express withdrawal by the Code of previously granted exemptions from
realty taxes applied to instrumentalities and government-owned or controlled corporations
(GOCCs) such as the petitioner Mactan-Cebu International Airport Authority. Thus, petitioner
MCIAA became a taxable person in view of the withdrawal of the realty tax exemption that it
previously enjoyed under Section 14 of RA No. 6958 of its charter. As expressed and
categorically held in the Mactan case, the removal and withdrawal of tax exemptions previously
enjoyed by persons, natural or juridical, are consistent with the State policy to ensure autonomy
to local governments and the objective of the Local Government Code 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.
However, in the case at bench, petitioner MCIAAs charter expressly bars the alienation or
mortgage of its property to any person or entity except to the national government. Therefore,
while petitioner MCIAA is a taxable person for purposes of real property taxation, respondent
City of Lapu-Lapu is prohibited from seizing, selling and owning these properties by and
through a public auction in order to satisfy petitioner MCIAAs tax liability. 42 (Citations
omitted.)
In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied
petitioners motion for reconsideration based on the following grounds:
First, the MCIAA case remains the controlling law on the matter as the same is the established
precedent; not the MIAA case but the MCIAA case since the former, as keenly pointed out by
the respondent City of Lapu-Lapu, has not yet attained finality as there is still yet a pending
motion for reconsideration filed with the Supreme Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot be
similarly invoked in the case at bench. The said case cannot be considered as the "law of the
case." The "law of the case" doctrine has been defined as that principle under which
determinations of questions of law will generally be held to govern a case throughout all its
subsequent stages where such determination has already been made on a prior appeal to a court
of last resort. It is merely a rule of procedure and does not go to the power of the court, and will
not be adhered to where its application will result in an unjust decision. It relates entirely to
questions of law, and is confined in its operation to subsequent proceedings in the same case.
According to said doctrine, whatever has been irrevocably established constitutes the law of the
case only as to the same parties in the same case and not to different parties in an entirely
different case. Besides, pending resolution of the aforesaid motion for reconsideration in the
MIAA case, the latter case has not irrevocably established anything.
Thus, after a thorough and judicious review of the allegations in petitioners motion for
reconsideration, this Court resolves to deny the same as the matters raised therein had already
been exhaustively discussed in the decision sought to be reconsidered, and that no new matters
were raised which would warrant the modification, much less reversal, thereof. 43 (Emphasis
added, citations omitted.)
PETITIONERS THEORY
Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly
declared that petitioner, while vested with corporate powers, is not considered a government-
owned or controlled corporation, but is a government instrumentality like the Manila
International Airport Authority (MIAA), Philippine Ports Authority (PPA), University of the
Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed by
respondent City.44Petitioner alleges that Republic Act No. 6958 placed "a limitation on
petitioners administration of its assets and properties" as it provides under Section 4(e) that
"any asset in the international airport important to national security cannot be alienated or
mortgaged by petitioner or transferred to any entity other than the National Government."45
Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the
following:
I.PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED
BY THE HONORABLE COURT IN THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM
PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT CITY OF LAPULAPU.
II.THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL
BUILDING, AIRFIELD, RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH
THEY ARE SITUATED, ARE EXEMPT FROM REAL PROPERTY TAXES.
III. RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX
WITHOUT ANY APPROPRIATE ORDINANCE.
IV. RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX
FOR THE SPECIAL EDUCATION FUND IN THE ABSENCE OF ANY CORRESPONDING
ORDINANCE.
V. RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANSANY
ORDINANCE MANDATING ITS IMPOSITION.46
Petitioner claims the following similarities with MIAA:
1. MCIAA belongs to the same class and performs identical functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international and domestic airport in Paranaque City for
public use, while MCIAA was organized to operate the international and domestic airport in
Mactan for public use.
4. Both are attached agencies of the Department of Transportation and Communications.47
Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order
No. 903).
Section 3 of Executive Order No. 903 provides:
Sec. 3. Creation of the Manila International Airport Authority. There is hereby established a
body corporate to be known as the Manila International Airport Authority which shall be
attached to the Ministry of Transportation and Communications. The principal office of the
Authority shall be located at the New Manila International Airport. The Authority may establish
such offices, branches, agencies or subsidiaries as it may deem proper and necessary; x x x.
Section 2 of Republic Act No. 6958 reads:
Section 2. Creation of the Mactan-Cebu International Airport Authority. There is hereby
established a body corporate to be known as the Mactan-Cebu International Airport Authority
which shall be attached to the Department of Transportation and Communications. The principal
office of the Authority shall be located at the Mactan International Airport, Province of Cebu.
The Authority may have such branches, agencies or subsidiaries as it may deem proper and
necessary.
As to MIAAs purposes and objectives, Section 4 of Executive Order No. 903 reads:
Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and
objectives:
(a) To help encourage and promote international and domestic air traffic in the Philippines as a
means of making the Philippines a center of international trade and tourism and accelerating the
development of the means of transportation and communications in the country;
(b) To formulate and adopt for application in the Airport internationally acceptable standards of
airport accommodation and service; and
(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and
domestic air travel.
Petitioner claims that the above purposes and objectives are analogous to those enumerated in
its charter, specifically Section 3 of Republic Act No. 6958, which reads:
Section 3. Primary Purposes and Objectives. The Authority shall 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, hereinafter
collectively referred to as the airports, and such other airports as may be established in the
Province of Cebu. In addition, it shall have the following objectives:
(a) To 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
communications in the country; and
(b) To upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.
The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903 are:
Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions, powers
and duties:
(a) To formulate, in coordination with the Bureau of Air Transportation and other appropriate
government agencies, a comprehensive and integrated policy and program for the Airport and
to implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as
shall be necessary for the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the Airport, and to control and/or supervise as may be necessary
the construction of any structure or the rendition of any services within the Airport;
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time to time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein;
(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;
(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport premises,
works, appliances, facilities or concessions or for any service provided by the Authority, subject
to the approval of the Minister of Transportation and Communications in consultation with the
Minister of Finance, and subject further to the provisions of Batas Pambansa Blg. 325 where
applicable;
(l) To invest its idle funds, as it may deem proper, in government securities and other evidences
of indebtedness of the government;
(m) To provide services, whether on its own or otherwise, within the Airport and the approaches
thereof, which shall include but shall not be limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the care, convenience and security
of passengers, visitors and other airport users; and
(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.
(n) To perform such other acts and transact such other business, directly or indirectly necessary,
incidental or conducive to the attainment of the purposes and objectives of the Authority,
including the adoption of necessary measures to remedy congestion in the Airport; and
(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these
powers are not inconsistent with the provisions of this Executive Order.
Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of
Republic Act No. 6958, as shown in the provision quoted below:
Section 4. Functions, Powers and Duties. The Authority shall have the following functions,
powers and duties:
(a) To formulate a comprehensive and integrated development policy and program for the
airports and to implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as
shall be necessary for the efficient functioning of the airports;
(c) To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the airports, and to control and supervise the construction of any
structure or the rendition of any service within the airports;
(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines,
insofar as those powers are not inconsistent with the provisions of this Act;
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any
land, building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or mortgage by the
Authority nor to transfer to any entity other than the National Government;
(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;
(g) To levy and collect dues, charges, fees or assessments for the use of airport premises, works,
appliances, facilities or concessions, or for any service provided by the Authority;
(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the
use of airport premises for such measures as may be necessary to make the Authority more
effective and efficient in the discharge of its assigned tasks;
(i) To invest its idle funds, as it may deem proper, in government securities and other evidences
of indebtedness; and
(j) To provide services, whether on its own or otherwise, within the airports and the approaches
thereof as may be necessary or in connection with the maintenance and operation of the airports
and their facilities.
Petitioner claims that like MIAA, it has police authority within its premises, as shown in their
respective charters quoted below:
EO 903, Sec. 6. Police Authority. The Authority shall have the power to exercise such police
authority as may be necessary within its premises to carry out its functions and attain its purposes
and objectives, without prejudice to the exercise of functions within the same premises by the
Ministry of National Defense through the Aviation Security Command (AVSECOM) as
provided in LOI 961: Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be required. x x x.
R.A. No. 6958, Section 5. Police Authority. The Authority shall have the power to exercise
such police authority as may be necessary within its premises or areas of operation to carry out
its functions and attain its purposes and objectives: Provided, That the Authority may request
the assistance of law enforcement agencies, including request for deputization as may be
required. x x x.
Petitioner pointed out other similarities in the two charters, such as:
1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section
15, Executive Order No. 903; Section 12, Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903;
Section 14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to the President an annual report generally
dealing with their activities and operations (Section 14, Executive Order No. 903; Section 11,
Republic Act No. 6958); and
4. Both have borrowing power subject to the approval of the President (Section 16, Executive
Order No. 903; Section 13, Republic Act No. 6958).48
Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006
MIAA case, placed it in the same class as MIAA and considered it as a government
instrumentality. Petitioner submits that since it is also a government instrumentality like MIAA,
the following conclusion arrived by the Court in the 2006 MIAA case is also applicable to
petitioner:
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 government instrumentality 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 the Philippines. Article 420 specifically mentions "ports x x x constructed by
the State," which includes public airports and seaports, as properties of public dominion and
owned by the Republic. As properties of public dominion owned by the Republic, there is
no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real
estate tax under Section 234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject to execution or
foreclosure sale.49 (Emphases added.)
Petitioner insists that its properties consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated are not subject to real property tax because they
are actually, solely and exclusively used for public purposes. 50 They are indispensable to the
operation of the Mactan International Airport and by their very nature, these properties are
exempt from tax. Said properties belong to the State and are merely held by petitioner in trust.
As earlier mentioned, petitioner claims that these properties are important to national security
and cannot be alienated, mortgaged, or transferred to any entity except the National
Government.
Petitioner prays that judgment be rendered:
a) Declaring petitioner exempt from paying real property taxes as it is a government
instrumentality;
b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the
basic real property tax, the additional tax for the SEF and the penalty interest for its failure to
pass the corresponding tax ordinances; and
c) Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real
property taxes as they are used solely and exclusively for public purpose. 51
In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling
has overturned the 1996 MCIAA ruling. Petitioner cites Justice Dante O. Tingas dissent in the
MIAA ruling, as follows:
[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The
majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local
Government Code than that employed by the Court in Mactan. Moreover, the parties in Mactan
and in this case are similarly situated, as can be obviously deducted from the fact that both
petitioners are airport authorities operating under similarly worded charters. And the fact that
the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda
evinces an intent to go against the Courts jurisprudential trend adopting the philosophy of
expanded local government rule under the Local Government Code.
x x x The majority is obviously inconsistent with Mactan and there is no way these two rulings
can stand together. Following basic principles in statutory construction, Mactan will be deemed
as giving way to this new ruling.
xxxx
There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the
MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly
engaged in the business of operating an airport. They are the owners of airport properties they
respectively maintain and hold title over these properties in their name. These entities are both
owned by the State, and denied by their respective charters the absolute right to dispose of their
properties without prior approval elsewhere. Both of them are not empowered to obtain loans
or encumber their properties without prior approval the prior approval of the
President.52 (Citations omitted.)
Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on
respondent Citys part that it must have a tax measure to be able to impose a tax or special
assessment. Petitioner avers that assuming that it is a non-exempt entity or that its airport lands
and buildings are not exempt, it was only upon the effectivity of Ordinance No. 070-2007 on
January 1,2008 that respondent City could properly impose the basic real property tax, the
additional tax for the SEF, and the interest in case of nonpayment. 53
Petitioner filed its Memorandum54 on June 17, 2009.
RESPONDENTS THEORY
In their Comment,55 respondents point out that petitioner partially moved for a reconsideration
of the questioned Decision only as to the issue of whether petitioner is a GOCC or not. Thus,
respondents declare that the other portions of the questioned decision had already attained
finality and ought not to be placed in issue in this petition for certiorari. Thus, respondents
discussed the other issues raised by petitioner with reservation as to this objection. Respondents
summarized the issues and the grounds relied upon as follows:
STATEMENT OF THE ISSUES
WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT
FROM PAYING REAL PROPERTY TAXES
WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL
EDUCATION FUND AND PENALTY INTEREST
WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY,
TAXIWAY INCLUDING THE LOTS ON WHICH THEY ARE SITUATED ARE EXEMPT
FROM REALTY TAXES
GROUNDS RELIED UPON
1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY
TAXES
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT
4. CITY CAN COLLECT REALTY TAX AND INTEREST
5. CITY CAN COLLECT SEF
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING
INJUNCTIVE RELIEF
7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC56
Respondents claim that "the mere mention of MCIAA in the MIAA v. [Court of Appeals] case
does not make it the controlling case on the matter."57 Respondents further claim that the 1996
MCIAA case where this Court held that petitioner is a GOCC is the controlling jurisprudence.
Respondents point out that petitioner and MIAA are two very different entities. Respondents
argue that petitioner is a GOCC contrary to its assertions, based on its Charter and on DOJ
Opinion No. 50.
Respondents contend that if petitioner is not a GOCC but an instrumentality of the government,
still the following statement in the 1996 MCIAA case applies:
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.58 Respondents argue that MCIAA properties such as the terminal building, taxiway
and runway are not exempt from real property taxation. As discussed in the 1996 MCIAA case,
Section 234 of the LGC omitted GOCCs such as MCIAA from entities enjoying tax exemptions.
Said decision also provides that the transfer of ownership of the land to petitioner was absolute
and petitioner cannot evade payment of taxes.59
Even if the following issues were not raised by petitioner in its motion for reconsideration of
the questioned Decision, and thus the ruling pertaining to these issues in the questioned decision
had become final, respondents still discussed its side over its objections as to the propriety of
bringing these up before this Court.
1. Estoppel does not lie against the government.
2. Respondent City can collect realty taxes and interest.
a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 241,
247).
b. The City of Lapu-Lapu passed in1980 Ordinance No. 44, or the Omnibus Tax Ordinance,
wherein the imposition of real property tax was made. This Ordinance was in force and effect
by virtue of Article 278 of the IRR of Republic Act No. 7160.60
c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, imposed real
property taxes, special education fund and further provided for the payment of interest and
surcharges. Thus, the issue is pass and is moot and academic.
3. Respondent City can collect Special Education Fund.
a. The LGC does not require the enactment of an ordinance for the collection of the SEF.
b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need
not be covered by ordinance. Besides, the City has enacted the Revenue Code containing
provisions for the levy and collection of the SEF.61
Furthermore, respondents aver that:
1. Collection of taxes is beyond the ambit of injunction.
a. Respondents contend that the petition only questions the denial of the writ of preliminary
injunction by the RTC and the Court of Appeals. Petitioner failed to show irreparable injury.
b. Comparing the alleged damage that may be caused petitioner and the direct affront and
challenge against the power to tax, which is an attribute of sovereignty, it is but appropriate that
injunctive relief should be denied.
2. Petitioner did not comply with LGC provisions on payment under protest.
a. Petitioner should have protested the tax imposition as provided in Article 285 of the IRR of
Republic Act No. 7160. Section 252 of Republic Act No. 7160 62 requires that the taxpayers
protest can only be entertained if the tax is first paid under protest. 63
Respondents submitted their Memorandum64 on June 30, 2009, wherein they allege that the
1996 MCIAA case is still good law, as shown by the following cases wherein it was quoted:
1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545 Phil.
92 (2007)];
2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting Corporation[588 Phil. 785 (2008)]; and
4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].
Respondents assert that the constant reference to the 1996 MCIAA case "could hardly mean that
the doctrine has breathed its last" and that the 1996 MCIAA case stands as precedent and is
controlling on petitioner MCIAA.65
Respondents allege that the issue for consideration is whether it is proper for petitioner to raise
the issue of whether it is not liable to pay real property taxes, special education fund (SEF),
interests and/or surcharges.66 Respondents argue that the Court of Appeals was correct in
declaring petitioner liable for realty taxes, etc., on the terminal building, taxiway, and runway.
Respondent City relies on the following grounds:
1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991
authorizes the collection of real property taxes (etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt
from realty taxes, special education fund and interest;
5. Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from
MCIAA; [and]
6. Estoppel does not lie against the government.67
THIS COURTS RULING
The petition has merit. The petitioner is an instrumentality of the government; thus, its properties
actually, solely and exclusively used for public purposes, consisting of the airport terminal
building, airfield, runway, taxiway and the lots on which they are situated, are not subject to real
property tax and respondent City is not justified in collecting taxes from petitioner over said
properties.
DISCUSSION
The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls
and that petitioner is a GOCC. The 2006 MIAA case governs.
The Court of Appeals reliance on the 1996 MCIAA case is misplaced and its staunch refusal
to apply the 2006 MIAA case is patently erroneous. The Court of Appeals, finding for
respondents, refused to apply the ruling in the 2006 MIAA case on the premise that the same
had not yet reached finality, and that as far as MCIAA is concerned, the 1996 MCIAA case is
still good law.68
While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of
cases,69 still, in 2006, the Court en banc decided a case that in effect reversed the 1996 Mactan
ruling. The 2006 MIAA case had, since the promulgation of the questioned Decision and
Resolution, reached finality and had in fact been either affirmed or cited in numerous cases by
the Court.70 The decision became final and executory on November 3, 2006. 71Furthermore, the
2006 MIAA case was decided by the Court en banc while the 1996 MCIAA case was decided
by a Division. Hence, the 1996 MCIAA case should be read in light of the subsequent and
unequivocal ruling in the 2006 MIAA case.
To recall, in the 2006 MIAA case, we held that MIAAs airport lands and buildings are exempt
from real estate tax imposed by local governments; that it is not a GOCC but an instrumentality
of the national government, with its real properties being owned by the Republic of the
Philippines, and these are exempt from real estate tax. Specifically referring to petitioner, we
stated as follows:
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 ng Pilipinas. 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.72 (Emphases ours.)
In the 2006 MIAA case, the issue before the Court was "whether the Airport Lands and
Buildings of MIAA are exempt from real estate tax under existing laws."73 We quote the
extensive discussion of the Court that led to its finding that MIAAs lands and buildings were
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
are owned by the Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
xxxx
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 (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.
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. x x x
xxxx
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code 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 x
x 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 non-stock 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. This prevents
MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock 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
(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.
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,
police authority and the levying of fees and charges. 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."
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" will make its operation more "financially viable."
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 ng Pilipinas. 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.74 (Emphases ours, citations omitted.)
The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the
local governments as against the national government or its instrumentality:
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. x x x.
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."
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. x x x.
xxxx
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. x x x. 75 (Emphases
ours, citations omitted.)
The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic
and belong to the public domain. The Court said:
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned
by the State or the Republic of the Philippines. x x x.
xxxx
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 Airport Lands 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. x x x.
xxxx
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.
The Airport Lands and Buildings of MIAA x x x 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.76 (Emphases supplied, citations omitted.)
The Court also held in the 2006 MIAA case that airport lands and buildings are outside the
commerce of man.
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:
xxxx
The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, x x x.
xxxx
The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.
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 the Airport Lands and Buildings, the President must first withdraw
from public use the Airport Lands and Buildings. x x x.
xxxx
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
the Airport 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;
xxxx
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.77
Thus, the Court held that MIAA is "merely holding title to the Airport Lands and Buildings in
trust for the Republic. [Under] Section 48, Chapter 12, Book I of the Administrative Code
[which] allows instrumentalities like MIAA to hold title to real properties owned by the
Republic."78
The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and held
that said provision exempts from real estate tax any "[r]eal property owned by the Republic of
the Philippines."79 The Court emphasized, however, that "portions of the Airport Lands and
Buildings that MIAA leases to private entities are not exempt from real estate tax." The Court
further held:
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. x x x.80
Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila
International Airport Authority v. City of Pasay,81 thus:
The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case
involved airport lands and buildings located in Paraaque City while this case involved airport
lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same
threshold issue: whether the local government can impose real property tax on the airport lands,
consisting mostly of the runways, as well as the airport buildings, of MIAA. x x x.
xxxx
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase "includes x x x government-owned or controlled
corporations" which means that a government "instrumentality" may or may not be a
"government-owned or controlled corporation." Obviously, the term government
"instrumentality" is broader than the term "government-owned or controlled corporation." x x
x.
xxxx
The fact that two terms have separate definitions means that while a government
"instrumentality" may include a "government-owned or controlled corporation," there may be a
government "instrumentality" that will not qualify as a "government-owned or controlled
corporation."
A close scrutiny of the definition of "government-owned or controlled corporation" in Section
2(13) will show that MIAA would not fall under such definition. MIAA is a government
"instrumentality" that does not qualify as a "government-owned or controlled corporation." x x
x.
xxxx
Thus, MIAA is not a government-owned or controlled corporation but a government
instrumentality which is exempt from any kind of tax from the local governments. Indeed, the
exercise of the taxing power of local government units is subject to the limitations enumerated
in Section 133 of the Local Government Code. Under Section 133(o) of the Local Government
Code, local government units have no power to tax instrumentalities of the national government
like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay
properties. Furthermore, the airport lands and buildings of MIAA are properties of public
dominion intended for public use, and as such are exempt from real property tax under Section
234(a) of the Local Government Code. However, under the same provision, if MIAA leases its
real property to a taxable person, the specific property leased becomes subject to real property
tax. In this case, only those portions of the NAIA Pasay properties which are leased to taxable
persons like private parties are subject to real property tax by the City of Pasay. (Emphases
added, citations omitted.)
The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also
mentioned several other government instrumentalities, among which was the Philippine
Fisheries Development Authority. Thus, applying the 2006 MIAA ruling, the Court, in
Philippine Fisheries Development Authority v. Court of Appeals, 82 held:
On the basis of the parameters set in the MIAA case, the Authority should be classified as an
instrumentality of the national government. As such, it is generally exempt from payment of
real property tax, except those portions which have been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among
the instrumentalities of the national government. x x x.
xxxx
Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority
has a capital stock but it is not divided into shares of stocks. Also, it has no stockholders or
voting shares. Hence, it is not a stock corporation. Neither [is it] a non-stock corporation because
it has no members.
The Authority is actually a national government instrumentality which is defined as an 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. 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, the Authority which is tasked with the special public function to carry out the
governments policy "to promote the development of the countrys fishing industry and improve
the efficiency in handling, preserving, marketing, and distribution of fish and other aquatic
products," exercises the governmental powers of eminent domain, and the power to levy fees
and charges. At the same time, the Authority exercises "the general corporate powers conferred
by laws upon private and government-owned or controlled corporations."
xxxx
In light of the foregoing, the Authority should be classified as an instrumentality of the national
government which is liable to pay taxes only with respect to the portions of the property, the
beneficial use of which were vested in private entities. 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.
Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with
respect to the portions leased to private persons.1wphi1 In case the Authority fails to pay the
real property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax
delinquency. x x x.
xxxx
In sum, the Court finds that the Authority is an instrumentality of the national government,
hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with
respect to those portions which are leased to private entities. Notwithstanding said tax
delinquency on the leased portions of the IFPC, the latter or any part thereof, being a property
of public domain, cannot be sold at public auction. This means that the City of Iloilo has to
satisfy the tax delinquency through means other than the sale at public auction of the IFPC.
(Citations omitted.) Another government instrumentality specifically mentioned in the 2006
MIAA case was the Philippine Ports Authority (PPA). Hence, in Curata v. Philippine Ports
Authority,83 the Court held that the PPA is similarly situated as MIAA, and ruled in this wise:
This Courts disquisition in Manila International Airport Authority v. Court of Appeals ruling
that MIAA is not a government-owned and/or controlled corporation (GOCC), but an
instrumentality of the National Government and thus exempt from local taxation, and that its
real properties are owned by the Republic of the Philippines is instructive. x x x. These
findings are squarely applicable to PPA, as it is similarly situated as MIAA. First, PPA is
likewise not a GOCC for not having shares of stocks or members. Second, the docks, piers and
buildings it administers are likewise owned by the Republic and, thus, outside the commerce of
man. Third, PPA is a mere trustee of these properties. Hence, like MIAA, PPA is clearly a
government instrumentality, an agency of the government vested with corporate powers to
perform efficiently its governmental functions.
Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and
such may not be garnished absent an allocation by its Board or by statutory grant. If the PPA
funds cannot be garnished and its properties, being government properties, cannot be levied via
a writ of execution pursuant to a final judgment, then the trial court likewise cannot grant
discretionary execution pending appeal, as it would run afoul of the established jurisprudence
that government properties are exempt from execution. What cannot be done directly cannot be
done indirectly. (Citations omitted.)
In Government Service Insurance System v. City Treasurer and City Assessor of the City of
Manila84 the Court found that the GSIS was also a government instrumentality and not a GOCC,
applying the 2006 MIAA case even though the GSIS was not among those specifically
mentioned by the Court as similarly situated as MIAA. The Court said:
GSIS an instrumentality of the National Government
Apart from the foregoing consideration, the Courts fairly recent ruling in Manila International
Airport Authority v. Court of Appeals, a case likewise involving real estate tax assessments by
a Metro Manila city on the real properties administered by MIAA, argues for the non-tax liability
of GSIS for real estate taxes. x x x.
xxxx
While perhaps not of governing sway in all fours inasmuch as what were involved in Manila
International Airport Authority, e.g., airfields and runways, are properties of the public
dominion and, hence, outside the commerce of man, the rationale underpinning the disposition
in that case is squarely applicable to GSIS, both MIAA and GSIS being similarly situated. First,
while created under CA 186 as a non-stock corporation, a status that has remained unchanged
even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the
aforequoted Sec. 193 of the LGC, a GOCC following the teaching of Manila International
Airport Authority, for, like MIAA, GSISs capital is not divided into unit shares. Also, GSIS
has no members to speak of. And by members, the reference is to those who, under Sec. 87 of
the Corporation Code, make up the non-stock corporation, and not to the compulsory members
of the system who are government employees. Its management is entrusted to a Board of
Trustees whose members are appointed by the President.
Second, the subject properties under GSISs name are likewise owned by the Republic. The
GSIS is but a mere trustee of the subject properties which have either been ceded to it by the
Government or acquired for the enhancement of the system. This particular property
arrangement is clearly shown by the fact that the disposal or conveyance of said subject
properties are either done by or through the authority of the President of the Philippines. x x x.
(Emphasis added, citations omitted.)
All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should
be classified as a government instrumentality, as its properties are being used for public
purposes, and should be exempt from real estate taxes. This is not to derogate in any way the
delegated authority of local government units to collect realty taxes, but to uphold the
fundamental doctrines of uniformity in taxation and equal protection of the laws, by applying
all the jurisprudence that have exempted from said taxes similar authorities, agencies, and
instrumentalities, whether covered by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock
corporation, which is a necessary condition before an agency or instrumentalityis deemed a
government-owned or controlled corporation. Like MIAA, petitioner MCIAA has capital under
its charter but it is not divided into shares of stock. It also has no stockholders or voting shares.
Republic Act No. 6958 provides:
Section 9. Capital. The [Mactan-Cebu International Airport] Authority shall have an authorized
capital stock equal to and consisting of:
(a) The value of fixed assets (including airport facilities, runways and equipment) and such other
properties, movable and immovable, currently administered by or belonging to the airports as
valued on the date of the effectivity of this Act;
(b) The value of such real estate owned and/or administered by the airports; and
(c) Government contribution in such amount as may be deemed an appropriate initial
balance.1wphi1 Such initial amount, as approved by the President of the Philippines, which
shall be more or less equivalent to six (6) months working capital requirement of the Authority,
is hereby authorized to be appropriated in the General Appropriations Act of the year following
its enactment into law. Thereafter, the government contribution to the capital of the Authority
shall be provided for in the General Appropriations Act.
Like in MIAA, the airport lands and buildings of MCIAA 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, and are outside the commerce of man.
This, unless petitioner leases its real property to a taxable person, the specific property leased
becomes subject to real property tax; in which case, only those portions of petitioners properties
which are leased to taxable persons like private parties are subject to real property tax by the
City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in
the 2006 MIAA case, and we quote:
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. x x x.
xxxx
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
government instrumentality 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
the Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which
includes public airports and seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under
Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that
properties of public dominion are not subject to execution or foreclosure sale.85 (Emphases
added.) WHEREFORE, we hereby GRANT the petition. We REVERSE and SET ASIDE the
Decision dated October 8, 2007 and the Resolution dated February 12, 2008 of the Court of
Appeals (Cebu City) in CA-G.R. SP No. 01360. Accordingly, we DECLARE:
1. Petitioner's properties that are actually, solely and exclusively used for public purpose,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they
are situated, EXEMPT from real property tax imposed by the City of Lapu-Lapu.
2. VOID all the real property tax assessments, including the additional tax for the special
education fund and the penalty interest, as well as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on petitioner's properties, except the assessment
covering the portions that petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioner's properties and the eventual
forfeiture and purchase of the said properties by respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of Sale of Delinquent Property issued to
respondent City of Lapu-Lapu.
SO ORDERED.
 SMART COMMUNICATIONS, INC., G.R. No. 155491
Petitioner, On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues were involved
Present: in the case, the RTC issued an order requiring the parties to submit their respective memoranda
and, thereafter, the case would be deemed submitted for resolution.[10]
- versus - YNARES-SANTIAGO, J.,
Chairperson, On July 19, 2002, the RTC rendered its Decision [11] denying the petition. The trial court noted
AUSTRIA-MARTINEZ, that the ambiguity of the in lieu of all taxes provision in R.A. No. 7294, on whether it covers
CHICO-NAZARIO, both national and local taxes, must be resolved against the taxpayer.[12] The RTC ratiocinated
THE CITY OF DAVAO, represented herein by its Mayor NACHURA, and that tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor
HON. RODRIGO R. DUTERTE, and the SANGGUNIANG REYES, JJ. of the taxing authority and, thus, those who assert a tax exemption must justify it with words
PANLUNGSOD OF DAVAO CITY, too plain to be mistaken and too categorical not to be misinterpreted.[13] On the issue of violation
Respondents. Promulgated: of the non-impairment clause of the Constitution, the trial court cited Mactan Cebu
International Airport Authority v. Marcos,[14] and declared that the citys power to tax is based
September 16, 2008 not merely on a valid delegation of legislative power but on the direct authority granted to it by
x------------------------------------------------------------------------------------x the fundamental law. It added that while such power may be subject to restrictions or conditions
DECISION imposed by Congress, any such legislated limitation must be consistent with the basic policy of
local autonomy.[15]
NACHURA, J.:
Smart filed a motion for reconsideration which was denied by the trial court in an Order[16] dated
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by September 26, 2002.
Smart Communications, Inc. (Smart) against the City of Davao, represented by its Mayor, Hon.
Rodrigo R. Duterte, and the Sangguniang Panlungsod of Davao City, to annul the Thus, the instant case.
Decision[1] dated July 19, 2002 of the Regional Trial Court (RTC) and its Order [2] dated
September 26, 2002 in Sp. Civil Case No. 28,976-2002. Smart assigns the following errors:

The Facts
On February 18, 2002, Smart filed a special civil action for declaratory relief[3] under Rule 63
of the Rules of Court, for the ascertainment of its rights and obligations under the Tax Code of
the City of Davao,[4] particularly Section 1, Article 10 thereof, the pertinent portion of which
reads:
[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER
PETITIONERS FRANCHISE (REPUBLIC ACT NO. 7294), WHICH CONTAINS
THE IN LIEU OF ALL TAXES CLAUSE, AND WHICH IS A SPECIAL LAW
ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO
FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT
CITY.

Notwithstanding any exemption granted by any law or other special law, there is
hereby imposed a tax on businesses enjoying a franchise, at a rate of seventy-five
percent (75%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the income or receipts realized within the territorial
jurisdiction of Davao City.
[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONERS
FRANCHISE IS A GENERAL LAW AND DID NOT REPEAL RELEVANT
PROVISIONS REGARDING FRANCHISE TAX OF THE LOCAL
GOVERNMENT CODE, WHICH ACCORDING TO THE COURT IS A SPECIAL
LAW.

Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the
City, on the following grounds: (a) the issuance of its franchise under Republic Act (R.A.) No.
7294[5] subsequent to R.A. No. 7160 shows the clear legislative intent to exempt it from the
provisions of R.A. 7160;[6] (b) Section 137 of R.A. No. 7160 can only apply to exemptions
already existing at the time of its effectivity and not to future exemptions; (c) the power of the
City of Davao to impose a franchise tax is subject to statutory limitations such as the in lieu of
all taxes clause found in Section 9 of R.A. No. 7294; and (d) the imposition of franchise tax by
the City of Davao would amount to a violation of the constitutional provision against
impairment of contracts.[7]
On March 2, 2002, respondents filed their Answer[8] in which they contested the tax exemption
claimed by Smart. They invoked the power granted by the Constitution to local government
units to create their own sources of revenue.[9]
[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF
THE LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO SECTION 151
THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE THE FRANCHISE
TAX, AND SECTION 193 OF THE CODE, WHICH PROVIDES FOR
WITHDRAWAL OF TAX EXEMPTION PRIVILEGES, ARE NOT APPLICABLE
TO THIS CASE.
[d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137
AND 193 OF THE LOCAL GOVERNMENT CODE REFER ONLY TO
EXEMPTIONS ALREADY EXISTING AT THE TIME OF ITS ENACTMENT
BUT NOT TO FUTURE EXEMPTIONS.
[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF STATUTORY
CONSTRUCTION THAT TAX EXEMPTIONS ARE CONSTRUED STRICTLY
AGAINST THE TAXPAYER.
[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONERS
FRANCHISE (REPUBLIC ACT NO. 7294) HAS BEEN AMENDED AND
EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, THE PUBLIC
TELECOMMUNICATIONS POLICY ACT, TAKING INTO ACCOUNT THE
FRANCHISE OF GLOBE TELECOM, INC. (GLOBE) (REPUBLIC ACT NO.
7229), WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED
SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, THEREBY
PROVIDING AN ADDITIONAL GROUND WHY NO FRANCHISE TAX MAY
BE IMPOSED ON PETITIONER BY RESPONDENT CITY.
[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF THE
DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL
GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE
PAYMENT OF THE FRANCHISE TAX IMPOSABLE BY LOCAL
GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.
[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE IMPOSITION
OF THE LOCAL FRANCHISE TAX ON PETITIONER WOULD VIOLATE THE
CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT OF
CONTRACTS.
[i.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.[17]
The Issue
In sum, the pivotal issue in this case is whether Smart is liable to pay the franchise tax imposed
by the City of Davao.
The Ruling of the Court
We rule in the affirmative.
I. Prospective Effect of R.A. No. 7160
On March 27, 1992, Smarts legislative franchise (R.A. No. 7294) took effect. Section 9 thereof,
quoted hereunder, is at the heart of the present controversy:
Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay
the same taxes on their real estate buildings and personal property, exclusive of' this
franchise, as other persons or corporations which are now or hereafter may be required
by law to pay. In addition thereto, the grantee, its successors or assigns shall pay
a franchise tax equivalent to three percent (3%) of all gross receipts of the
business transacted under this franchise by the grantee, its successors or assigns
and the said percentage shall be in lieu of all taxes on this franchise or earnings
thereof: Provided, That the grantee, its successors or assigns shall continue to be
liable for income taxes payable under Title II of the National Internal Revenue Code
pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is
amended or repealed, in which case the amendment or repeal shall be applicable
thereto.
The grantee shall file the return with and pay the tax due thereon to the Commissioner
of Internal Revenue or his duly authorized representative in accordance with the
National Internal Revenue Code and the return shall be subject to audit by the Bureau
of Internal Revenue. (Emphasis supplied.)
Smart alleges that the in lieu of all taxes clause in Section 9 of its franchise exempts it from all
taxes, both local and national, except the national franchise tax (now VAT), income tax, and
real property tax.[18]
On January 1, 1992, two months ahead of Smarts franchise, the Local Government Code (R.A.
No. 7160) took effect. Section 137, in relation to Section 151 of R.A. No. 7160, allowed the
imposition of franchise tax by the local government units; while Section 193 thereof provided
for the withdrawal of tax exemption privileges granted prior to the issuance of R.A. No. 7160
except for those expressly mentioned therein, viz.:
Section 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 the 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 thereon, as
provided herein.
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 RA No. 6938, non-
stock and non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code. (Emphasis supplied.)
Smart argues that it is not covered by Section 137, in relation to Section 151 of R.A. No. 7160,
because its franchise was granted after the effectivity of the said law. We agree with Smarts
contention on this matter. The withdrawal of tax exemptions or incentives provided in R.A. No.
7160 can only affect those franchises granted prior to the effectivity of the law. The intention of
the legislature to remove all tax exemptions or incentives granted prior to the said law is evident
in the language of Section 193 of R.A. No. 7160. No interpretation is necessary.
II. The in lieu of all taxes Clause in R.A. No. 7294
The in lieu of all taxes clause in Smarts franchise is put in issue before the Court. In order to
ascertain its meaning, consistent with fundamentals of statutory construction, all the words in
the statute must be considered. The grant of tax exemption by R.A. No. 7294 is not to be
interpreted from a consideration of a single portion or of isolated words or clauses, but from a
general view of the act as a whole. Every part of the statute must be construed with reference to
the context.[19]
Smart is of the view that the only taxes it may be made to bear under its franchise are the national
franchise tax (now VAT), income tax, and real property tax. [20] It claims exemption from the
local franchise tax because the in lieu of taxes clause in its franchise does not distinguish
between national and local taxes.[21]
We pay heed that R.A. No. 7294 is not definite in granting exemption to Smart from local
taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted under the franchise and the said
percentage shall be in lieu of all taxes on the franchise or earnings thereof. R.A. No 7294 does
not expressly provide what kind of taxes Smart is exempted from. It is not clear whether the in
lieu of all taxes provision in the franchise of Smart would include exemption from local or
national taxation. What is clear is that Smart shall pay franchise tax equivalent to three percent
(3%) of all gross receipts of the business transacted under its franchise. But whether the
franchise tax exemption would include exemption from exactions by both the local and the
national government is not unequivocal.
The uncertainty in the in lieu of all taxes clause in R.A. No. 7294 on whether Smart is exempted
from both local and national franchise tax must be construed strictly against Smart which claims
the exemption. Smart has the burden of proving that, aside from the imposed 3% franchise tax,
Congress intended it to be exempt from all kinds of franchise taxes whether local or national.
However, Smart failed in this regard.
Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally
in favor of the taxing authority.[22] They can only be given force when the grant is clear and
categorical.[23] The surrender of the power to tax, when claimed, must be clearly shown by a
language that will admit of no reasonable construction consistent with the reservation of the
power. If the intention of the legislature is open to doubt, then the intention of the legislature
must be resolved in favor of the State.[24]
In this case, the doubt must be resolved in favor of the City of Davao. The in lieu of all taxes
clause applies only to national internal revenue taxes and not to local taxes. As appropriately
pointed out in the separate opinion of Justice Antonio T. Carpio in a similar case[25] involving a
demand for exemption from local franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes, other than
income tax, imposed under the National Internal Revenue Code. The "in lieu of all
taxes" clause does not apply to local taxes. The proviso in the first paragraph of
Section 9 of Smart's franchise states that the grantee shall "continue to be liable for
income taxes payable under Title II of the National Internal Revenue Code." Also, the
second paragraph of Section 9 speaks of tax returns filed and taxes paid to the
"Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code." Moreover, the same paragraph
declares that the tax returns "shall be subject to audit by the Bureau of Internal
Revenue." Nothing is mentioned in Section 9 about local taxes. The clear intent is for
the "in lieu of all taxes" clause to apply only to taxes under the National Internal
Revenue Code and not to local taxes. Even with respect to national internal revenue
taxes, the "in lieu of all taxes" clause does not apply to income tax.
If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply
to local taxes, Congress would have expressly mentioned the exemption from
municipal and provincial taxes. Congress could have used the language in Section
9(b) of Clavecilla's old franchise, as follows:
x x x in lieu of any and all taxes of any kind, nature or description levied,
established or collected by any authority whatsoever, municipal,
provincial or national, from which the grantee is hereby expressly
exempted, x x x. (Emphasis supplied).
However, Congress did not expressly exempt Smart from local taxes. Congress used
the "in lieu of all taxes" clause only in reference to national internal revenue taxes.
The only interpretation, under the rule on strict construction of tax exemptions, is that
the "in lieu of all taxes" clause in Smart's franchise refers only to national and not to
local taxes.
It should be noted that the in lieu of all taxes clause in R.A. No. 7294 has become functus
officio with the abolition of the franchise tax on telecommunications companies.[26] As
admitted by Smart in its pleadings, it is no longer paying the 3% franchise tax mandated in
its franchise. Currently, Smart along with other telecommunications companies pays the
uniform 10% value-added tax.[27]
The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross
receipts derived from the sale or exchange of services.[28] R.A. No. 7716, as amended by
the Expanded Value Added Tax Law (R.A. No. 8241), the pertinent portion of which is
hereunder quoted, amended Section 9 of R.A. No. 7294:
SEC. 102. Value-added tax on sale of services and use or lease of properties. (a)
Rate and base of tax. There shall be levied assessed and collected, a value-added
tax equivalent to ten percent (10%) of gross receipts derived from the sale or
exchange of services, including the use or lease of properties.
The phrase sale or exchange of services means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors;
stock, real estate, commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, rest
houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; transportation contractors on their transport of
goods or cargoes, including persons who transport goods or cargoes for hire and other
domestic common carriers by land, air, and water relative to their transport of goods
or cargoes; services of franchise grantees of telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those under
Section 117 of this Code; services of banks, non-bank financial intermediaries and
finance companies; and non-life insurance companies (except their crop insurances)
including surety, fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties. x x x.[29]
R.A. No. 7716, specifically Section 20 thereof, expressly repealed the provisions of all special
laws relative to the rate of franchise taxes. It also repealed, amended, or modified all other laws,
orders, issuances, rules and regulations, or parts thereof which are inconsistent with it. [30] In
effect, the in lieu of all taxes clause in R.A. No. 7294 was rendered ineffective by the advent of
the VAT Law.[31]
However, the franchise tax that the City of Davao may impose must comply with Sections 137
and 151 of R.A. No. 7160.Thus, the local franchise tax that may be imposed by the City must
not exceed 50% of 1% of the gross annual receipts for the preceding calendar year based on the
income on receipts realized within the territorial jurisdiction of Davao.
III. Opinion of the Bureau of Local Government Finance (BLGF)
In support of its argument that the in lieu of all taxes clause is to be construed as an exemption
from local franchise taxes, Smart submits the opinion of the Department of Finance, through the
BLGF, dated August 13, 1998 and February 24, 1998, regarding the franchises of Smart and
Globe, respectively.[32] Smart presents the same arguments as the Philippine Long Distance
Telephone Company in the previous cases already decided by this Court.[33] As previously held
by the Court, the findings of the BLGF are not conclusive on the courts:
[T]he BLGF opined that 23 of R.A. No. 7925 amended the franchise of petitioner and
in effect restored its exemptions from local taxes. Petitioner contends that courts
should not set aside conclusions reached by the BLGF because its function is precisely
the study of local tax problems and it has necessarily developed an expertise on the
subject.
To be sure, the BLGF is not an administrative agency whose findings on questions of
fact are given weight and deference in the courts. The authorities cited by petitioner
pertain to the Court of Tax Appeals, a highly specialized court which performs judicial
functions as it was created for the review of tax cases. In contrast, the BLGF was
created merely to provide consultative services and technical assistance to local
governments and the general public on local taxation, real property assessment, and
other related matters, among others. The question raised by petitioner is a legal
question, to wit, the interpretation of 23 of R.A. No. 7925. There is, therefore, no basis
for claiming expertise for the BLGF that administrative agencies are said to possess
in their respective fields.
Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the
performance of its duty. It does enjoy this presumption, but this has nothing to do with
the question in this case. This case does not concern the regularity of performance of
the BLGF in the exercise of its duties, but the correctness of its interpretation of a
provision of law.[34]
IV. Tax Exclusion/Tax Exemption
Smart gives another perspective of the in lieu of all taxes clause in Section 9 of R.A. No. 7294
in order to avoid the payment of local franchise tax. It says that, viewed from another angle, the
in lieu of all taxes clause partakes of the nature of a tax exclusion and not a tax exemption. A
tax exemption means that the taxpayer does not pay any tax at all. Smart pays VAT, income tax,
and real property tax. Thus, what it enjoys is more accurately a tax exclusion. [35]
However, as previously held by the Court, both in their nature and effect, there is no essential
difference between a tax exemption and a tax exclusion. An exemption is an immunity or a
privilege; it is the freedom from a charge or burden to which others are subjected. An exclusion,
on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g.,
exclusions from gross income and allowable deductions. An exclusion is, thus, also an immunity
or privilege which frees a taxpayer from a charge to which others are subjected. Consequently,
the rule that a tax exemption should be applied in strictissimi juris against the taxpayer and
liberally in favor of the government applies equally to tax exclusions.[36]
V. Section 23 of R.A. No. 7925
To further its claim, Smart invokes Section 23 of the Public Telecommunications Policy Act
(R.A. No. 7925):
SECTION 23. Equality of Treatment in the Telecommunications Industry. Any
advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of
previously granted telecommunications franchise and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise, the life
span of the franchise, or the type of service authorized by the franchise.(Emphasis
supplied.)
In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in connection with the
franchise of Globe (R.A. No. 7227),[37] which was enacted on March 19, 1992.
Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known as the most favored
treatment clause or the equality clause, the provision in the franchise of Globe exempting it from
local taxes is automatically incorporated in the franchise of Smart.[38] Smart posits that, since
the franchise of Globe contains a provision exempting it from municipal or local franchise tax,
this provision should also benefit Smart by virtue of Section 23 of R.A. No. 7925. The provision
in Globes franchise invoked by Smart reads:
(b) The grantee shall further pay to the Treasurer of the Philippines each year after the
audit and approval of the accounts as prescribed in this Act, one and one-half per
centum of all gross receipts from business transacted under this franchise by the said
grantee in the Philippines, in lieu of any and all taxes of any kind, nature or
description levied, established or collected by any authority whatsoever,
municipal, provincial or national, from which the grantee is hereby expressly
exempted, effective from the date of the approval of Republic Act Numbered Sixteen
hundred eighteen.[39]
We find no reason to disturb the previous pronouncements of this Court regarding the
interpretation of Section 23 of R.A. No. 7925. As aptly explained in the en banc decision of this
Court in Philippine Long Distance Telephone Company, Inc. v. City of Davao, [40] and recently
in Digital Telecommunications Philippines, Inc. (Digitel)
v. Province of Pangasinan,[41]Congress, in approving Section 23 of R.A. No. 7925, did not
intend it to operate as a blanket tax exemption to all telecommunications entities. [42] The
language of Section 23 of R.A. No. 7925 and the proceedings of both Houses of Congress are
bereft of anything that would signify the grant of tax exemptions to all telecommunications
entities, including those whose exemptions had been withdrawn by R.A. No. 7160. [43] The
term exemption in Section 23 of R.A. No. 7925 does not mean tax exemption. The term refers
to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission.[44]
Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature incontrovertibly stated
that it will be liable for one and one-half per centum of all gross receipts from business
transacted under the franchise, in lieu of any and all taxes of any kind, nature, or description
levied, established, or collected by any authority whatsoever, municipal, provincial, or national,
from which the grantee is hereby expressly exempted. [45] The grant of exemption from
municipal, provincial, or national is clear and categorical that aside from the franchise tax
collected by virtue of R.A. No. 7229, no other franchise tax may be collected from Globe
regardless of who the taxing power is. No such provision is found in the franchise of Smart; the
kind of tax from which it is exempted is not clearly specified.
As previously explained by the Court, the stance of Smart would lead to absurd consequences.
franchise, according to petitioner, is in the nature of a contract between the government and
Smart.[47]
However, we find that there is no violation of Article III, Section 10 of the 1987 Philippine
Constitution. As previously discussed, the franchise of Smart does not expressly provide for
exemption from local taxes. Absent the express provision on such exemption under the
franchise, we are constrained to rule against it. The in lieu of all taxes clause in Section 9 of
R.A. No. 7294 leaves much room for interpretation. Due to this ambiguity in the law, the doubt
must be resolved against the grant of tax exemption.
Moreover, Smarts franchise was granted with the express condition that it is subject to
amendment, alteration, or repeal.[48]As held in Tolentino v. Secretary of Finance: [49]
It is enough to say that the parties to a contract cannot, through the exercise of
prophetic discernment, fetter the exercise of the taxing power of the State. For not
only are existing laws read into contracts in order to fix obligations as between parties,
but the reservation of essential attributes of sovereign power is also read into contracts
as a basic postulate of the legal order. The policy of protecting contracts against
impairment presupposes the maintenance of a government which retains adequate
authority to secure the peace and good order of society.
In truth, the Contract Clause has never been thought as a limitation on the exercise of
the States power of taxation save only where a tax exemption has been granted for a
valid consideration. x x x.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.

The acceptance of petitioner's theory would result in absurd consequences. To

illustrate: In its franchise, Globe is required to pay a franchise tax of only one and
one-half percentum (1%) of all gross receipts from its transactions while Smart is
required to pay a tax of three percent (3%) on all gross receipts from business
transacted. Petitioner's theory would require that, to level the playing field, any
"advantage, favor, privilege, exemption, or immunity" granted to Globe must be
extended to all telecommunications companies, including Smart. If, later, Congress
again grants a franchise to another telecommunications company imposing, say, one
percent (1%) franchise tax, then all other telecommunications franchises will have to
be adjusted to "level the playing field" so to speak. This could not have been the intent
of Congress in enacting 23 of Rep. Act 7925. Petitioner's theory will leave the
Government with the burden of having to keep track of all granted
telecommunications franchises, lest some companies be treated unequally. It is
different if Congress enacts a law specifically granting uniform advantages, favor,
privilege, exemption, or immunity to all telecommunications entities. [46]

VI. Non-impairment Clause of the Constitution

Another argument of Smart is that the imposition of the local franchise tax by the City
of Davao would violate the constitutional prohibition against impairment of contracts. The
LA CARLOTA CITY, NEGROS G.R. No. 181367 considered the appointment of Rojo permanently recalled or withdrawn, in a subsequent Letter
OCCIDENTAL, represented by its Mayor, HON. to Jalandoon dated April 14, 2004.
JEFFREY P. FERRER,*and the Present:
SANGGUNIANG PANLUNGSOD OF LA Jalandoon deemed the recall a disapproval of the appointment, hence, he brought the matter to
CARLOTA CITY, NEGROS OCCIDENTAL, CORONA, C.J., the CSC Regional Office No. 6 in Iloilo City, by way of an appeal. He averred that the Human
represented by its Vice-Mayor, HON. DEMIE CARPIO, Resource Management Officer of La Carlota City refused to affix his signature
JOHN C. HONRADO,** VELASCO, JR., on Rojos appointment documents but nonetheless transmitted them to the CSCFO. Such
Petitioners, LEONARDO-DE CASTRO, transmittal, according to Jalandoon, should be construed that the appointment was complete and
BRION, regular and that it complied with the pertinent requirements of a valid appointment. Before the
PERALTA, said CSC Regional Office No. 6 [could resolve the appeal], the City of La Carlota represented
BERSAMIN, by the newly elected mayor, Hon. Jeffrey P. Ferrer and
DEL CASTILLO, the Sangguniang Panlungsod represented by the newly elected Vice-Mayor, Hon. Demie John
ABAD, C. Honrado, collectively, the petitioners herein, intervened. They argued that Jalandoon is not
VILLARAMA, JR., the real party in interest in the appeal but Rojo who, by his inaction, should be considered to
PEREZ, have waived his right to appeal from the disapproval of his appointment; that the appointment
- versus - MENDOZA, was made within the period of the election ban prior to the May 14, 2004 national and local
SERENO, elections, and finally, that the resignation of Rojoas member of the Sangguniang Panlungsod is
REYES, and ineffective having not complied with the provision on quorum under Section 82(d) of R.A. No.
PERLAS-BERNABE, JJ. 7160.

ATTY. REX G. ROJO,
Respondent.
Promulgated:
April 24, 2012
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO, J.:
This petition for review assails the 14 September 2007 Decision1 and the 18 January 2008
Resolution2 of the Court of Appeals in CA-G.R. CEB-SP No. 01377. The Court of Appeals
affirmed Resolution Nos. 0506543 and 0516464 of the Civil Service Commission, which
affirmed the Decision dated 20 September 2004 of the Civil Service Commission Regional
Office (CSCRO) No. VI, Iloilo City, approving the appointment of respondent Atty. Rex
G. Rojo (respondent) as Sangguniang PanlungsodSecretary under a permanent status.
The Facts
The facts as found by the Court of Appeals are as follows:
On March 18, 2004, [the] then Vice-Mayor Rex R. Jalandoon of La Carlota City, Negros
Occidental appointed Atty. Rex G. Rojo (or Rojo) who had just tendered his resignation as
member of the Sangguniang Panlungsod the day preceding such appointment,
as Sangguniang Panlungsod Secretary. The status of the appointment was permanent. The next
day, March 19, 2004, the Vice-Mayor submitted Rojos appointment papers to the Civil Service
Commission Negros Occidental Field Office (CSCFO-Negros Occidental) for attestation. In a
Letter dated March 24, 2004, the said CSCFO wrote Jalandoon to inform him of the infirmities
the office found on the appointment documents, i.e. the Chairman of the Personnel Selection
Board and the Human Resource Management Officer did not sign the certifications, the latter
relative to the completeness of the documents as well as to the publication requirement. In view
of the failure of the appointing authority to comply with the directive, the said CSCFO
In a Decision dated September 20, 2004, the CSC Regional Office No. 6 reversed and set aside
the CSCFOs earlier ruling. On the argument of the intervenors that the former Vice-Mayor
lacked legal personality to elevate the case on appeal, the regional office cited settled
jurisprudence that the disapproval of an appointment affects the discretionary authority of the
appointing authority. Hence, he alone may request for reconsideration of or appeal the
disapproval of an appointment. The regional office likewise ruled that Rojosappointment on
March 18, 2004 was made outside the period of the election ban from March 26 to May 9, 2004,
and that his resignation from the Sangguniang Panlungsod was valid having been tendered with
the majority of the council members in attendance (seven (7) out of the thirteen councilors were
present). Considering that the appointment of Rojo sufficiently complied with the publication
requirement, deliberation by the Personnel Selection Board, certification that it was issued in
accordance with the limitations provided for under Section 325 of R.A. 7160 and that
appropriations or funds are available for said position, the regional office approved the same.
xxx
Mayor Ferrer and Vice-Mayor Honrado appealed the foregoing Decision of the CSC Regional
Office No. 6 to the Civil Service Commission (or Commission). On May 17, 2005, the
Commission dismissed said appeal on the ground that the appellants were not the appointing
authority and were therefore improper parties to the appeal. Despite its ruling of dismissal, the
Commission went on to reiterate CSC Regional Offices discussion on the appointing authoritys
compliance with the certification and deliberation requirements, as well as the validity of
appointees tender of resignation. x x x
It likewise denied the motion for reconsideration thereafter filed by the petitioners in a
Resolution dated November 8, 2005.5
Petitioners filed a petition for review with the Court of Appeals. On 14 September 2007, the
Court of Appeals denied the petition, and affirmed Resolution Nos. 050654 and 051646 of the
Civil Service Commission, dated 17 May 2005 and 8 November 2005, respectively. Petitioners
filed a Motion for Reconsideration, which the Court of Appeals denied in its Resolution dated
18 January 2008.
 Hence, this petition for review.
The Ruling of the Court of Appeals
Citing Section 9(h), Article V of Presidential Decree No. 807 6 or the Civil Service Decree, the
Court of Appeals held that in the attestation of an appointment made by a head of agency, the
duty of the Civil Service Commission does not go beyond ascertaining whether the appointee
possesses the appropriate civil service eligibility and the minimum statutory qualifications. 7In
this case, the Court of Appeals found that respondent met the minimum qualifications for the
position of Secretary of the Sanggunian, as enumerated under Section 469(b), Article I, Title V
of the Local Government Code.8 In fact, the Court of Appeals held that respondent is more than
qualified for the position considering that respondent is a lawyer and an active member of the
bar. Furthermore, the requirements for the appointment of respondent have been substantially
complied with: (a) publication; (b) Personnel Selection Board deliberation; and (c) certification
from the appropriate offices that appropriations or funds are available for the position. Thus, the
Court of Appeals ruled that there was no sufficient reason for the Commission to disapprove
respondents appointment.
On the issue of the lack of signature of the Human Resource Management Officer of La Carlota
City on respondents appointment papers, the Court of Appeals held that such refusal of the
officer to affix his signature should not affect the validity of the appointment. Otherwise, it
would be tantamount to putting the appointing power under the mercy of a department
head who may without reason refuse to perform a ministerial function, as what happened in the
instant case.9
The Court of Appeals also found that the appointment of respondent on 18 March 2004 did not
violate the election ban period which was from 26 March to 9 May 2004. Furthermore, there
was no substantial evidence to show that the appointment was a midnight appointment.
Thus, the Court of Appeals concluded that since respondent possessed the minimum
qualifications for the position of Sangguniang Panlungsod Secretary, and the appointing
authority has adequately complied with the other requirements for a valid appointment, then the
Civil Service Commissions approval of the appointment was only proper.
The Issues
Petitioners raise the following issues:
1. WHETHER THE APPOINTMENT OF RESPONDENT AS SANGGUNIANG
PANLUNGSOD SECRETARY VIOLATED THE CONSTITUTIONAL PROSCRIPTION
AGAINST ELIGIBILITY OF AN ELECTIVE OFFICIAL FOR APPOINTMENT DURING
HIS TENURE; and
2. WHETHER RESPONDENTS APPOINTMENT AS SANGGUNIANG
PANLUNGSOD SECRETARY WAS ISSUED CONTRARY TO EXISTING CIVIL SERVICE
RULES AND REGULATIONS.10
The Ruling of the Court
Petitioners allege that respondents appointment as Sangguniang Panlungsod Secretary is void.
Petitioners maintain that respondents irrevocable resignation as
a Sangguniang Panlungsod member was not deemed accepted when it was presented on 17
March 2004 during the scheduled regular session of the Sangguniang Panlungsod of La Carlota
City, Negros Occidental for lack of quorum. Consequently, respondent was still an incumbent
regular Sangguniang Panlungsod member when then Vice Mayor Jalandoon appointed him
as Sangguniang Panlungsod Secretary on 18 March 2004, which contravenes Section 7, Article
IX-B of the Constitution.11
The resolution of this case requires the application and interpretation of certain provisions of
Republic Act No. 7160 (RA 7160), otherwise known as the Local Government Code of 1991.
The pertinent provisions read:
Section 82. Resignation of Elective Local Officials. (a) Resignations by elective local officials
shall be deemed effective only upon acceptance by the following authorities:
(1) The President, in the case of governors, vice-governors, and mayors and vice-mayors of
highly urbanized cities and independent component cities;
(2) The governor, in the case of municipal mayors, municipal vice-mayors, city mayors and city
vice-mayors of component cities;
(3) The sanggunian concerned, in case of sanggunian members; and
(4)The city or municipal mayor, in the case of barangay officials.
(b) Copies of the resignation letters of elective local officials, together with the action taken by
the aforesaid authorities, shall be furnished the Department of Interior and Local Government.
(c) The resignation shall be deemed accepted if not acted upon by the authority concerned within
fifteen (15) working days from receipt thereof.
(d) Irrevocable resignations by sanggunian members shall be deemed accepted upon
presentation before an open session of the sanggunian concerned and duly entered in its
records: Provided, however,That this subsection does not apply to sanggunian members who
are subject to recall elections or to cases where existing laws prescribe the manner of acting
upon such resignations.
Section 49. Presiding Officer. (a) The vice-governor shall be the presiding officer of
the sangguniang panlalawigan; the city vice-mayor, of the sangguniang panlungsod; the
municipal vice-mayor, of the sangguniang bayan; and the punong barangay, of
the sangguniangbarangay. The presiding officer shall vote only to break a tie.
(b) In the event of the inability of the regular presiding officer to preside at a sanggunian session,
the members present and consisting a quorum shall elect from among themselves a temporary
presiding officer. He shall certify within ten (10) days from the passage of ordinances enacted
and resolutions adopted by the sanggunian in the session over which he temporarily presided.
Section 52. Sessions. (a) On the first day of the session immediately following the election of
its members, the sanggunian shall, by resolution, fix the day, time, and place of its regular
sessions. The minimum number of regular sessions shall be once a week for
the sangguniang panlalawigan, sangguniang panlungsod, and sangguniang bayan, and twice a
month for the sangguniang barangay.
(b) When public interest so demands, special session may be called by the local chief executive
or by a majority of the members of the sanggunian.
(c) All sanggunian sessions shall be open to the public unless a closed-door session is ordered
by an affirmative vote of a majority of the members present, there being a quorum, in the public
interest or for reasons of security, decency, or morality. No two (2) sessions, regular or special,
may be held in a single day.
(d) In the case of special sessions of the sanggunian, a written notice to the members shall be
served personally at the members usual place of residence at least twenty-four (24) hours before
the special session is held. Unless otherwise concurred in by two-thirds (2/3) vote of
the sanggunian members present, there being a quorum, no other matters may be considered at
a special session except those stated in the notice.
(e) Each sanggunian shall keep a journal and record of its proceedings which may be published
upon resolution of the sanggunian concerned.
Section 53. Quorum. (a) A majority of all the members of the sanggunian who have been
elected and qualified shall constitute a quorum to transact official business. Should a
question of quorum be raised during a session, the presiding officer shall immediately proceed
to call the roll of the members and thereafter announce the results.
(b) Where there is no quorum, the presiding officer may declare a recess until such time as a
quorum is constituted, or a majority of the members present may adjourn from day to day and
may compel the immediate attendance of any member absent without justifiable cause by
designating a member of the sanggunian, to be assisted by a member or members of the police
force assigned in the territorial jurisdiction of the local government unit concerned, to arrest the
absent member and present him at the session.
(c) If there is still no quorum despite the enforcement of the immediately preceding subsection,
no business shall be transacted. The presiding officer, upon proper motion duly approved by the
members present, shall then declare the session adjourned for lack of quorum.
Section 457. Composition. (a) The sangguniang panlungsod, the legislative body of the city,
shall be composed of the city vice-mayor as presiding officer, the
regular sanggunian members, the president of the city chapter of
the liga ng mga barangay, the president of
the panlungsod na pederasyon ng mga sangguniang kabataan, and
the sectoral representatives, as members.
(b) In addition thereto, there shall be three (3) sectoral representatives: one (1) from the women;
and as shall be determined by the sanggunian concerned within ninety (90) days prior to the
holding of the local elections, one (1) from the agricultural or industrial workers; and one (1)
from the other sectors, including the urban poor, indigenous cultural communities, or disabled
persons.
(c) The regular members of the sangguniang panlungsod and the sectoral representatives shall
be elected in the manner as may be provided for by law. (Boldfacing supplied)
Petitioners insist that the vice-mayor, as presiding officer of the Sangguniang Panlungsod,
should not be counted in determining whether a quorum exists. Excluding the vice-mayor, there
were only six (6) out of the twelve (12) members of the SangguniangPanlungsod who were
present on 17 March 2004. Since the required majority of seven (7) was not reached to constitute
a quorum, then no business could have validly been transacted on that day including the
acceptance of respondents irrevocable resignation.
On the other hand, respondent maintains that in this case, the Sangguniang Panlungsod consists
of the presiding officer, ten (10) regular members, and two (2) ex-officio members, or a total of
thirteen (13) members. Citing the Department of Interior and Local Government (DILG)
Opinion No. 28, s. 2000,12 dated 17 April 2000, respondent asserts that the vice-mayor, as
presiding officer, should be included in determining the existence of a quorum. Thus, since there
were six (6) members plus the presiding officer, or a total of seven (7) who were present on the
17 March 2004 regular session of the Sangguniang Panlungsod, clearly there was a quorum
such that the irrevocable resignation of respondent was validly accepted.
The 1987 Constitution mandates Congress to enact a local government code which provides,
among others, the powers, functions and duties of local officials and all other matters relating
to the organization and operation of the local government units. Section 3, Article X of the 1987
Constitution states:
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 mechanism 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. (Emphasis supplied)
Thus, the Local Government Code shall x x x provide for the x x x powers and functions and
duties of local officials, and all other matters relating to the organization and operation of the
local units. In short, whether a vice-mayor has the power, function or duty of a member of
the Sangguniang Panlungsod is determined by the Local Government Code.
On 10 October 1991, the Congress approved RA 7160 or the Local Government Code. Under
RA 7160, the city vice-mayor, as presiding officer, is a member of
the Sangguniang Panlungsod, thus:
Section 49. Presiding Officer. (a) The vice-governor shall be the presiding officer of
the sangguniang panlalawigan; the city vice-mayor, of the sangguniang panlungsod; the
municipal vice-mayor, of the sangguniang bayan; and the punong barangay, of
the sangguniangbarangay. The presiding officer shall vote only to break a tie.
(b) In the event of the inability of the regular presiding officer to preside at a sanggunian session,
the members present and consisting a quorum shall elect from among themselves a temporary
presiding officer. He shall certify within ten (10) days from the passage of ordinances enacted
and resolutions adopted by the sanggunian in the session over which he temporarily presided.
Section 457. Composition. (a) The sangguniang panlungsod, the legislative body of the
city, shall be composed of the city vice-mayor as presiding officer, the
regular sanggunian members, the president of the city chapter of
the liga ng mga barangay, the president of
the panlungsod na pederasyon ng mga sangguniang kabataan, and
the sectoral representatives, as members.
(b) In addition thereto, there shall be three (3) sectoral representatives: one (1) from the women;
and as shall be determined by the sanggunian concerned within ninety (90) days prior to the
holding of the local elections, one (1) from the agricultural or industrial workers; and one (1)
from the other sectors, including the urban poor, indigenous cultural communities, or disabled
persons.
(c) The regular members of the sangguniang panlungsod and the sectoral representatives shall
be elected in the manner as may be provided for by law. (Boldfacing and underscoring supplied)
RA 7160 clearly states that the Sangguniang Panlungsod shall be composed of the city vice-
mayor as presiding officer, the regular sanggunian members, the president of the city chapter
of the liga ng mga barangay, the president of
the panlungsod napederasyon ng mga sangguniang kabataan, and the sectoral representatives,
as members. Blacks Law Dictionary defines composed of as formed of or consisting of. As the
presiding officer, the vice-mayor can vote only to break a tie. In effect, the presiding officer
votes when it matters the most, that is, to break a deadlock in the votes. Clearly, the vice-mayor,
as presiding officer, is a member of the Sangguniang Panlungsod considering that he is
mandated under Section 49 of RA 7160 to vote to break a tie. To construe otherwise would
create an anomalous and absurd situation where the presiding officer who votes to break a tie
during a Sanggunian session is not considered a member of the Sanggunian.
The Senate deliberations on Senate Bill No. 155 (Local Government Code) show the intent of
the Legislature to treat the vice-mayor not only as the presiding officer of
the Sangguniang Panlungsod but also as a member of the Sangguniang Panlungsod. The
pertinent portions of the deliberations read:
Senator Pimentel. Before Senator Rasul and Senator Lina take the floor, Mr. President, may I
reiterate this observation, that changes in the presiding officership of the local sanggunians are
embodied for the municipality where the vice-mayor will now be the presiding officer of
the sanggunian and the province where the vice-governor will now be the presiding officer. We
did not make any change in the city because the city vice-mayor is already the presiding officer.
The President. All right.
Senator Rasul, Senator Lina, and Senator Gonzales.
Senator Gonzales. May I just add something to that statement of Senator Pimentel?
The President. All right.
Senator Gonzales. Reading this bill, there is also a fundamental change in the sense that the
provincial governor, the city mayor, the municipal mayor, as well as,
the punong barangay are no longer members of their respective sanggunian; they are no
longer members. Unlike before, when they were members of their respective sanggunian,
now they are not only the presiding officers also, they are not members of their
respective sanggunian.
Senator Pimentel. May I thank Senator Gonzales for that observation. (Boldfacing supplied)
During the deliberations, Senator Pimentel, the principal author of the the Local Government
Code of 1991, clearly agrees with Senator Gonzales that the provincial governor, the city mayor,
and the municipal mayor who were previously the presiding officers of their
respective sanggunian are no longer the presiding officers under the proposed Local
Government Code, and thus, they ceased to be members of their respective sanggunian.13 In the
same manner that under the Local Government Code of 1991, the vice-governor, the city vice-
mayor, and the municipal vice-mayor, as presiding officers of
the SangguniangPanlalawigan, Sangguniang Panlungsod, Sangguniang Bayan, respectively,
are members of their respective sanggunian.
In the 2004 case of Zamora v. Governor Caballero,14 the Court interpreted Section 53 of RA
7160 to mean that the entire membership must be taken into account in computing the quorum
of the sangguniang panlalawigan. The Court held:
Quorum is defined as that number of members of a body which, when legally assembled in their
proper places, will enable the body to transact its proper business or that number which makes
a lawful body and gives it power to pass upon a law or ordinance or do any valid act. Majority,
when required to constitute a quorum, means the number greater than half or more than half of
any total. In fine, the entire membership must be taken into account in computing the quorum
of the sangguniang panlalawigan, for while the constitution merely states that majority of each
House shall constitute a quorum, Section 53 of the LGC is more exacting as it requires that the
majority of all members of the sanggunian . . . elected and qualified shall constitute a quorum.
The trial court should thus have based its determination of the existence of a quorum on the total
number of members of the Sanggunianwithout regard to the filing of a leave of absence by Board
Member Sotto. The fear that a majority may, for reasons of political affiliation, file leaves of
absence in order to cripple the functioning of the sanggunian is already addressed by the grant
of coercive power to a mere majority of sanggunian
members present when there is no quorum.
A sanggunian is a collegial body. Legislation, which is the principal function and duty of
the sanggunian, requires the participation of all its members so that they may not only represent
the interests of their respective constituents but also help in the making of decisions by voting
upon every question put upon the body. The acts of only a part of the Sanggunian done outside
the parameters of the legal provisions aforementioned are legally infirm, highly questionable
and are, more importantly, null and void. And all such acts cannot be given binding force and
effect for they are considered unofficial acts done during an unauthorized session. 15
In stating that there were fourteen (14) members of the Sanggunian,16 the Court
in Zamora clearly included the Vice-Governor, as presiding officer, as part of the entire
membership of the Sangguniang Panlalawigan which must be taken into account in computing
the quorum.
DILG Opinions, which directly ruled on the issue of whether the presiding officer should be
included to determine the quorum of the sanggunian, have consistently conformed to the Courts
ruling in Zamora.
In DILG Opinion No. 46, s. 2007, the Undersecretary for Local Government clearly stated that
the vice-mayor is included in the determination of a quorum in the sanggunian. The DILG
Opinion reads:
DILG Opinion No. 46, s. 2007
02 July 2007
MESSRS. JAMES L. ENGLE,
FEDERICO O. DIMPAS, JR.,
MARIFE G. RONDINA,
PORFERIO D. DELA CRUZ, and
WINSTON B. MENZON
Sangguniang Bayan Membership
Babatngon, Leyte
Dear Gentlemen and Lady:
This has reference to your earlier letter asking our opinion on several issues, which we quoted
herein in toto:
(1) What is the number that would determine the quorum of our sanggunian that has a total
membership of eleven (11) including the vice-mayor?
(2) Are the resolutions adopted by a sanggunian without quorum valid?

In reply to your first query, may we invite your attention to Section 446 (a) of the Local
Government Code of 1991 (RA 7160) which provides and we quote:
SECTION 446. Composition. (a) The Sangguniang bayan, the legislative body of the
municipality, shall be composed of the municipal vice-mayor as the presiding officer, the
regular sangguniang members, the president of the municipal chapter of
the liga ng mgabarangay, the president of
the pambayang pederasyon ng mga sangguniang kabataan, and the sectoral representatives,
as members.
Based on the aforequoted provision, the Sangguniang Bayan is composed of eight (8)
regular members, the Liga ng mga BarangayPresident, the SK Federation President, the
Vice-Mayor as Presiding Officer and the sectoral representatives.
Under the old Local Government Code (Batas Pambansa Blg. 337), the Presiding Officer
then of the sanggunian was the Mayor. Thus, there was a dilemma as to whether or not
the Vice-Mayor, as Presiding Officer, is to be included in the determination of quorum in
the Sangguniang Bayan. This issue was, however, resolved with the advent of the new
Local Government Code of 1991 (RA 7160) providing the aforequoted provision. Hence,
the vice-mayor is included in the determination of a quorum in the sanggunian.
Based on the aforequoted provision, sectoral representatives are also included in the
determination of quorum in the sangguniang bayan. Let it be noted however
that sectoral representatives in the local sanggunian are, pursuant to Section 41 (c) of RA 7160
and Section 10 (b) of RA 9264, to be elected in a manner as may be provided for by
law. Meantime however, Congress has yet to enact a law providing for the manner of
electing sectoral representatives at the local sanggunians. Such being the
case, sectoral representatives are not, in the meantime, included in the determination of quorum
in the local sanggunians.
In view of the foregoing, the Sangguniang Bayan is composed of the 8 regular members,
the Liga ng mga Barangay President and the SK Federation President as ex-officio
members, and the Vice-Mayor as Presiding Officer. The total membership in
that sanggunian, therefore, is eleven (11). Relative thereto, Section 53 of the Local
Government Code of 1991 provides that a majority of all the members of the sanggunian who
have been elected and qualified shall constitute a quorum to transact official
business. Majority has been defined in Santiago vs. Guingona, et al. (G.R. No. 134577, 18
November 1998) as that which is greater than half of the membership of the body. Following
the said ruling, since the total membership of the sanggunian being 11, 11 divided by 2 will give
us a quotient of 5.5. Let it be noted however that a fraction cannot be considered as one whole
vote, since it is physically and legally impossible to divide a person or even his vote into a
fractional part. Accordingly, we have to go up to the next whole number which is 6. In this
regard, 6 ismore than 5.5 and therefore, more than one-half of the total membership of
the sangguniang bayan in conformity with the jurisprudential definition of the term majority.
Thus, the presence of 6 members shall already constitute a quorum in the sangguniang bayan for
it to conduct official sessions.
xxxx
Very truly yours,
(signed)
AUSTERE A. PANADERO
OIC, OUSLG17
In another DILG Opinion dated 9 February 2010, the Undersecretary for Local Government
opined that the Vice-Governor, as a Presiding Officer of the Sangguniang Panlalawigan, is a
composite member thereof and is included in the determination of the quorum. DILG Opinion
No. 13, s. 2010 reads:
DILG Opinion No. 13, s. 2010
09 February 2010
GOVERNOR JESUS N. SACDALAN
VICE-GOVERNOR EMMANUEL F. PIOL
Provincial Capitol Building
Province of Cotabato
Gentlemen:
This has reference to your earlier separate letters, which we herein consolidated, considering
that they both pertain to one subject matter.
Per your letters, the Sangguniang Panlalawigan held its regular session on 12 January 2010
where the August Body embarked upon the approval of the Annual Budget. According to you,
all fourteen (14) members of the Sangguniang Panlalawigan attended said session, namely: ten
(10) regular Sangguniang Panlalawigan Members, three (3) ex-
officio Sangguniang Panlalawigan Members and the Vice-Governor as the Presiding
Officer. You further represented that when said approval of the Annual Budget was submitted
for votation of said August Body, the result was: seven (7) members voted for the approval of
the Annual Budget and six (6) voted against.
Specifically, you want us to shed light on the following issues:
1) Whether or not the august body has reached the required majority of all the members of
the Sangguniang Panlalawigan as provided for in Sections 53 and 54 of the Local Government
Code and in relation to Article 107 (g) of its Implementing Rules and Regulations?
2) Whether or not the vice governor as the presiding officer is included in the count in
determining the majority of all the members of the sangguniang panlalawigan to validly
pass an appropriation ordinance.
3) Whether or not the board member who signed the Committee Report endorsing the 2010
Proposed Annual Performance Budget may withdraw without just and valid cause his signature
thereon and vote against the approval thereof?
4) In the event that the Province operates under a re-enacted budget, what are those expenditures
included in the term essential operating expenses that may be incurred by the Province?
xxxx
For the sanggunian to officially transact business, there should be a quorum. A quorum is
defined by Section 53 of the Local Government Code of 1991 as referring to the presence of the
majority of all the members of the sanggunian who have been duly elected and qualified.
Relative thereto, generally, ordinary measures require for its enactment only the approval of a
simple majority of the sanggunianmembers present, there being a quorum. These pertain to the
normal transactions of the sanggunian which are approved by the sanggunian through a vote of
simple majority of those present. On the other hand, there are certain measures where the Local
Government Code requires for its approval the vote of majority of all the members who were
duly elected and qualified. This is what we call approval by the qualified majority of
the sanggunian. In this case, the approval is to be voted not just by the majority of those present
in a session there being a quorum but by the majority of all the members of the sanggunian duly
elected and qualified regardless of whether all of them were present or not in a particular session,
there being a quorum.
xxxx
In determining a quorum, Section 53 of the Local Government Code of 1991 provides that
a majority of all the members of the sanggunian who have been elected and qualified shall
constitute a quorum. Along this line, it bears to emphasize that per Section 467 (a) of the
Local Government Code of 1991, the Sangguniang Panlalawigan is a composite body
where the Vice-Governor as Presiding Officer is a composite member thereof. As a
composite member in the sangguniang panlalawigan, he is therefore included in the
determination of a quorum.
Majority has been defined by the Supreme Court in Santiago vs. Guingona, et al. (G.R. No.
134577, 18 November 1998) as that which is greater than half of the membership of the body
or that number which is 50% + 1 of the entire membership. We note, however, that using either
formula will give us the same result. To illustrate, using the 50% +1 formula, the 50% of
a sanggunian composed of 14 members is 7. Hence 7 + 1 will give us a sum of 8. On the other
hand, if we use the second formula which is that number greater than half, then 8, in relation to
7, is definitely greater than the latter. The simple majority of the sangguniang panlalawigan with
fourteen (14) members where all of them were present in that particular session is therefore 8.
xxxx
Very truly yours,
(signed)
AUSTERE A. PANADERO
Undersecretary18
In the same manner, a quorum of the Sangguniang Panlungsod should be computed based on
the total composition of the Sangguniang Panlungsod. In this case,
the Sangguniang Panlungsod of La Carlota City, Negros Occidental is composed of the
presiding officer, ten (10) regular members, and two (2) ex-officio members, or a total of thirteen
(13) members. A majority of the 13 members of the Sangguniang Panlungsod, or at least seven
(7) members, is needed to constitute a quorum to transact official business. Since seven (7)
members (including the presiding officer) were present on the 17 March 2004 regular session
of the Sangguniang Panlungsod, clearly there was a quorum such that the irrevocable
resignation of respondent was validly accepted.
The Perez19 case cited in the Dissenting Opinion was decided in 1969 prior to the 1987
Constitution, and prior to the enactment of RA 7160 or the Local Government Code of 1991. In
fact, the Perez case was decided even prior to the old Local Government Code which was
enacted in 1983. In ruling that the vice-mayor is not a constituent member of the municipal
board, the Court in the Perez case relied mainly on the provisions of Republic Act No. 305 (RA
305) creating the City of Naga and the amendatory provisions of Republic Act No. 2259 20 (RA
2259) making the vice-mayor the presiding officer of the municipal board. Under RA 2259, the
vice-mayor was the presiding officer of the City Council or Municipal Board in chartered
cities. However, RA 305 and 2259 were silent on whether as presiding officer the vice-
mayor could vote. Thus, the applicable laws in Perez are no longer the applicable laws in the
present case.
On the other hand, the 2004 case of Zamora v. Governor Caballero,21 in which the Court
interpreted Section 5322 of RA 7160 to mean that the entire membership must be taken into
account in computing the quorum of the Sangguniang Panlalawigan, was decided under the
1987 Constitution and after the enactment of the Local Government Code of 1991. In stating
that there were fourteen (14) members of
the Sangguniang Panlalawigan of Compostela Valley,23 the Court in Zamora clearly included
the Vice- Governor, as presiding officer, as part of the entire membership of
the Sangguniang Panlalawigan which must be taken into account in computing the quorum.
On the issue that respondents appointment was issued during the effectivity of the election ban,
the Court agrees with the finding of the Court of Appeals and the Civil Service Commission that
since the respondents appointment was validly issued on 18 March 2004, then the appointment
did not violate the election ban period which was from 26 March to 9 May 2004. Indeed, the
Civil Service Commission found that despite the lack of signature and certification of the
Human Resource Management Officer of La Carlota City on respondents appointment papers,
respondents appointment is deemed effective as of 18 March 2004 considering that there was
substantial compliance with the appointment requirements, thus:
Records show that Atty. Rojos appointment was transmitted to the CSC Negros Occidental
Field Office on March 19, 2004 by the office of Gelongo without his certification and signature
at the back of the appointment. Nonetheless, records show that the position to which
Atty. Rojo was appointed was published on January 6, 2004. The qualifications of
Atty. Rojo were deliberated upon by the Personnel Selection Board on March 5, 2004, attended
by Vice Mayor Jalandoon as Chairman and Jose Leofric F. De Paola, SP member and Sonia P.
Delgado, Records Officer, as members. Records likewise show that a certification was issued
by Vice Mayor Jalandoon, as appointing authority, that the appointment was issued in
accordance with the limitations provided for under Section 325 of RA 7160 and the said
appointment was reviewed and found in order pursuant to Section 5, Rule V of the Omnibus
Rules Implementing Executive Order No. 292. Further, certifications were issued by the City
Budget Officer, Acting City Accountant, City Treasurer and City Vice Mayor that
appropriations or funds are available for said position. Apparently, all the requirements
prescribed in Section 1, Rule VIII in CSC Memorandum Circular No. 15, series of 1999, were
complied with.24
Clearly, the appointment of respondent on 18 March 2004 was validly issued considering that:
(1) he was considered resigned as Sangguniang Panlungsod member effective 17 March 2004;
(2) he was fully qualified for the position of Sanggunian Secretary; and (3) there was substantial
compliance with the appointment requirements.
WHEREFORE, we DENY the petition. We AFFIRM the 14 September 2007 Decision and
the 18 January 2008 Resolution of the Court of Appeals in CA-G.R. CEB-SP No. 01377.
SO ORDERED.

[G.R. No. 137718. July 27, 1999]
REYNALDO O. MALONZO, in his capacity as City Mayor of Caloocan City, OSCAR
MALAPITAN, in his capacity as Vice-Mayor of Caloocan City, CHITO ABEL,
BENJAMIN MANLAPIG, EDGAR ERICE, DENNIS PADILLA, ZALDY
DOLARTE, LUIS TITO VARELA, SUSAN PUNZALAN, HENRY CAMAYO,
in their capacities as Members of the Sangguniang Panlungsod of Caloocan
City, petitioners, vs. HON. RONALDO B. ZAMORA, in his capacity as Executive
Secretary, HON. RONALDO V. PUNO, in his capacity as Under-secretary of the
Department of Interior and Local Government, and EDUARDO
TIBOR, respondents.
SYNOPSIS
In 1994, the Sangguniang Panlungsod (SP) of Caloocan City authorized through an
ordinance, the Mayor to initiate expropriation proceedings for the acquisition of Lot 26 of the
Maysilo Estate registered in the name of CLT Realty Development Corporation. The ordinance
appropriated P35,997,975.00 to represent 15% of the fair market value of the property sought
to be expropriated. Because of a territorial dispute between Caloocan City and the Municipality
of Malabon, CLT Realty filed an action for interpleader praying for an order for the two local
government units to litigate their conflicting claims over the right to collect real estate taxes
from them. In 1997, the Sangguniang Panlungsod, under the stewardship of incumbent Mayor
Malonzo, enacted an ordinance increasing the appropriated amount for the subject property
supposed to be expropriated. However, after failing to conclude the voluntary sale, a suit of
eminent domain was filed by the city government. In the meantime, the Vice Mayor requested
for the renovation of the councilors office and salaries for the city government personnel. The
City Treasurer issued a certification on the availability of funds. The City Council, acting
favorably on Mayor Malonzos endorsement, appropriated the amount of P39,343,028.00 and
passed Ordinance No. 0254, S1998. A certain Eduardo Tibor filed an administrative complaint
against petitioners before the Office of the President (OP) due to the passage of the said
ordinance. Petitioners herein filed a motion to refer the case to the Department of Budget and
Management. This motion remained unresolved by the OP. Later, Teotimo de Guzman Gajudo
filed an action for the nullity of the ordinance before the Regional Trial Court of
Caloocan. Petitioner again filed with the OP a manifestation that the determination of the
validity of the said ordinance was a prejudicial question. Likewise, the motion was not acted
upon. Without resolving the two motions of the petitioners, the OP rendered the assailed
judgment meting upon them the penalty of suspension for a period of three months, which is
immediately executory upon the receipt of the decision. Without moving for reconsideration,
petitioners filed before the Supreme Court the instant Petition for Certiorari.
According to the Supreme Court, the assailed decision of the OP had been tainted with
grave abuse of discretion, thus requiring the immediate exercise of the Courts corrective power,
lest public welfare be jeopardized by a more circumlocutory procedure, which the respondents
insisted upon. The court also ruled that the argument on realignment of the budget is
inapplicable in this case considering that what is complained about was an appropriation
different from that of the appropriation for the purchase of the Maysilo Estate. The Court
stressed that petitioners herein were acting within legal bounds, hence the Court was justified in
striking down the impugned act of the Office of the President. The petition herein was granted
and the decision of the Office of the President was annulled and set aside.
SYLLABUS
1. REMEDIAL LAW; SPECIAL CIVIL ACTION; CERTIORARI; SUPREME COURT
HAS FULL DISCRETIONARY POWER TO TAKE COGNIZANCE OF THE
PETITION FILED DIRECTLY TO IT IF COMPELLING REASONS, OR THE
NATURE AND IMPORTANCE OF THE ISSUES RAISED WARRANT. It is not the
first time that similar procedural challenges have been brought before this Court. Just
recently, in the case of Fortich et al. v. Corona, et al., we again had an occasion to clarify
our position on these questions. By way of backgrounder, said case involved the so-called
Win-Win Resolution of the OP which modified the approval of the conversion to agro-
industrial area of a 144-hectare land located in San Vicente, Sumilao, Bukidnon. As in
this case, the OSG opposed said petition on the ground that the same should have been
filed with the Court of Appeals since what was sought to be reviewed was the OPs
decision. Facing said issues squarely, we explained that we did not find any reason why
such petition should not have been filed in this Court, holding that: But the Supreme Court
has the full discretionary power to take cognizance of the petition filed directly to it if
compelling reasons, or the nature and importance of the issues raised, warrant. This has
been the judicial policy to be observed and which has been reiterated in subsequent cases,
namely: Uy vs. Contreras, et al., Torres vs. Arranz, Bercero vs. De Guzman, and
Advincula vs. Legaspi, et al. As we have further stated in Cuaresma: x x x. A direct
invocation of the Supreme Courts original jurisdiction to issue these writs should be
allowed only when there are special and important reasons therefore, clearly and
specifically set out in the petition. This is established policy. It is a policy that is necessary
to prevent inordinate demands upon the Courts time and attention which are better devoted
to those matters within its exclusive jurisdiction, and to prevent further over-crowding of
the Courts docket. Pursuant to said judicial policy, we resolve to take primary jurisdiction
over the present petition in the interest of speedy justice and to avoid future litigations
(sic) so as to promptly put an end to the present controversy which, as correctly observed
by petitioners, has sparked national interest because of the magnitude of the problem
created by the issuance of the assailed resolution. Moreover, as will be discussed later, we
find the assailed resolution wholly void and requiring the petitioners to file their petition
first with the Court of Appeals would only result in a waste of time and money. That the
Court has the power to set aside its own rules in the higher interests of justice is well-
entrenched in our jurisprudence. We reiterate what we said in Piczon v. Court of
Appeals: Be it remembered that rules of procedure are but mere tools designed to facilitate
the attainment of justice. Their strict and rigid application, which would result in
technicalities that tend to frustrate rather than promote substantial justice, must always
be avoided. Time and again, this Court has suspended its own rules and excepted a
particular case from their operation whenever the higher interests of justice so require. In
the instant petition, we forego a lengthy disquisition of the proper procedure that should
have been taken by the parties involved and proceed directly to the merits of the case.
2. POLITICAL LAW; LOCAL GOVERNMENT CODE; REALIGNMENT;
APPROPRIATION WHICH FALLS UNDER CONTINUING APPROPRIATION
AND CONTINUING OUTLAYS CANNOT BE THE SUBJECT OF
REALIGNMENT. - Based on the above provision, the OP reached the determination that
Ordinance No. 0254, S. 1998 could not have lawfully realigned the amount of
P39,352,047.75 which was previously appropriated for the expropriation of Lot 26 of the
Maysilo Estate since such appropriation was in the nature of a capital outlay until fully
spent, reverted; or the project for which it is earmarked is completed. The question,
however, is not whether the appropriation of P39,352,047.75 could fall under the
definitions of continuing appropriation and capital outlays, considering that such amount
 was not the subject of the realignment made by Ordinance No. 0254, Series of
1998. Rather, the issue is whether petitioners are liable for their actions in regard to said
ordinance which actually realigned a position of the P50 million which was simply
denominated in a general manner as Expropriation of Properties and classified under
Current Operating Expenditures in the 1998 Annual Budget of Caloocan City. Clearly,
these are two distinct amounts separate from each other. That this is the case has likewise
been clarified in the pleadings and during the oral argument where petitioners adequately
explained that the P50 million was NOT appropriated for the purpose of purchasing Lot
26 of the Maysilo Estate but rather for expenses incidental to expropriation such as
relocation of squatters, appraissal fee, expenses for publication, mobilization fees, and
expenses for preliminary studies. This position appears to us more convincing than that
of the interpretation of respondents. The appropriation of P39,352,047.75 under
Ordinance No. 0246, S. 1997 is, we believe, still a subsisting appropriation that has never
been lumped together with other funds to arrive at the sum of P50 million allocated in the
1998 budget. To be sure, denomination of the P50 million amount as Expropriation of
Properties left much to be desired and would have been confused with the appropriation
for expropriation under Ordinance No. 0246, S, 1997, but had respondents probed deeper
into the actual intention for which said amount was allocated, then they would have
reached an accurate characterization of the P50 million. Bearing in mind, therefore, the
fact that it is the P50 million which is now being realigned, the next logical question to
ask is whether such amount is capable of being lawfully realigned. To this, we answer in
the affirmative.
3. STATUTORY CONSTRUCTION; WHEN THERE IS AMBIGUITY, SUCH
INTERPRETATION AS WILL AVOID INCONVENIENCE AND ABSURDITY IS
TO BE ADOPTED. - Moreover, adoption or updating of house rules would necessarily
entail work beyond the day of the first regular session. In fact, it took the members of
the Sangguniang Panlungsod of Caloocan City until July 23, 1998 to complete the task of
adopting their house rules. Does this mean that prior thereto, the local councils hands were
tied and could not act on any other matter? That would certainly be absurd for it would
result in a hiatus and a paralysis in the local legislatures work which could not have been
intended by the law. Interpretatio talis in ambiguis semper frienda est, Ut evitatur
inconveniens et absurdum. Where there is ambiguity, such interpretation as will avoid
inconvenience and absurdity is to be adopted. We believe that there has been sufficient
compliance with the Code when on the first regular session, the Sanggunian took up the
matter of adopting a set of house rules as duly evidenced by the KATITIKAN NG
KARANIWANG PULONG NG SANGGUNIANG PANLUNGSOD NA GINANAP NOONG
IKA-2 NG HULYO, 1998 SA BAGONG GUSALING PAMAHALAANG LUNGSOD NG
CALOOCAN where Item No. 3 thereof specifically mentioned the request for the creation
of an ad hoc committee to study the existing house rules.
4. POLITICAL LAW; ADMINISTRATIVE LAW; MISCONDUCT; PETITIONER NOT
GUILTY THEREOF. - Misconduct, being a grave administrative offense for which
petitioners stood charged, cannot be treated cavalierly. There must be clear and
convincing proof on record that petitioners were motivated by wrongful intent, committed
unlawful behavior in relation to their respective offices, or transgressed some established
and definite rules of action. But as we have stressed above, petitioners were acting within
legal bounds. Respondents seem to have turned a blind eye or simply refused to consider
facts that would have enlightened them and exculpated herein petitioners to such an extent
that they arrived at their erroneous conclusion. In view hereof, this Court is justified in
striking down the impugned act of the Office of the President.
KAPUNAN, J.: dissenting opinion:
1. POLITICAL LAW; LOCAL GOVERNMENT CODE; REALIGNMENT; CAPITAL
OUTLAY CANNOT BE THE SUBJECT OF REALIGNMENT. - The majority
opinion states with great emphasis that the amount of P39,352,047.75 appropriated under
Ordinance No. 246, S. 1997 was not the subject of the realignment made under Ordinance
No. 254, S. 1998 and that said amount is separate and distinct from the P39,343.028.00
appropriated in the supplemental budget. I believe this is plainly an erroneous
conclusion. It is noteworthy that petitioners, by their own admission in the Consolidated
Answer to the complaint filed against them before the OP, categorically declared that the
amount of P39,352,047.75 is part of the P50,000,000.00 appropriated in the Annual
Budget, generally denominated as Expropriation of Properties. It was only before this
Court, by their own pleadings and during the oral argument, that petitioners took a
different stand and contended that the amount of P39,352,047.75 is not part of the
P50,000,000.00 and that the latter amount was intended for expenses incidental to
expropriation. Clearly, the amount realigned is part of capital outlay and is a continuing
expropriation which cannot be subject of realignment under the law. Consequently, the
amount of P39,352,047.75 appropriated under Ordinance No. 0246, S. 1997 which is part
of the P50,000,000.00 appropriated in the annual budget constituted capital outlay since
the benefits from the said expropriation extended beyond the fiscal year. Said amount
therefore cannot be the subject of realignment as such appropriation shall continue and
remain valid until fully spent or the project is completed. As previously stated, the project
(expropriation) was never completed nor really completely abandoned or withdrawn.
2. ID.; ID.; ID.; ENACTMENT OF ORDINANCE NO. 0254, S. 1998 IS IRREGULAR. -
Moreover, the circumstances that preceded the enactment of Ordinance No. 0254, S. 1998
are irregular, to say the least. First, there was undue haste in conducting the three (3)
readings in one session day, especially so when said session day was in the first day of the
regular session preceding the elections. Although this is not prohibited by law, separate
readings were contrived to give local legislators, or national legislators for that matter,
ample time for cool reflection and circumspection before a bill is passed into law. Second,
no new rules have been adopted by the Sanggunian and no new committees have yet been
formed at the time of the enactment of the ordinance, so it is difficult to imagine how
petitioners could have passed the ordinance in an orderly, mature and deliberative
manner. The argument that if no new rules were adopted by the new council, the old ones
could have been availed of is unconvincing considering that petitioners did not ever bother
to show what the old rules were. Third, the supplemental budget enacted was not
submitted to the Department of Budget and Management (DBM) for review within the
prescribed period in accordance with Sections 326 and 327 of the Local Government
Code, in relation to Article 422 of its Implementing Rules. It was after the case was filed
against petitioners when, as a blatant afterthought, they submitted the ordinance to the
DBM and now, tongue-in-cheek, lamely contend that action thereon by the DBM
constitutes a prejudicial question.
3. ID.; ID.; ID.; DISREGARDING THE PROPER PROCEDURE FOR THE
ENACTMENT OF ORDINANCE INVOLVING CHANGES IN THE ANNUAL
BUDGET CONSTITUTES MISCONDUCT. - The unusual haste in the enactment of
SP Ordinance No. 0254, S. 1998 diverting an alloted appropriation for essential public
purposes to fund non-essential expenditures described as lump sum appropriation for
emergency amounting to P25,000,000.00, cash gifts, repair and renovation of the offices
of the incoming councilors and hiring of additional personnel, and the manifest disregard
in the observance of the proper procedure for the enactment of ordinances involving
 changes in the annual budget all point to acts constituting misconduct which warrants
appropriate disciplinary action. Simply put, there was an abuse here in the utilization of
local funds. Misconduct is defined as an unlawful behavior by a public officer in relation
to public office. In view of the foregoing considerations, I find the Office of the President
did not commit grave abuse of discretion in rendering the assailed decision. I, therefore,
vote to dismiss the petition.However, the penalty of suspension of three months, without
pay, imposed upon petitioners by said Office is too severe. It should be decreased to only
twenty (20) days, the time already served by the petitioners.
DECISION
ROMERO, J.:
Consistent with the doctrine that local government does not mean the creation
of imperium in imperii or a state within a State, the Constitution has vested the President of the
Philippines the power of general supervision over local government units.[1] Such grant of power
includes the power of discipline over local officials, keeping them accountable to the public,
and seeing to it that their acts are kept within the bounds of law. Needless to say, this awesome
supervisory power, however, must be exercised judiciously and with utmost circumspection so
as not to transgress the avowed constitutional policy of local autonomy. As the facts unfold, the
issue that obtrudes in our minds is: Should the national government be too strong vis--vis its
local counterpart to the point of subverting the principle of local autonomy enshrined and
zealously protected under the Constitution? It is in this light that the instant case shall now be
resolved.
During the incumbency of then Macario A Asistio, Jr., the Sangguniang Panlungsod of
Caloocan City passed Ordinance No. 0168, S. 1994,[2] authorizing the City Mayor to initiate
proceedings for the expropriation of Lot 26 of the Maysilo Estate registered in the name of CLT
Relaty Development Corporation (CLT). The lot, covering an area of 799,955 square meters,
was intended for low-cost housing and the construction of an integrated bus terminal, parks and
playgrounds, and related support facilities and utilities. For this purpose, the said ordinance
appropriated the amount of P35,997,975.00,[3] representing 15% of the fair market value of Lot
26 that would be required of the city government as a deposit prior to entry into the premises to
be expropriated.
It turned out, however, that the Maysilo Estate straddled the City of Caloocan and the
Municipality of Malabon, prompting CLT to file a special civil action[4] for Interpleader with
Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction
on August 6, 1997, before the Caloocan City Regional Trial Court, branch 124. The complaint
specifically sought to restrain the defendants City of Caloocan and Municipality of Malabon
from assessing and collecting real property taxes from CLT and to interplead and litigate among
themselves their conflicting rights to claim such taxes.
On December 11, 1997, the Caloocan City Sangguniang Panlungsod, under the
stewardship of incumbent Mayor Reynaldo O. Malonzo, enacted Ordinance No. 0246,
S. 1997,[5] entitled AN ORDINANCE AMENDING AND SUPPLEMENTING THE
PROVISIONS OF CITY ORDINANCE NO. 0168, SERIES OF 1994 AND FOR OTHER
RELATED PURPOSES.[6] Under this ordinance, certain amendments were introduced,
foremost of which was the city councils decision to increase the appropriated amount of
P35,997,975.00 in the previous ordinance to P39,352,047.75, taking into account the subject
propertys current fair market value.
After failing to conclude a voluntary sale of Lot 26, the city government commenced on
March 23, 1998, a suit for eminent domain[7]against CLT before the Caloocan City Regional
Trial Court, Branch 126, to implement the subject propertys expropriation. Apparently disturbed
by this development, the Caloocan City Legal Officer informed the City Mayor through a letter-
memorandum[8] dated April 7, 1998, of the pending interpleader case covering Lot 26 and that
the same was a Prejudicial Question which must be resolved first by the proper court in order
not to put the expropriation proceedings in question. He therefore recommended that pending
the final determination and resolution of the court on the issue (territorial jurisdiction) raised in
Civil Case No. C-18019 before Branch 124 of the Regional Trial Court of Caloocan City, the
expropriation of the subject property be cancelled and/or abandoned.
In the meantime, after the successful re-election bid of Malonzo, Vice-Mayor Oscar G.
Malapitan wrote him a letter[9] dated June 4, 1998, requesting the immediate repair and
renovation of the offices of the incoming councilors, as well as the hiring of additional personnel
and the retention of those currently employed in the offices of the councilors.
Malonzo acted on said letter and endorsed the same to the Office of the City
Treasurer. The latter in turn manifested through a memorandum[10]dated June 26, 1998, that
since the expropriation of CLT Property is discontinued, the appropriation for expropriation of
FIFTY MILLION PESOS (P50M)[11] can be reverted for use in a supplemental budget stating
further that he certifies (F)or its reversion since it is not yet obligated, and for its availability for
re-appropriation in a supplemental budget.
Pursuant to the treasurers certification on the availability of funds to accommodate Vice-
Mayor Malapitans request, Malonzo subsequently endorsed to the Sangguniang
Panlungsod Supplemental Budget No. 01, Series of 1998, appropriating the amount of
P39,343,028.00. The city council acted favorably on Malonzos endorsement and, thus,
passed Ordinance No. 0254, S. 1998[12] entitled AN ORDINANCE PROVIDING
PAYMENTS FOR APPROVED ITEMS IN THE SUPPLEMENTAL BUDGET NO. 1
CALENDAR YEAR 1998 AND APPROPRIATING CORRESPONDING AMOUNT WHICH
SHALL BE TAKEN FROM THE GENERAL FUND (REVERSION OF APPROPRIATION-
EXPROPRIATION OF PROPERTIES).
Alleging, however, that petitioners conspired and confederated in willfully violating
certain provisions of the Local Government Code of 1991 (hereinafter the "Code") through the
passage of Ordinance No. 0254, S. 1998, a certain Eduardo Tibor, by himself and as a taxpayer,
filed on July 15, 1998, an administrative complaint for Dishonesty, Misconduct in Office, and
Abuse of Authority against petitioners before the Office of the President (OP).[13]
After the complaint was given due course, petitioners filed on October 15, 1998 their
Consolidated Answer,[14] pointing out, among other things, that said complaint constituted
collateral attack of a validly enacted ordinance whose validity should only be determined in a
judicial forum. They also claimed that the assailed ordinance was enacted strictly in accordance
with Article 417 of the Rules and Regulations Implementing the Local Government Code of
1991 (hereinafter, the Rules), as amended by Administrative Order No. 47 dated April 12, 1993.
After several exchanges of pleadings,[15] petitioners, citing Section 326 of the Code and
Article 422, Rule XXXIV of the Rules, filed on February 7, 1999, a Motion to Refer the Case
to the Department of Budget and Management (DBM) on the ground that the DBM has been
granted power under the Code to review ordinances authorizing the annual or supplemental
appropriations of, among other things, highly urbanized cities such as Caloocan City. This
motion, however, remained unresolved.
 Two days later, after learning that a certain Teotimo de Guzman Gajudo had filed an
action for the Decalaration of Nullity of Ordinance No. 0254, Series of 1998, before the
Caloocan City Regional Trial Court,[16] petitioners filed with the OP a Manifestation and Very
Urgent Motion to Suspend Proceedings on the ground that the determination of the validity of
said ordinance was a prejudicial question. Likewise, this motion was not acted upon by the OP.
Thus, without resolving the foregoing motions of petitioners, the OP rendered its assailed
judgment[17] on March 15, 1999, the decretal portion of which reads:
WHEREFORE, herein respondents Mayor Reynaldo Malonzo, Vice-mayor Oscar G. Malapitan
and Councilors Chito Abel, Benjamin Manlapig, Edgar Erice, Dennis Padilla, Zaldy Dolatre,
Susana Punzalan, Henry Camayo, and Luis Tito Varela, all of Caloocan City, are hereby
adjudged guilty of misconduct and each is meted the penalty of SUSPENSION [18] from office
for a period of three (3) months without pay to commence upon receipt of this Decision. This
Decision is immediately executory.
SO ORDERED.
On even date, the Department of Interior and Local Government (DILG) administered
Macario E. Asistio IIIs oath of office as Acting Mayor of Caloocan City.
Without moving for reconsideration of the OPs decision, petitioners filed before this Court
on March 22, 1999, the instant Petition for Certiorari and Prohibition With Application for
Preliminary Injunction and Prayer for Restraining Order, With alternative Prayer for
Preliminary Mandatory Injunction.[19]
In a resolution of this Court dated April 5, 1999, we resolved to set the case for oral
argument[20] on April 20, 1999 while at the same time directed the parties to maintain the status
quo before March 15, 1999.
To support their petition, petitioners contend that on account of the filing of an action for
interpleader by CLT, the expropriation proceedings had to be suspended pending final resolution
of the boundary dispute between Malabon and Caloocan City. Due to his dispute, the P50
million appropriation for the expropriation of properties under current operating expenses had
not been obligated and no security deposit was forthcoming. It was not at the time a continuing
appropriation. This unavoidable discontinuance of the purpose for which the appropriation was
made effectively converted the earlier expropriation of P39,352,047.75 into savings as defined
by law.
They argue further that there is no truth in the allegation that Ordinance No. 0254, S. 1998
was passed without complying with Sections 50 and 52 of the Local Government Code requiring
that on the first regular session following the election of its members and within 90 days
thereafter, the Sanggunian concerned shall adopt or update its existing rules of
procedure. According to them, the minutes of the session held on July 2, 1998 would reveal that
the matter of adoption or updating of the house rules was taken up and that the council arrived
at a decision to create an ad hoc committee to study the rules.[21] Moreover, even if
the Sanggunian failed to approve the new rules of procedure for the ensuing year, the rules
which were applied in the previous year shall be deemed in force and effect until a new ones are
adopted.
With respect to the OPs assumption of jurisdiction, petitioners maintained that the OP
effectively arrogated unto itself judicial power when it entertained a collateral attack on the
validity of Ordinance No. 0254, S. 1998. Furthermore, primary jurisdiction over the
administrative complaint of Tibor should have pertained to the Office of the Ombudsman, as
prescribed by Article XI, Sections 13 and 15 of the Constitution.They also asserted that the
declaration in the OPs decision to the effect that Ordinance No. 0254, S. 1998 was irregularly
passed constituted a usurpation of the DBMs power of review over ordinances authorizing
annual or supplemental appropriations of, among others, highly-urbanized cities like Caloocan
City as provided under Section 326 of the Local Government Code of 1991. In light of said
statutory provision, petitioners opined that respondents should have deferred passing upon the
validity of the subject ordinance until after the DBM shall have made are view thereof.
Finally, petitioners complained that respondents violated the right to equal protection of
the laws when Vice-Mayor Oscar Malapitan was placed in the same class as the rest of the
councilors when in truth and in fact, as Presiding Officer of the council, he did not even vote
nor participate in the deliberations. The violation of such right, according to petitioners, made
the OPs decision a nullity. They concluded that the administrative complaint was anathema to
the States avowed policy of local autonomy as the threat of harassment suits could become a
sword of Damocles hanging over the heads of local officials.
Contending that the OP decison judiciously applied existing laws and jurisprudence under
the facts obtaining in this case, the Office of the Solicitor General (OSG)[22] disputed petitioners
claims contending that the appropriation of P39,352,047.75 contained in an earlier ordinance
(Ord. NO. 0246 S. 1997) for the expropriation of Lot 26 of the Maysilo Estate was a capital
outlay as defined under Article 306 (d) of the Code and not current operating
expenditures. Since it was a capital outlay, the same shall continue and remain valid until fully
spent or the project is completed, as provided under Section 322 of the Code.
The OSG asserted further that the filing on August 6, 1997 of an interpleader case by CLT
which owns Lot 26 should not be considered as an unavoidable discontinuance that
automatically converted the appropriated amount into savings which could be used for
supplemental budget.Since the said amount was not transformed into savings and, hence, no
funds were actually available, then the passage of Ordinance No. 0254, S. 1998 which realigned
the said amount on a supplemental budget violated Section 321 of the Code requiring an
ordinance providing for a supplemental budget to be supported by funds actually available as
certified by the local treasurer or by new revenue sources.
Petitioners were likewise faulted for violating Sections 50 and 52 of the Code requiring
the Sangguniang Panlungsod to adopt or update its existing rules of procedure within the first
90 days following the election of its members. The Sanggunian allegedly conducted three
readings of Ordinance No. 0254, S. 1998 in one day and on the first day of its session (July 2,
1998) without the Sanggunian having first organized itself and adopted its rules of procedure. It
was only on July 23, 1998 that the Sanggunian adopted its internal rules of procedure.
As regard petitioners contention that the administrative complaint of Tibor should have
been filed with the Office of the Ombudsman instead of the OP, the OSG pointed out that under
Section 60 and 61 of the Code, the OP is vested with jurisdiction to discipline, remove or
suspend a local elective official for, among other things, misconduct in office. The Ombudsman
has never been vested with original and exclusive jurisdiction regarding administrative
complaints involving government officials.
Finally, the OSG sought to dismiss the petition on the grounds of non-exhaustion of
administrative remedies before the OP and for failure to follow Section 4, Rule 65 of the 1997
Rules of Civil Procedure which prescribes that if it [the subject of the petition] involves the acts
or omissions of a quasi-judicial agency, and unless provided by law or these Rules, the petition
shall be filed in and cognizable only by the Court of Appeals.
 The petition is impressed with merit.
Preliminarily, we find a need to resolve a couple of procedural issues which have a bearing
on the propriety of this Courts action on the petition, to wit: (1) whether the Supreme Court is
the proper forum which can take cognizance of this instant petition assailing the decision of the
OP, and (2) whether the Supreme Court may entertain the instant petition despite the absence
of a prior motion for reconsideration filed by petitioners with the OP.
After a very careful and meticulous review of the parties respective positions on these
matters, we find that this Court possesses the requisite power to assume jurisdiction and rule on
the petition.
It is not the first time that similar procedural challenges have been brought before this
Court. Just recently, in the case of Fortich, et al. v. Corona, et al.,[23] we again had an occasion
to clarify our position on these questions. By way of backgrounder, said case involved the so-
called Win-Win Resolution of the OP which modified tha approval of the conversion to agro-
industrial area of a 144-hectare land located in San Vicente, Sumilao, Bukidnon. As in this case,
the OSG opposed said petition on the ground that the same should have been filed with the Court
of Appeals since what was sought to be reviewed was the OPs decision. Facing said issues
squarely, we explained that we did not find any reason why such petition should not have been
filed in this Court, holding that:
But the Supreme Court has the full discretionary power to take cognizance of the petition filed
directly to it if compelling reasons, or the nature and importance of the issues raised,
warrant. This has been the judicial policy to be observed and which has been reiterated in
subsequent cases, namely: Uy vs. Contreras, et al., Torres vs. Arranz, Bercero vs. De Guzman,
and Advincula vs. Legaspi, et al. As we have further stated in Cuaresma:
x x x. A direct invocation of the Supreme Courts original jurisdiction to issue these writs should
be allowed only when there are special and important reasons therefore, clearly and specifically
set out in the petition. This is established policy. It is a policy that is necessary to prevent
inordinate demands upon the Courts time and attention which are better devoted to those matters
within its exclusive jurisdiction, and to prevent further over-crowding of the Courts docket.
Pursuant to said judicial policy, we resolve to take primary jurisdiction over the present petition
in the interest of speedy justice and to avoid future litigations (sic) so as to promptly put an end
to the present controversy which, as correctly observed by petitioners, has sparked national
interest because of the magnitude of the problem created by the issuance of the assailed
resolution. Moreover, as will be discussed later, we find the assailed resolution wholly void and
requiring the petitioners to file their petition first with the Court of Appeals would only result
in a waste of time and money.
That the Court has the power to set aside its own rules in the higher interests of justice is well-
entrenched in our jurisprudence. We reiterate what we said in Piczon v. Court of Appeals:
Be it remembered that rules of procedure are but mere tools designed to facilitate the attainment
of justice. Their strict and rigid application, which would result in technicalities that tend to
frustrate rather than promote substantial justice, must always be avoided. Time and again, this
Court has suspended its own rules and excepted a particular case from their operation whenever
the higher interests of justice so require. In the instant petition, we forego a lengthy disquisition
of the proper procedure that should have been taken by the parties involved and proceed directly
to the merits of the case. [Underscoring supplied, citations omitted].
In like manner, it is our considered view now that the instant petition has been properly
brought before us in light of the importance of the subject matter and the transcendental nature
of the issues raised. Realignment, as explained in the pleadings, is a common practice borne out
of necessity and sanctioned by law. Just how such a common practice may be carried out within
the bounds of law, considering the fact that public funds are at stake, is, we believe, an issue
that is not only one of the first impression, but likewise of considerable significance as a guide
to local governance. Furthermore, as will be discussed later, the assailed decision of the OP has
been tainted with grave abuse of discretion, thus, requiring the immediate exercise of this Courts
corrective power lest public welfare, more particularly that of the Caloocan City constituents,
be jeopardized by a more circumlocutory procedure which respondents are now insisting upon.
With respect to the alleged non-exhaustion of administrative remedies, we do not see the
same as a fatal procedural lapse that would prevent us from entertaining the more pressing
questions raised in this case. In any event, jurisprudence is replete with instances instructing us
that a motion for reconsideration is neither always a prerequisite nor a hard-and-fast rule to be
followed where there are particularly exceptional attendant circumstances such as, in the instant
case, patent nullity of the questioned act and the necessity of resolving the issues without further
delay.[24]
Having therefore disposed of the procedural questions, we now turn our attention to the
more crucial substantive issues, namely:
1. Whether the Office of the President gravely abused its discretion when it found
petitioners guilty of misconduct for the reason that Ordinance No. 0254, Series
of 1998, was allegedly tainted with irregularity;
2. Whether Ordinance No. 0254, Series of 1998, violated Section 326 of the Local
Government Code of 1991 on reversion of unexpended balances of
appropriations;
3. Whether Ordinance No. 0254, Series of 1998, complied with Section 321 of the
Local Government Code of 1991 requiring that changes in the annual budget
should be supported by funds actually available; and
4. Whether Ordinance No. 0254, Series of 1998, was valid considering that prior to
its passage there was as yet no formal adoption of rules of procedure by the
Caloocan City Sangguniang Panlungsod.
As stated earlier, the OP found petitioners guilty of misconduct on the ground that they
failed to strictly comply with certain provisions of the Code relating to the passage of the
ordinance in question. It justified its position, thus:
By respondents (sic) very own admission --- and these facts are a matter of record --- the
P39,352,047.75 appropriated in Ordinance 0254 to fund the approved items listed therein was
merely a portion of the P50 Million included and appropriated in the 1998 Annual Budget for
expropriation purpose and that the judicial action for expropriation --- earlier filed by the city
and for which an allocation of P39,352,047.75 out of the P50 Million appropriation for
expropriation of properties --- is still pending with the court. This being so, the amount allocated
for the expropriation cannot be reverted or be deemed as savings to serve as funds actually
available for the supplemental budget.
It cannot be argued that the unexpected turn of events mentioned by the respondents --- referring
to the filing by CLT Realty on August 6, 1997of a complaint against the Municipality of
Malabon and the City of Caloocan for interpleader amounts to an unavoidable
discontinuance of the expropriation project, and thus effectively converted the earlier
expropriation (sic) of P39,352,047.75 into SAVINGS. For one, it was only on March 23, 1998,
that the City of Caloocan filed an expropriation case against CLT Realty (docketed as Special
Case No. 548 Regional Trial Court, Caloocan City). If, as respondents argue, the August 6,
1997 interpleader suit amounted to the unavoidable discontinuance of the expropriation project,
thus effectively turning the earlier appropriation of P39,352,047.75 into savings, then how
explain the March 23, 1998 expropriation case? For another, the records do not indicate --- not
even an allegation to this effect--- that the City of Caloocan has withdrawn the expropriation
case aforementioned which is, ordinarily, the legal route taken in the event of abandonment of
discontinuance of the expropriation project. On the contrary, the city government, as indicated
in its judicial pleadings that now form part of the records, even sought the issuance of a writ of
possession.
In this light, it is all too clear that Ordinance No. 0254 was enacted without funds actually
available as required by Section 321 of the Local Government Code of 1991, which pertinently
reads ---
xxxxxxxxx
The words actually available are so clear and certain that interpretation is neither required nor
permitted. The application of this legal standard to the facts of this case compels the conclusion
that, there being no reversion, as above-explained, the supplemental budget was not supported
by funds actually available, by funds really in the custody or possession of the treasurer.
Stated differently, it may be that the City Treasurer of Caloocan, vis-a-vis Ordinance No. 0254,
issued a certificate of availability of funds (Annex 9, answer). The issuance, however cannot
alter the reality that the funds referred to therein are not funds actually available because they
are sourced or are to be sourced from an appropriation for a capital outlay which cannot be
validly reverted or converted into savings, as respondents put it, on ground of unavoidable
discontinuance of the expropriation project.
Adding significance to the conclusion reached herein is the fact that the enactment by the
respondents of the supplemental budget was clearly tainted with undue haste. The sangguniang
panlungsod conducted the three (3) readings (the 1st the 2nd and 3rd) on the same day, July 2,
1998, its first day of session, adopted it on July 7, 1998, and approved by respondent mayor on
the following day, July 8, 1998, without first having itself organized and its rules of procedure
adopted and without first electing its officers and chairmen and the members of the different
committees in accordance with [the] provisions of the LGC (see Secs. 50 & 52, RA 7162). This
undue haste implies willful failure to respond to or comply with what the law requires which is
the essence of bad faith.
xxxxxxxxx
We are thus one with the DILG in finding respondents guilty of violating Section 321 in relation
to Section 332 of the Local Government Code of 1991. This violation constitutes misconduct,
an offense implying a wrongful intent, an unlawful behavior in relation to the office, one that
usually involves a transgression of some established and definite rule of action, more
particularly unlawful behavior by the public officer.[Citations omitted]. [25]
We cannot, however, agree with the above disquisition.
The OPs premise, in our opinion, rests upon an erroneous appreciation of the facts on
record. The OP seems to have been confused as to the figures and amounts actually involved. A
meticulous analysis of the records would show that there is really no basis to support the OPs
contention that the amount of P39,352,047.75 was appropriated under Ordinance No. 0254, S.
1998, since in truth and in fact, what was appropriated in said ordinance was the amount of
P39,343,028.00. The allocation of P39,352,047.75 is to be found in the earlier Ordinance No.
0246, S. 1997 which is a separate and distinct ordinance. This point of clarification is indeed
very critical and must be emphasized at this juncture because any further discussion would have
to depend upon the accuracy of the figures and amounts being discussed. As will be explained
below, this faulty appreciation of the facts by the OP caused it to arrive at the wrong conclusion
even if it would have correctly interpreted and applied the pertinent statutory provisions.
Section 322 of the Code upon which the OP anchored its opinion that petitioners breached
a statutory mandate provides:
SEC 322. Reversion of Unexpended Balances of Appropriations, Continuing
Appropriations. Unexepended balances of appropriations authorized in the annual
appropriations ordinance shall revert to the unappropriated surplus of the general funds at the
end of the fiscal year and shall not thereafter be available for expenditure except by subsequent
enactment. However, appropriations for capital outlays shall continue and remain valid until
fully spent, reverted or the project is completed. Reversions of continuing appropriations shall
not be allowed unless obligations therefor have been fully paid or otherwise settled.
Based on the above provision, the OP reached the determination that Ordinance No. 0254,
S. 1998 could not have lawfully realigned the amount of P39,352,047.75 which was previously
appropriated for the expropriation of Lot 26 of the Maysilo Estate since such appropriation was
in the nature of a capital outlay until fully spent, reverted; or the project for which it is earmarked
is completed.
The question, however, is not whether the appropriation of P39,352,047.75 could fall
under the definitions of continuing appropriation[26]and capital outlays,[27] considering that such
amount was not the subject of the realignment made by Ordinance No. 0254, Series of
1998.Rather, the issue is whether petitioners are liable for their actions in regard to said
ordinance which actually realigned a position of the P50 million which was simply denominated
in a general manner as Expropriation of Properties and classified under Current Operating
Expenditures in the 1998 Annual Budget of Caloocan City. Clearly, these are two distinct
amounts separate from each other. That this is the case has likewise been clarified in the
pleadings and during the oral argument where petitioners adequately explained that the P50
million was NOT appropriated for the purpose of purchasing Lot 26 of the Maysilo Estate but
rather for expenses incidental to expropriation such as relocation of squatters, appraissal fee,
expenses for publication, mobilization fees, and expenses for preliminary studies.[28] This
position appears to us more convincing than that of the interpretation of respondents. The
appropriation of P39,352,047.75 under Ordinance No. 0246, S. 1997 is, we believe, still a
subsisting appropriation that has never been lumped together with other funds to arrive at the
sum of P50 million allocated in the 1998 budget.To be sure, denomination of the P50 million
amount as Expropriation of Properties left much to be desired and would have been confused
with the appropriation for expropriation under Ordinance No. 0246, S, 1997, but had
respondents probed deeper into the actual intention for which said amount was allocated, then
they would have reached an accurate characterization of the P50 million.
Bearing in mind, therefore, the fact that it is the P50 million which is now being realigned,
the next logical question to ask is whether such amount is capable of being lawfully
realigned. To this, we answer in the affirmative.
No less than respondents themselves argued, citing Sections 321 and 322 in relation to
Section 306 (d) and (e) of the Code, that realignment shall not be allowed when what is involved
are continuing appropriations or capital outlays. But this argument becomes clearly inapplicable
in view of our disquisition above that the realignment being complained of had nothing to do
with the P39,352,047.75 appropriation for the purchase of Lot 26 of the Maysilo Estate which
is clearly the one that is classifiable as a capital outlay or a continuing appropriation. The
realignment, as we have earlier discussed, pertained to the P50 million which was classified as
Current Operating Expenditures. Having been determined as such by the local council upon
which legislative discretion is granted, then the statutory proscription does not, therefore, apply
and respondents cannot insist that it should.
Moreover, in view of the fact that what is being realigned is the P50 million appropriation
which is classified, neither as a capital outlay nor a continuing appropriation, then respondents
position that Ordinance No. 0254, S. 1998 was enacted without funds actually available and in
violation of Section 321 of the Code likewise falls flat on its face. This is notwithstanding
respondents assertion that the unaviodable discontinuance of the expropriation proceedings for
Lot 26 could not have automatically converted the appropriated amount therefor into
savings. For one thing, the Code appears silent and respondents themselves have not shown how
unexpected balances of appropriations revert to the general fund. Likewise, it would be pointless
to belabor this matter because it has been brought out precisely on the assumption that the
amount of P39,352,047.75, has no more leg to stand on, as explained earlier.
As to the alleged violation of Sections 50 and 52 of the Code requiring the adoption of
house rules and the organization of the council, we believe that the same hardly merits even
cursory consideration. We cannot infer the mandate of the Code that no other business may be
transacted on the first regular session except to take up the matter of adopting or updating
rules. All that the law requires is that on the first regular session the sanggunian concerned shall
adopt or update its existing rules or procedure. There is nothing in the language thereof that
restricts the matters to be taken up during the first regular session merely to the adoption or
updating of the house rules. If it were the intent of Congress to limit the business of the local
council to such matters, then it would have done so in clear and unequivocal terms. But as it is,
there is no such intent.
Moreover, adoption or updating of house rules would necessarily entail work beyond the
day of the first regular session. In fact, it took the members of the Sangguniang Panlungsod of
Caloocan City until July 23, 1998 to complete the task of adopting their house rules. Does this
mean that prior thereto, the local councils hands were tied and could not act on any other
matter? That would certainly be absurd for it would result in a hiatus and a paralysis in the local
legislatures work which could not have been intended by the law. Interpretatio talis in ambiguis
semper frienda est, ut evitatur inconveniens et absurdum. Where there is ambiguity, such
interpretation as will avoid inconvenience and absurdity is to be adopted. [29] We believe that
there has been sufficient compliance with the Code when on the first regular session,
the Sanggunian took up the matter of adopting a set of house rules as duly evidenced by the
KATITIKAN NG KARANIWANG PULONG NG SANGGUNIANG PANLUNGSOD NA
GINANAP NOONG IKA-2 NG HULYO, 1998 SA BAGONG GUSALI NG
PAMAHALAANG LUNGSOD NG CALOOCAN[30] where Item No. 3 thereof specifically
mentioned the request for creation of an ad hoc committee to study the existing house rules.
The foregoing explanation leads us to the ineluctable conclusion that, indeed, respondents
committed grave abuse of discretion.[31] Not only are their reasoning flawed but are likewise
lacking in factual and legal support. Misconduct, being a grave administrative offense for which
petitioners stood charged, cannot be treated cavalierly. There must be clear and convincing
proof on record that petitioners were motivated by wrongful intent, [32] committed unlawful
behavior in relation to their respective offices,[33] or transgressed some established and definite
rules of action.[34] But as we have stressed above, petitioners were acting within legal
bounds. Respondents seem to have turned a blind eye or simply refused to consider facts that
would have enlightened them and exculpated herein petitioners to such an extent that they
arrived at their erroneous conclusion. In view hereof, this Court is justified in striking down the
impugned act of the Office of the President.
Two motions filed in accordance with procedural rules were ignored by the Office of the
President and left unresolved: first, the February 7, 1999 Motion to Refer the Case to the DBM
and second, the Manifestation and Very Urgent Motion to Suspend Proceedings on the ground
that the determination of the validity of said ordinance was a prejudicial question. Motions need
not necessarily grant what movant is asking for, but they must be acknowledged and
resolved. The Office of the President, being the powerful office that law and tradition have
endowed it, needs no mighty blows on the anvil of authority to ensure obedience to its
pronouncements. It would be more in keeping with its exalted stature if its actions could
safeguard the very freedoms so sedulously nurtured by the people. Even what it may deem
minor lapses, emanating as it does from such an exalted office, should not be allowed to go
unchecked lest our democratic institutions be gradually eroded.
WHEREFORE, the instant petition is hereby GRANTED. The assailed decision of the
Office of the President in O.P. Case No. 98-H-8520 dated March 15, 1999 is ANNULLED and
SET ASIDE for having been rendered with grave abuse of discretion amounting to lack and/or
excess of jurisdiction. Consequently, respondents, their subordinates, agents, representatives,
and successors-in-interest are permanently enjoined from enforcing or causing the execution in
any manner of the aforesaid decision against herein petitioners.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 40243 March 11, 1992
CELESTINO TATEL, petitioner,
vs.
MUNICIPALITY OF VIRAC, SALVADOR A. SURTIDA, in his capacity as Mayor of
Virac, Catanduanes; GAVINO V. GUERRERO, in his capacity as Vice-Mayor of Virac,
Catanduanes; JOSE T. BUEBOS, in his capacity as Councilor of Virac, Catanduanes;
ANGELES TABLIZO, in his capacity as Councilor of Virac, Catanduanes; ELPIDIO T.
ZAFE, in his capacity as Councilor of Virac, Catanduanes; MARIANO ALBERTO, in his
capacity as Councilor of Virac, Catanduanes; JULIA A. GARCIA, in her capacity as
Councilor of Virac, Catanduanes; and PEDRO A. GUERRERO, in his capacity as
Councilor of Virac, Catanduanes, respondents.
NOCON, J.:
This is a Petition for Prohibition with Preliminary Injunction with the Court of First Instance of
Catanduanes filed by appellant, Celestino Tatel, a businessman engaged in the import and export
of abaca and other products against the Municipal Council of Virac, Catanduanes and its
municipal officials enjoining them from enforcing Resolution No 29 1of the Council, declaring
the warehouse of petitioner in barrio Sta. Elena of the said municipality a public nuisance within
the purview of Article 694 of the Civil Code of the Philippines and directing the petitioner to
remove and transfer said warehouse to a more suitable place within two (2) months from receipt
of the said resolution.
It appears from the records that on the basis of complaints received from the residents of barrio
Sta. Elena on March 18, 1966 against the disturbance caused by the operation of the abaca
bailing machine inside the warehouse of petitioner which affected the peace and tranquility of
the neighborhood due to the smoke, obnoxious odor and dust emitted by the machine, a
committee was appointed by the municipal council of Virac to investigate the matter. The
committee noted the crowded nature of the neighborhood with narrow roads and the surrounding
residential houses, so much so that an accidental fire within the warehouse of the petitioner
occasioned by the continuance of the activity inside the warehouse and the storing of
inflammable materials created a danger to the lives and properties of the people within the
neighborhood.
Resultantly, Resolution No. 29 was passed by the Municipal Council of Virac on April 22, 1966
declaring the warehouse owned and operated by petitioner a public nuisance within the purview
of Article 694 of the New Civil Code. 2
His motion for reconsideration having been denied by the Municipal Council of Virac, petitioner
instituted the present petition for prohibition with preliminary injunction.
Respondent municipal officials contend that petitioner's warehouse was constructed in violation
of Ordinance No. 13, series of 1952, prohibiting the construction of warehouses near a block of
houses either in the poblacion or barrios without maintaining the necessary distance of 200
meters from said block of houses to avoid loss of lives and properties by accidental fire.
On the other hand, petitioner contends that said ordinance is unconstitutional, contrary to the
due process and equal protection clause of the Constitution and null and void for not having
been passed in accordance with law.
The issue then boils down on whether petitioner's warehouse is a nuisance within the meaning
of Article 694 of the Civil Code and whether Ordinance No. 13, S. 1952 of the Municipality of
Virac is unconstitutional and void.
In a decision dated September 18, 1969, the court a quo ruled as follows:
1. The warehouse in question was legally constructed under a valid permit
issued by the municipality of Virac in accordance with existing regulations
and may not be destroyed or removed from its present location;
2. Ordinance No. 13, series of 1952, is a legitimate and valid exercise of
police power by the Municipal Council of Virac is not (sic) unconstitutional
and void as claimed by the petitioner;
3. The storage by the petitioner of abaca and copra in the warehouse is not
only in violation of the provisions of the ordinance but poses a grave danger
to the safety of the lives and properties of the residents of the neighborhood
due to accidental fire and constitutes a public nuisance under the provisions
of Article 694 of the New Civil code of the Philippines and may be abated;
4. Accordingly, the petitioner is hereby directed to remove from the said
warehouse all abaca and copra and other inflammable articles stored therein
which are prohibited under the provisions of Ordinance No. 13, within a
period of two (2) months from the time this decision becomes final and that
henceforth, the petitioner is enjoined from storing such prohibited articles
in the warehouse. With costs against petitioner.
Seeking appellate review, petitioner raised as errors of the court a quo:
1. In holding that Ordinance No. 13, series of 1952, of the Municipality of
Virac, Catanduanes, is a legitimate and valid exercise of police power of the
Municipal Council, and therefore, constitutional;
2. In giving the ordinance a meaning other than and different from what
it provided by declaring that petitioner violated the same by using the
warehouse for storage of abaca and copra when what is prohibited and
penalized by the ordinance is the construction of warehouses.
3. In refusing to take judicial notice of the fact that in the municipality, there
are numerous establishments similarly situated as appellants' warehouses
but which are not prosecuted.
We find no merit in the Petition.
Ordinance No. 13, series of 1952, was passed by the Municipal Council of Virac in the exercise
of its police power. It is a settled principle of law that municipal corporations are agencies of
the State for the promotion and maintenance of local self-government and as such are endowed
with the police powers in order to effectively accomplish and carry out the declared objects of
their creation. 3 Its authority emanates from the general welfare clause under the Administrative
Code, which reads:
The municipal council shall enact such ordinances and make such
regulations, not repugnant to law, as may be necessary to carry into effect
and discharge the powers and duties conferred upon it by law and such as
shall seem necessary and proper to provide for the health and safety,
promote the prosperity, improve the morals, peace, good order, comfort and
convenience of the municipality and the inhabitants thereof, and for the
protection of property therein. 4
For an ordinance to be valid, it must not only be within the corporate powers of the municipality
to enact but must also be passed according to the procedure prescribed by law, and must be in
consonance with certain well established and basic principles of a substantive nature. These
principles require that a municipal ordinance (1) must not contravene the Constitution or any
statute (2) must not be unfair or oppressive (3) must not be partial or discriminatory (4) must
not prohibit but may regulate trade (5) must be general and consistent with public policy, and
(6) must not be unreasonable. 5 Ordinance No. 13, Series of 1952, meets these criteria.
As to the petitioner's second assignment of error, the trial court did not give the ordinance in
question a meaning other than what it says. Ordinance No. 13 passed by the Municipal Council
of Virac on December 29, 1952, 6 reads:
AN ORDINANCE STRICTLY PROHIBITING THE CONSTRUCTION
OF WAREHOUSE IN ANY FORM NEAR A BLOCK OF HOUSES
EITHER IN POBLACION OR BARRIO WITH NECESSARY
DISTANCE TO AVOID GREAT LOSSES OF PROPERTY AND LIVES
BY FIRE ACCIDENT.
Section 1 provides:
It is strictly prohibited to construct warehouses in any form to any person,
persons, entity, corporation or merchants, wherein to keep or store copra,
hemp, gasoline, petroleum, alcohol, crude oil, oil of turpentine and the like
products or materials if not within the distance of 200 meters from a block
of houses either in the poblacion or barrios to avoid great losses of
properties inclusive lives by fire accident.
Section 2 provides: 7
Owners of warehouses in any form, are hereby given advice to remove their
said warehouses this ordinance by the Municipal
Council, provided however, that if those warehouses now in existence
should no longer be utilized as such warehouse for the above-described
products in Section 1 of this ordinance after a lapse of the time given for the
removal of the said warehouses now in existence, same warehouses shall be
exempted from the spirit of the provision of section 1 of this
ordinance,provided further, that these warehouses now in existence, shall in
the future be converted into non-inflammable products and materials
warehouses.
In spite of its fractured syntax, basically, what is regulated by the ordinance is the construction
of warehouses wherein inflammable materials are stored where such warehouses are located at
a distance of 200 meters from a block of houses and not the construction per se of a warehouse.
The purpose is to avoid the loss of life and property in case of fire which is one of the primordial
obligation of the government.
This was also the observation of the trial court:
A casual glance of the ordinance at once reveals a manifest disregard of the
elemental rules of syntax. Experience, however, will show that this is not
uncommon in law making bodies in small towns where local authorities and
in particular the persons charged with the drafting and preparation of
municipal resolutions and ordinances lack sufficient education and training
and are not well grounded even on the basic and fundamental elements of
the English language commonly used throughout the country in such
matters. Nevertheless, if one scrutinizes the terms of the ordinance, it is
clear that what is prohibited is the construction of warehouses by any
person, entity or corporation wherein copra, hemp, gasoline and other
inflammable products mentioned in Section 1 may be stored unless at a
distance of not less than 200 meters from a block of houses either in the
poblacion or barrios in order to avoid loss of property and life due to fire.
Under Section 2, existing warehouses for the storage of the prohibited
articles were given one year after the approval of the ordinance within
which to remove them but were allowed to remain in operation if they had
ceased to store such prohibited articles.
The ambiguity therefore is more apparent than real and springs from simple
error in grammatical construction but otherwise, the meaning and intent is
clear that what is prohibited is the construction or maintenance of
warehouses for the storage of inflammable articles at a distance within 200
meters from a block of houses either in the poblacion or in the barrios. And
the purpose of the ordinance is to avoid loss of life and property in case of
accidental fire which is one of the primordial and basic obligation of any
government. 8
Clearly, the lower court did NOT add meaning other than or differrent from what
was provided in the ordinance in question. It merely stated the purpose of the ordinance and
what it intends to prohibit to accomplish its purpose.
As to the third assignment of error, that warehouses similarly situated as that of the petitioner
were not prosecuted, suffice it to say that the mere fact that the municipal authorities of Virac
have not proceeded against other warehouses in the municipality allegedly violating Ordinance
No. 13 is no reason to claim that the ordinance is discriminatory. A distinction must be made
between the law itself and the manner in which said law is implemented by the agencies in
charge with its administration and enforcement. There is no valid reason for the petitioner to
complain, in the absence of proof that the other bodegas mentioned by him are operating in
violation of the ordinance and that the complaints have been lodged against the bodegas
concerned without the municipal authorities doing anything about it.

The objections interposed by the petitioner to the validity of the ordinance have not been
substantiated. Its purpose is well within the objectives of sound government. No undue restraint
is placed upon the petitioner or for anybody to engage in trade but merely a prohibition from
storing inflammable products in the warehouse because of the danger of fire to the lives and
properties of the people residing in the vicinity. As far as public policy is concerned, there can
be no better policy than what has been conceived by the municipal government.

As to petitioner's contention of want of jurisdiction by the lower court we find no merit in the
same. The case is a simple civil suit for abatement of a nuisance, the original jurisdiction of
which falls under the then Court of First Instance.

WHEREFORE, for lack of merit, the petition is hereby DISMISSED. Costs against petitioner.

SO ORDERED.
[G.R. No. 149743. February 18, 2005]
LEONARDO TAN, ROBERT UY and LAMBERTO TE, petitioners, vs. SOCORRO Y.
PEREA, respondent.
DECISION
TINGA, J.:
The resolution of the present petition effectively settles the question of how many cockpits
may be allowed to operate in a city or municipality.
There are two competing values of high order that come to fore in this casethe traditional
power of the national government to enact police power measures, on one hand, and the vague
principle of local autonomy now enshrined in the Constitution on the other. The facts are simple,
but may be best appreciated taking into account the legal milieu which frames them.
In 1974, Presidential Decree (P.D.) No. 449, otherwise known as the Cockfighting Law
of 1974, was enacted. Section 5(b) of the Decree provided for limits on the number of cockpits
that may be established in cities and municipalities in the following manner:
Section 5. Cockpits and Cockfighting in General.
(b) Establishment of Cockpits. Only one cockpit shall be allowed in each city or municipality,
except that in cities or municipalities with a population of over one hundred thousand, two
cockpits may be established, maintained and operated.
With the enactment of the Local Government Code of 1991,[1] the municipal sangguniang
bayan were empowered, [a]ny law to the contrary notwithstanding, to authorize and license the
establishment, operation and maintenance of cockpits, and regulate cockfighting and
commercial breeding of gamecocks.[2]
In 1993, the Sangguniang Bayan of the municipality of Daanbantayan, [3] Cebu Province,
enacted Municipal Ordinance No. 6 (Ordinance No. 6), Series of 1993, which served as the
Revised Omnibus Ordinance prescribing and promulgating the rules and regulations governing
cockpit operations in Daanbantayan.[4] Section 5 thereof, relative to the number of cockpits
allowed in the municipality, stated:
Section 5. There shall be allowed to operate in the Municipality of Daanbantayan, Province of
Cebu, not more than its equal number of cockpits based upon the population provided for in PD
449, provided however, that this specific section can be amended for purposes of establishing
additional cockpits, if the Municipal population so warrants.[5]
Shortly thereafter, the Sangguniang Bayan passed an amendatory ordinance, Municipal
Ordinance No. 7 (Ordinance No. 7), Series of 1993, which amended the aforequoted Section 5
to now read as follows:
Section 5. Establishment of Cockpit. There shall be allowed to operate in the Municipality of
Daanbantayan, Province of Cebu, not more than three (3) cockpits.[6]
On 8 November 1995, petitioner Leonardo Tan (Tan) applied with the Municipal
Gamefowl Commission for the issuance of a permit/license to establish and operate a cockpit in
Sitio Combado, Bagay, in Daanbantayan. At the time of his application, there was already
another cockpit in operation in Daanbantayan, operated by respondent Socorro Y. Perea (Perea),
who was the duly franchised and licensed cockpit operator in the municipality since the 1970s.
Pereas franchise, per records, was valid until 2002.[7]
The Municipal Gamefowl Commission favorably recommended to the mayor of
Daanbantayan, petitioner Lamberto Te (Te), that a permit be issued to Tan. On 20 January 1996,
Te issued a mayors permit allowing Tan to establish/operate/conduct the business of a cockpit
in Combado, Bagay, Daanbantayan, Cebu for the period from 20 January 1996 to 31 December
1996.[8]
This act of the mayor served as cause for Perea to file a Complaint for damages with a
prayer for injunction against Tan, Te, and Roberto Uy, the latter allegedly an agent of
Tan.[9] Perea alleged that there was no lawful basis for the establishment of a second cockpit.
She claimed that Tan conducted his cockpit fights not in Combado, but in Malingin, at a site
less than five kilometers away from her own cockpit. She insisted that the unlawful operation
of Tans cockpit has caused injury to her own legitimate business, and demanded damages of at
least Ten Thousand Pesos (P10,000.00) per month as actual damages, One Hundred Fifty
Thousand Pesos (P150,000.00) as moral damages, and Fifty Thousand Pesos (P50,000.00) as
exemplary damages. Perea also prayed that the permit issued by Te in favor of Tan be declared
as null and void, and that a permanent writ of injunction be issued against Te and Tan preventing
Tan from conducting cockfights within the municipality and Te from issuing any authority for
Tan to pursue such activity.[10]
The case was heard by the Regional Trial Court (RTC),[11] Branch 61 of Bogo, Cebu,
which initially granted a writ of preliminary injunction.[12] During trial, herein petitioners
asserted that under the Local Government Code of 1991, the sangguniang bayan of each
municipality now had the power and authority to grant franchises and enact ordinances
authorizing the establishment, licensing, operation and maintenance of cockpits.[13] By virtue of
such authority, the Sangguniang Bayan of Daanbantayan promulgated Ordinance Nos. 6 and 7.
On the other hand, Perea claimed that the amendment authorizing the operation of not more than
three (3) cockpits in Daanbantayan violated Section 5(b) of the Cockfighting Law of 1974,
which allowed for only one cockpit in a municipality with a population as Daanbantayan. [14]
In a Decision dated 10 March 1997, the RTC dismissed the complaint. The court observed
that Section 5 of Ordinance No. 6, prior to its amendment, was by specific provision, an
implementation of the Cockfighting Law.[15] Yet according to the RTC, questions could be
raised as to the efficacy of the subsequent amendment under Ordinance No. 7, since under the
old Section 5, an amendment allowing additional cockpits could be had only if the municipal
population so warrants.[16] While the RTC seemed to doubt whether this condition had actually
been fulfilled, it nonetheless declared that since the case was only for damages, the [RTC]
cannot grant more relief than that prayed for.[17] It ruled that there was no evidence, testimonial
or documentary, to show that plaintiff had actually suffered damages. Neither was there
evidence that Te, by issuing the permit to Tan, had acted in bad faith, since such issuance was
pursuant to municipal ordinances that nonetheless remained in force.[18] Finally, the RTC noted
that the assailed permit had expired on 31 December 1996, and there was no showing that it had
been renewed.[19]
Perea filed a Motion for Reconsideration which was denied in an Order dated 24 February
1998. In this Order, the RTC categorically stated that Ordinance Nos. 6 and 7 were valid and
legal for all intents and purpose[s].[20] The RTC also noted that the Sangguniang Bayan had also
promulgated Resolution No. 78-96, conferring on Tan a franchise to operate a cockpit for a
period of ten (10) years from February 1996 to 2006.[21] This Resolution was likewise affirmed
as valid by the RTC. The RTC noted that while the ordinances seemed to be in conflict with the
Cockfighting Law, any doubt in interpretation should be resolved in favor of the grant of more
power to the local government unit, following the principles of devolution under the Local
Government Code.[22]
The Decision and Order of the RTC were assailed by Perea on an appeal with the Court
of Appeals which on 21 May 2001, rendered the Decision now assailed.[23] The perspective
from which the Court of Appeals viewed the issue was markedly different from that adopted by
the RTC. Its analysis of the Local Government Code, particularly Section 447(a)(3)(V), was
that the provision vesting unto the sangguniang bayan the power to authorize and license the
establishment of cockpits did not do away with the Cockfighting Law, as these two laws are not
necessarily inconsistent with each other. What the provision of the Local Government Code did,
according to the Court of Appeals, was to transfer to the sangguniang bayan powers that were
previously conferred on the Municipal Gamefowl Commission.[24]
Given these premises, the appellate court declared as follows:
Ordinance No. 7 should [be] held invalid for allowing, in unconditional terms, the operation of
not more than three cockpits in Daan Bantayan (sic), clearly dispensing with the standard set
forth in PD 449. However, this issue appears to have been mooted by the expiration of the
Mayors Permit granted to the defendant which has not been renewed. [25]
As to the question of damages, the Court of Appeals agreed with the findings of the RTC
that Perea was not entitled to damages. Thus, it affirmed the previous ruling denying the claim
for damages. However, the Court of Appeals modified the RTCs Decision in that it now ordered
that Tan be enjoined from operating a cockpit and conducting any cockfights within
Daanbantayan.[26]
Thus, the present Petition for Review on Certiorari.
Petitioners present two legal questions for determination: whether the Local Government
Code has rendered inoperative the Cockfighting Law; and whether the validity of a municipal
ordinance may be determined in an action for damages which does not even contain a prayer to
declare the ordinance invalid.[27] As the denial of the prayer for damages by the lower court is
not put in issue before this Court, it shall not be passed upon on review.
The first question raised is particularly interesting, and any definitive resolution on that
point would have obvious ramifications not only to Daanbantayan, but all other municipalities
and cities. However, we must first determine the proper scope of judicial inquiry that we could
engage in, given the nature of the initiatory complaint and the rulings rendered thereupon, the
exact point raised in the second question.
Petitioners claim that the Court of Appeals, in declaring Ordinance No. 7 as invalid,
embarked on an unwarranted collateral attack on the validity of a municipal ordinance.[28] Pereas
complaint, which was for damages with preliminary injunction, did not pray for the nullity of
Ordinance No. 7. The Municipality of Daanbantayan as a local government unit was not made
a party to the case, nor did any legal counsel on its behalf enter any appearance. Neither was the
Office of the Solicitor General given any notice of the case.[29]
These concerns are not trivial.[30] Yet, we must point out that the Court of Appeals did not
expressly nullify Ordinance No. 7, or any ordinance for that matter. What the appellate court
did was to say that Ordinance No. 7 should therefore be held invalid for being in violation of
the Cockfighting Law.[31] In the next breath though, the Court of Appeals backtracked, saying
that this issue appears to have been mooted by the expiration of the Mayors Permit granted to
Tan.[32]
But our curiosity is aroused by the dispositive portion of the assailed Decision, wherein
the Court of Appeals enjoined Tan from operating a cockpit and conducting any cockfights
within Daanbantayan.[33] Absent the invalidity of Ordinance No. 7, there would be no basis for
this injunction. After all, any future operation of a cockpit by Tan in Daanbantayan, assuming
all other requisites are complied with, would be validly authorized should Ordinance No. 7
subsist.
So it seems, for all intents and purposes, that the Court of Appeals did deem Ordinance
No. 7 a nullity. Through such resort, did the appellate court in effect allow a collateral attack on
the validity of an ordinance through an action for damages, as the petitioners argue?
The initiatory Complaint filed by Perea deserves close scrutiny. Immediately, it can be
seen that it is not only an action for damages, but also one for injunction. An action for injunction
will require judicial determination whether there exists a right in essewhich is to be protected,
and if there is an act constituting a violation of such right against which injunction is sought. At
the same time, the mere fact of injury alone does not give rise to a right to recover damages. To
warrant the recovery of damages, there must be both a right of action for a legal wrong inflicted
by the defendant, and damage resulting to the plaintiff therefrom. In other words, in order that
the law will give redress for an act causing damage, there must be damnum et injuriathat act
must be not only hurtful, but wrongful.[34]
Indubitably, the determination of whether injunction or damages avail in this case requires
the ascertainment of whether a second cockpit may be legally allowed in Daanbantayan. If this
is permissible, Perea would not be entitled either to injunctive relief or damages.
Moreover, an examination of the specific allegations in the Complaint reveals that Perea
therein puts into question the legal basis for allowing Tan to operate another cockpit in
Daanbantayan. She asserted that there is no lawful basis for the establishment of a second
cockpit considering the small population of [Daanbantayan],[35] a claim which alludes to Section
5(b) of the Cockfighting Law which prohibits the establishment of a second cockpit in
municipalities of less than ten thousand (10,000) in population. Perea likewise assails the
validity of the permit issued to Tan and prays for its annulment, and also seeks that Te be
enjoined from issuing any special permit not only to Tan, but also to any other person outside
of a duly licensed cockpit in Daanbantayan, Cebu.[36]
It would have been preferable had Perea expressly sought the annulment of Ordinance
No. 7. Yet it is apparent from her Complaint that she sufficiently alleges that there is no legal
basis for the establishment of a second cockpit. More importantly, the petitioners themselves
raised the valid effect of Ordinance No. 7 at the heart of their defense against the complaint, as
adverted to in their Answer.[37] The averment in the Answer that Ordinance No. 7 is valid can be
considered as an affirmative defense, as it is the allegation of a new matter which, while
hypothetically admitting the material allegations in the complaint, would nevertheless bar
recovery.[38] Clearly then, the validity of Ordinance No. 7 became a justiciable matter for the
RTC, and indeed Perea squarely raised the argument during trial that said ordinance violated the
Cockfighting Law.[39]
Moreover, the assailed rulings of the RTC, its Decision and subsequent Order denying
Pereas Motion for Reconsideration, both discuss the validity of Ordinance No. 7. In the
Decision, the RTC evaded making a categorical ruling on the ordinances validity because the
case was only for damages, [thus the RTC could] not grant more relief than that prayed for. This
reasoning is unjustified, considering that Perea also prayed for an injunction, as well as for the
annulment of Tans permit. The resolution of these two questions could very well hinge on the
validity of Ordinance No. 7.
Still, in the Order denying Pereas Motion for Reconsideration, the RTC felt less inhibited
and promptly declared as valid not only Ordinance No. 7, but also Resolution No. 78-96 of the
Sangguniang Bayan dated 23 February 1996, which conferred on Tan a franchise to operate a
cockpit from 1996 to 2006.[40] In the Order, the RTC ruled that while Ordinance No. 7 was in
apparent conflict with the Cockfighting Law, the ordinance was justified under Section
447(a)(3)(v) of the Local Government Code.
This express affirmation of the validity of Ordinance No. 7 by the RTC was the first
assigned error in Pereas appeal to the Court of Appeals.[41] In their Appellees Brief before the
appellate court, the petitioners likewise argued that Ordinance No. 7 was valid and that the
Cockfighting Law was repealed by the Local Government Code. [42] On the basis of these
arguments, the Court of Appeals rendered its assailed Decision, including its ruling that the
Section 5(b) of the Cockfighting Law remains in effect notwithstanding the enactment of the
Local Government Code.
Indubitably, the question on the validity of Ordinance No. 7 in view of the continuing
efficacy of Section 5(b) of the Cockfighting Law is one that has been fully litigated in the courts
below. We are comfortable with reviewing that question in the case at bar and make dispositions
proceeding from that key legal question. This is militated by the realization that in order to
resolve the question whether injunction should be imposed against the petitioners, there must
be first a determination whether Tan may be allowed to operate a second cockpit in
Daanbantayan. Thus, the conflict between Section 5(b) of the Cockfighting Law and Ordinance
No. 7 now ripens for adjudication.
In arguing that Section 5(b) of the Cockfighting Law has been repealed, petitioners cite
the following provisions of Section 447(a)(3)(v) of the Local Government Code:
Section 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as the
legislative body of the municipality, shall enact ordinances, approve resolutions and appropriate
funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of
this Code and in the proper exercise of the corporate powers of the municipality as provided for
under Section 22 of this Code, and shall:
....
(3) Subject to the provisions of Book II of this Code, grant franchises, enact ordinances
authorizing the issuance of permits or licenses, or enact ordinances levying taxes, fees and
charges upon such conditions and for such purposes intended to promote the general welfare of
the inhabitants of the municipality, and pursuant to this legislative authority shall:
....
(v) Any law to the contrary notwithstanding, authorize and license the
establishment, operation, and maintenance of cockpits, and regulate
cockfighting and commercial breeding of gamecocks; Provided, that
existing rights should not be prejudiced;
For the petitioners, Section 447(a)(3)(v) sufficiently repeals Section 5(b) of the
Cockfighting Law, vesting as it does on LGUs the power and authority to issue franchises and
regulate the operation and establishment of cockpits in their respective municipalities, any law
to the contrary notwithstanding.
However, while the Local Government Code expressly repealed several laws, the
Cockfighting Law was not among them. Section 534(f) of the Local Government Code declares
that all general and special laws or decrees inconsistent with the Code are hereby repealed or
modified accordingly, but such clause is not an express repealing clause because it fails to
identify or designate the acts that are intended to be repealed.[43] It is a cardinal rule in statutory
construction that implied repeals are disfavored and will not be so declared unless the intent of
the legislators is manifest.[44] As laws are presumed to be passed with deliberation and with
knowledge of all existing ones on the subject, it is logical to conclude that in passing a statute it
is not intended to interfere with or abrogate a former law relating to the same subject matter,
unless the repugnancy between the two is not only irreconcilable but also clear and convincing
as a result of the language used, or unless the latter Act fully embraces the subject matter of the
earlier.[45]
Is the one-cockpit-per-municipality rule under the Cockfighting Law clearly and
convincingly irreconcilable with Section 447(a)(3)(v) of the Local Government Code? The clear
import of Section 447(a)(3)(v) is that it is the sangguniang bayan which is empowered to
authorize and license the establishment, operation and maintenance of cockpits, and regulate
cockfighting and commercial breeding of gamecocks, notwithstanding any law to the contrary.
The necessity of the qualifying phrase any law to the contrary notwithstanding can be discerned
by examining the history of laws pertaining to the authorization of cockpit operation in this
country.
Cockfighting, or sabong in the local parlance, has a long and storied tradition in our
culture and was prevalent even during the Spanish occupation. When the newly-arrived
Americans proceeded to organize a governmental structure in the Philippines, they recognized
cockfighting as an activity that needed to be regulated, and it was deemed that it was the local
municipal council that was best suited to oversee such regulation. Hence, under Section 40 of
Act No. 82, the general act for the organization of municipal governments promulgated in 1901,
the municipal council was empowered to license, tax or close cockpits. This power of the
municipal council to authorize or license cockpits was repeatedly recognized even after the
establishment of the present Republic in 1946.[46] Such authority granted unto the municipal
councils to license the operation of cockpits was generally unqualified by restrictions. [47] The
Revised Administrative Code did impose restrictions on what days cockfights could be held.[48]
However, in the 1970s, the desire for stricter licensing requirements of cockpits started to
see legislative fruit. The Cockfighting Law of 1974 enacted several of these restrictions. Apart
from the one-cockpit-per-municipality rule, other restrictions were imposed, such as the
limitation of ownership of cockpits to Filipino citizens.[49] More importantly, under Section 6 of
the Cockfighting Law, it was the city or municipal mayor who was authorized to issue licenses
for the operation and maintenance of cockpits, subject to the approval of the Chief of
Constabulary or his authorized representatives.[50] Thus, the sole discretion to authorize the
operation of cockpits was removed from the local government unit since the approval of the
Chief of Constabulary was now required.
P.D. No. 1802 reestablished the Philippine Gamefowl Commission [51] and imposed
further structure in the regulation of cockfighting. Under Section 4 thereof, city and municipal
mayors with the concurrence of their respective sangguniang panglunsod or sangguniang bayan,
were given the authority to license and regulate cockfighting, under the supervision of the City
Mayor or the Provincial Governor. However, Section 4 of P.D. No. 1802 was subsequently
amended, removing the supervision exercised by the mayor or governor and substituting in their
stead the Philippine Gamefowl Commission. The amended provision ordained:
Sec. 4. City and Municipal Mayors with the concurrence of their respective Sanggunians shall
have the authority to license and regulate regular cockfighting pursuant to the rules and
regulations promulgated by the Commission and subject to its review and supervision.
The Court, on a few occasions prior to the enactment of the Local Government Code in
1991, had opportunity to expound on Section 4 as amended. A discussion of these cases will
provide a better understanding of the qualifier any law to the contrary notwithstanding provided
in Section 447(a)(3)(v).
In Philippine Gamefowl Commission v. Intermediate Appellate Court,[52] the Court,
through Justice Cruz, asserted that the conferment of the power to license and regulate municipal
cockpits in municipal authorities is in line with the policy of local autonomy embodied in the
Constitution.[53] The Court affirmed the annulment of a resolution of the Philippine Gamefowl
Commission which ordered the revocation of a permit issued by a municipal mayor for the
operation of a cockpit and the issuance of a new permit to a different applicant. According to
the Court, the Philippine Gamefowl Commission did not possess the power to issue cockpit
licenses, as this was vested by Section 4 of P.D. No. 1802, as amended, to the municipal mayor
with the concurrence of the sanggunian. It emphasized that the Philippine Gamefowl
Commission only had review and supervision powers, as distinguished from control, over
ordinary cockpits.[54] The Court also noted that the regulation of cockpits was vested in
municipal officials, subject only to the guidelines laid down by the Philippine Gamefowl
Commission.[55] The Court conceded that [if] at all, the power to review includes the power to
disapprove; but it does not carry the authority to substitute ones own preferences for that chosen
by the subordinate in the exercise of its sound discretion.
The twin pronouncements that it is the municipal authorities who are empowered to issue
cockpit licenses and that the powers of the Philippine Gamefowl Commission were limited to
review and supervision were affirmed in Deang v. Intermediate Appellate
Court,[56] Municipality of Malolos v. Libangang Malolos Inc.[57] and Adlawan v. Intermediate
Appellate Court.[58] But notably in Cootauco v. Court of Appeals,[59] the Court especially noted
that Philippine Gamefowl Commission did indicate that the Commissions power of review
includes the power to disapprove.[60] Interestingly, Justice Cruz, the writer of Philippine
Gamefowl Commission, qualified his concurrence in Cootauco subject to the reservations made
in [Philippine Gamefowl Commission]regarding the review powers of the PGC over cockpit
licenses issued by city and municipal mayors.[61]
These cases reiterate what has been the traditional prerogative of municipal officials to
control the issuances of licenses for the operation of cockpits. Nevertheless, the newly-
introduced role of the Philippine Gamefowl Commission vis--vis the operation of cockpits had
caused some degree of controversy, as shown by the cases above cited.
Then, the Local Government Code of 1991 was enacted. There is no more forceful
authority on this landmark legislation than Senator Aquilino Pimentel, Jr., its principal author.
In his annotations to the Local Government Code, he makes the following remarks relating to
Section 447(a)(3)(v):
12. Licensing power. In connection with the power to grant licenses lodged with it, the
Sangguniang Bayan may now regulate not only businesses but also occupations, professions or
callings that do not require government examinations within its jurisdiction. It may also
authorize and license the establishment, operation and maintenance of cockpits, regulate
cockfighting, and the commercial breeding of gamecocks. Existing rights however, may not be
prejudiced. The power to license cockpits and permits for cockfighting has been removed
completely from the Gamefowl Commission.
Thus, that part of the ruling of the Supreme Court in the case of Municipality of Malolos
v. Libangang Malolos, Inc. et al., which held that the regulation of cockpits is vested in the
municipal councils guidelines laid down by the Philippine Gamefowl Commission is no
longer controlling. Under [Section 447(a)(3)(v)], the power of the Sanggunian concerned
is no longer subject to the supervision of the Gamefowl Commission.[62]
The above observations may be faulted somewhat in the sense that they fail to
acknowledge the Courts consistent position that the licensing power over cockpits belongs
exclusively to the municipal authorities and not the Philippine Gamefowl Commission. Yet
these views of Senator Pimentel evince the apparent confusion regarding the role of the
Philippine Gamefowl Commission as indicated in the cases previously cited, and accordingly
bring the phrase Section 447(a)(3)(v) used in any law to the contrary notwithstanding into its
proper light. The qualifier serves notice, in case it was still doubtful, that it is the sanggunian
bayan concerned alone which has the power to authorize and license the establishment,
operation and maintenance of cockpits, and regulate cockfighting and commercial breeding of
gamecocks within its territorial jurisdiction.
Given the historical perspective, it becomes evident why the legislature found the need to
use the phrase any law to the contrary notwithstanding in Section 447(a)(3)(v). However, does
the phrase similarly allow the Sangguniang Bayan to authorize more cockpits than allowed
under Section 5(d) of the Cockfighting Law? Certainly, applying the test of implied repeal, these
two provisions can stand together. While the sanggunian retains the power to authorize and
license the establishment, operation, and maintenance of cockpits, its discretion is limited in that
it cannot authorize more than one cockpit per city or municipality, unless such cities or
municipalities have a population of over one hundred thousand, in which case two cockpits may
be established. Considering that Section 447(a)(3)(v) speaks essentially of the identity of the
wielder of the power of control and supervision over cockpit operation, it is not inconsistent
with previous enactments that impose restrictions on how such power may be exercised. In
short, there is no dichotomy between affirming the power and subjecting it to limitations at the
same time.
Perhaps more essential than the fact that the two controverted provisions are not
inconsistent when put together, the Court recognizes that Section 5(d) of the Cockfighting Law
arises from a valid exercise of police power by the national government. Of course, local
governments are similarly empowered under Section 16 of the Local Government Code. The
national government ought to be attuned to the sensitivities of devolution and strive to be sparing
in usurping the prerogatives of local governments to regulate the general welfare of their
constituents.
We do not doubt, however, the ability of the national government to implement police
power measures that affect the subjects of municipal government, especially if the subject of
regulation is a condition of universal character irrespective of territorial jurisdictions.
Cockfighting is one such condition. It is a traditionally regulated activity, due to the attendant
gambling involved[63] or maybe even the fact that it essentially consists of two birds killing each
other for public amusement. Laws have been enacted restricting the days when cockfights could
be held,[64] and legislation has even been emphatic that cockfights could not be held on holidays
celebrating national honor such as Independence Day[65] and Rizal Day.[66]
The Whereas clauses of the Cockfighting Law emphasize that cockfighting should neither
be exploited as an object of commercialism or business enterprise, nor made a tool of
uncontrolled gambling, but more as a vehicle for the preservation and perpetuation of native
Filipino heritage and thereby enhance our national identity. [67] The obvious thrust of our laws
designating when cockfights could be held is to limit cockfighting and imposing the one-
cockpit-per-municipality rule is in line with that aim. Cockfighting is a valid matter of police
power regulation, as it is a form of gambling essentially antagonistic to the aims of enhancing
national productivity and self-reliance.[68] Limitation on the number of cockpits in a given
municipality is a reasonably necessary means for the accomplishment of the purpose of
controlling cockfighting, for clearly more cockpits equals more cockfights.
If we construe Section 447(a)(3)(v) as vesting an unlimited discretion to the sanggunian
to control all aspects of cockpits and cockfighting in their respective jurisdiction, this could lead
to the prospect of daily cockfights in municipalities, a certain distraction in the daily routine of
life in a municipality. This certainly goes against the grain of the legislation earlier discussed.
If the arguments of the petitioners were adopted, the national government would be effectively
barred from imposing any future regulatory enactments pertaining to cockpits and cockfighting
unless it were to repeal Section 447(a)(3)(v).
A municipal ordinance must not contravene the Constitution or any statute, otherwise it
is void.[69] Ordinance No. 7 unmistakably contravenes the Cockfighting Law in allowing three
cockpits in Daanbantayan. Thus, no rights can be asserted by the petitioners arising from the
Ordinance. We find the grant of injunction as ordered by the appellate court to be well-taken.
WHEREFORE, the petition is DENIED. Costs against petitioners.
SO ORDERED.