CONSTI2- EMINENT DOMAIN forewarned, Hercules then held Antaeus up in the air, beyond the reach of the

sustaining soil, and crushed him to death.

G.R. No. 78742 July 14, 1989
ASSOCIATION OF SMALL LANDOWNERS IN THE PHILIPPINES, INC., JUANITO D. GOMEZ,
GERARDO B. ALARCIO, FELIPE A. GUICO, JR., BERNARDO M. ALMONTE, CANUTO
RAMIR B. CABRITO, ISIDRO T. GUICO, FELISA I. LLAMIDO, FAUSTO J. SALVA,
REYNALDO G. ESTRADA, FELISA C. BAUTISTA, ESMENIA J. CABE, TEODORO B.
MADRIAGA, AUREA J. PRESTOSA, EMERENCIANA J. ISLA, FELICISIMA C. ARRESTO,
CONSUELO M. MORALES, BENJAMIN R. SEGISMUNDO, CIRILA A. JOSE & NAPOLEON
S. FERRER, petitioners,
vs.
HONORABLE SECRETARY OF AGRARIAN REFORM, respondent.
G.R. No. 79310 July 14, 1989
Mother Earth. The sustaining soil. The giver of life, without whose invigorating touch
even the powerful Antaeus weakened and died.
The cases before us are not as fanciful as the foregoing tale. But they also tell of
the elemental forces of life and death, of men and women who, like Antaeus
need the sustaining strength of the precious earth to stay alive.
"Land for the Landless" is a slogan that underscores the acute imbalance in the
distribution of this precious resource among our people. But it is more than a
slogan. Through the brooding centuries, it has become a battle-cry dramatizing
the increasingly urgent demand of the dispossessed among us for a plot of earth
as their place in the sun.

ARSENIO AL. ACUNA, NEWTON JISON, VICTORINO FERRARIS, DENNIS JEREZA, Recognizing this need, the Constitution in 1935 mandated the policy of social
HERMINIGILDO GUSTILO, PAULINO D. TOLENTINO and PLANTERS' COMMITTEE, INC., justice to "insure the well-being and economic security of all the
Victorias Mill District, Victorias, Negros Occidental, petitioners, people," 1 especially the less privileged. In 1973, the new Constitution affirmed this
vs. goal adding specifically that "the State shall regulate the acquisition, ownership,
JOKER ARROYO, PHILIP E. JUICO and PRESIDENTIAL AGRARIAN REFORM use, enjoyment and disposition of private property and equitably diffuse property
COUNCIL, respondents. ownership and profits." 2 Significantly, there was also the specific injunction to
"formulate and implement an agrarian reform program aimed at emancipating
G.R. No. 79744 July 14, 1989 the tenant from the bondage of the soil." 3

INOCENTES PABICO, petitioner, The Constitution of 1987 was not to be outdone. Besides echoing these sentiments,
vs. it also adopted one whole and separate Article XIII on Social Justice and Human
HON. PHILIP E. JUICO, SECRETARY OF THE DEPARTMENT OF AGRARIAN REFORM, HON. Rights, containing grandiose but undoubtedly sincere provisions for the uplift of the
JOKER ARROYO, EXECUTIVE SECRETARY OF THE OFFICE OF THE PRESIDENT, and common people. These include a call in the following words for the adoption by
Messrs. SALVADOR TALENTO, JAIME ABOGADO, CONRADO AVANCENA and the State of an agrarian reform program:
ROBERTO TAAY, respondents.
SEC. 4. The State shall, by law, undertake an agrarian reform
G.R. No. 79777 July 14, 1989 program founded on the right of farmers and regular farmworkers,
who are landless, to own directly or collectively the lands they till
or, in the case of other farmworkers, to receive a just share of the
NICOLAS S. MANAAY and AGUSTIN HERMANO, JR., petitioners,
fruits thereof. To this end, the State shall encourage and
vs.
undertake the just distribution of all agricultural lands, subject to
HON. PHILIP ELLA JUICO, as Secretary of Agrarian Reform, and LAND BANK OF THE
such priorities and reasonable retention limits as the Congress may
PHILIPPINES,respondents.
prescribe, taking into account ecological, developmental, or
equity considerations and subject to the payment of just
CRUZ, J.: compensation. In determining retention limits, the State shall
respect the right of small landowners. The State shall further
In ancient mythology, Antaeus was a terrible giant who blocked and challenged provide incentives for voluntary land-sharing.
Hercules for his life on his way to Mycenae after performing his eleventh labor. The
two wrestled mightily and Hercules flung his adversary to the ground thinking him Earlier, in fact, R.A. No. 3844, otherwise known as the Agricultural Land Reform
dead, but Antaeus rose even stronger to resume their struggle. This happened Code, had already been enacted by the Congress of the Philippines on August 8,
several times to Hercules' increasing amazement. Finally, as they continued 1963, in line with the above-stated principles. This was substantially superseded
grappling, it dawned on Hercules that Antaeus was the son of Gaea and could almost a decade later by P.D. No. 27, which was promulgated on October 21,
never die as long as any part of his body was touching his Mother Earth. Thus 1972, along with martial law, to provide for the compulsory acquisition of private
lands for distribution among tenant-farmers and to specify maximum retention
limits for landowners.
The people power revolution of 1986 did not change and indeed even energized
the thrust for agrarian reform. Thus, on July 17, 1987, President Corazon C. Aquino
issued E.O. No. 228, declaring full land ownership in favor of the beneficiaries of P.D.
No. 27 and providing for the valuation of still unvalued lands covered by the
decree as well as the manner of their payment. This was followed on July 22, 1987
by Presidential Proclamation No. 131, instituting a comprehensive agrarian reform
program (CARP), and E.O. No. 229, providing the mechanics for its implementation.
Subsequently, with its formal organization, the revived Congress of the Philippines
took over legislative power from the President and started its own deliberations,
including extensive public hearings, on the improvement of the interests of farmers.
The result, after almost a year of spirited debate, was the enactment of R.A. No.
6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988, which
President Aquino signed on June 10, 1988. This law, while considerably changing
the earlier mentioned enactments, nevertheless gives them suppletory effect
insofar as they are not inconsistent with its provisions. 4
The above-captioned cases have been consolidated because they involve
common legal questions, including serious challenges to the constitutionality of the
several measures mentioned above. They will be the subject of one common
discussion and resolution, The different antecedents of each case will require
separate treatment, however, and will first be explained hereunder.
G.R. No. 79777
Squarely raised in this petition is the constitutionality of P.D. No. 27, E.O. Nos. 228
and 229, and R.A. No. 6657.
The subjects of this petition are a 9-hectare riceland worked by four tenants and
owned by petitioner Nicolas Manaay and his wife and a 5-hectare riceland
worked by four tenants and owned by petitioner Augustin Hermano, Jr. The
tenants were declared full owners of these lands by E.O. No. 228 as qualified
farmers under P.D. No. 27.
The petitioners are questioning P.D. No. 27 and E.O. Nos. 228 and 229 on grounds
inter alia of separation of powers, due process, equal protection and the
constitutional limitation that no private property shall be taken for public use
without just compensation.
They contend that President Aquino usurped legislative power when she
promulgated E.O. No. 228. The said measure is invalid also for violation of Article XIII,
Section 4, of the Constitution, for failure to provide for retention limits for small
landowners. Moreover, it does not conform to Article VI, Section 25(4) and the
other requisites of a valid appropriation.
In connection with the determination of just compensation, the petitioners argue
that the same may be made only by a court of justice and not by the President of
the Philippines. They invoke the recent cases of EPZA v. Dulay 5and Manotok v.
National Food Authority. 6 Moreover, the just compensation contemplated by the
Bill of Rights is payable in money or in cash and not in the form of bonds or other
things of value.
In considering the rentals as advance payment on the land, the executive order
also deprives the petitioners of their property rights as protected by due process.
The equal protection clause is also violated because the order places the burden
of solving the agrarian problems on the owners only of agricultural lands. No similar
obligation is imposed on the owners of other properties.
The petitioners also maintain that in declaring the beneficiaries under P.D. No. 27
to be the owners of the lands occupied by them, E.O. No. 228 ignored judicial
prerogatives and so violated due process. Worse, the measure would not solve the
agrarian problem because even the small farmers are deprived of their lands and
the retention rights guaranteed by the Constitution.
In his Comment, the Solicitor General stresses that P.D. No. 27 has already been
upheld in the earlier cases ofChavez v. Zobel, 7 Gonzales v. Estrella, 8 and
Association of Rice and Corn Producers of the Philippines, Inc. v. The National Land
Reform Council. 9 The determination of just compensation by the executive
authorities conformably to the formula prescribed under the questioned order is at
best initial or preliminary only. It does not foreclose judicial intervention whenever
sought or warranted. At any rate, the challenge to the order is premature because
no valuation of their property has as yet been made by the Department of
Agrarian Reform. The petitioners are also not proper parties because the lands
owned by them do not exceed the maximum retention limit of 7 hectares.
Replying, the petitioners insist they are proper parties because P.D. No. 27 does not
provide for retention limits on tenanted lands and that in any event their petition is
a class suit brought in behalf of landowners with landholdings below 24 hectares.
They maintain that the determination of just compensation by the administrative
authorities is a final ascertainment. As for the cases invoked by the public
respondent, the constitutionality of P.D. No. 27 was merely assumed in Chavez,
while what was decided in Gonzales was the validity of the imposition of martial
law.
In the amended petition dated November 22, 1588, it is contended that P.D. No.
27, E.O. Nos. 228 and 229 (except Sections 20 and 21) have been impliedly
repealed by R.A. No. 6657. Nevertheless, this statute should itself also be declared
unconstitutional because it suffers from substantially the same infirmities as the
earlier measures.
A petition for intervention was filed with leave of court on June 1, 1988 by Vicente
Cruz, owner of a 1. 83- hectare land, who complained that the DAR was insisting
on the implementation of P.D. No. 27 and E.O. No. 228 despite a compromise
agreement he had reached with his tenant on the payment of rentals. In a
subsequent motion dated April 10, 1989, he adopted the allegations in the basic
amended petition that the above- mentioned enactments have been impliedly
repealed by R.A. No. 6657.
G.R. No. 79310
The petitioners herein are landowners and sugar planters in the Victorias Mill District,
Victorias, Negros Occidental. Co-petitioner Planters' Committee, Inc. is an
organization composed of 1,400 planter-members. This petition seeks to prohibit
the implementation of Proc. No. 131 and E.O. No. 229.
The petitioners claim that the power to provide for a Comprehensive Agrarian
Reform Program as decreed by the Constitution belongs to Congress and not the
President. Although they agree that the President could exercise legislative power
until the Congress was convened, she could do so only to enact emergency
measures during the transition period. At that, even assuming that the interim
legislative power of the President was properly exercised, Proc. No. 131 and E.O.
No. 229 would still have to be annulled for violating the constitutional provisions on
just compensation, due process, and equal protection.
They also argue that under Section 2 of Proc. No. 131 which provides:
Agrarian Reform Fund.-There is hereby created a special fund, to be known as the
Agrarian Reform Fund, an initial amount of FIFTY BILLION PESOS (P50,000,000,000.00)
to cover the estimated cost of the Comprehensive Agrarian Reform Program from
1987 to 1992 which shall be sourced from the receipts of the sale of the assets of
the Asset Privatization Trust and Receipts of sale of ill-gotten wealth received
through the Presidential Commission on Good Government and such other
sources as government may deem appropriate. The amounts collected and
accruing to this special fund shall be considered automatically appropriated for
the purpose authorized in this Proclamation the amount appropriated is in futuro,
not in esse. The money needed to cover the cost of the contemplated
expropriation has yet to be raised and cannot be appropriated at this time.
Furthermore, they contend that taking must be simultaneous with payment of just
compensation as it is traditionally understood, i.e., with money and in full, but no
such payment is contemplated in Section 5 of the E.O. No. 229. On the contrary,
Section 6, thereof provides that the Land Bank of the Philippines "shall compensate
the landowner in an amount to be established by the government, which shall be
based on the owner's declaration of current fair market value as provided in
Section 4 hereof, but subject to certain controls to be defined and promulgated
by the Presidential Agrarian Reform Council." This compensation may not be paid
fully in money but in any of several modes that may consist of part cash and part
bond, with interest, maturing periodically, or direct payment in cash or bond as
may be mutually agreed upon by the beneficiary and the landowner or as may
be prescribed or approved by the PARC.
The petitioners also argue that in the issuance of the two measures, no effort was
made to make a careful study of the sugar planters' situation. There is no tenancy
problem in the sugar areas that can justify the application of the CARP to them. To
the extent that the sugar planters have been lumped in the same legislation with
other farmers, although they are a separate group with problems exclusively their
own, their right to equal protection has been violated.
A motion for intervention was filed on August 27,1987 by the National Federation of
Sugarcane Planters (NASP) which claims a membership of at least 20,000 individual
sugar planters all over the country. On September 10, 1987, another motion for
intervention was filed, this time by Manuel Barcelona, et al., representing coconut
and riceland owners. Both motions were granted by the Court.
NASP alleges that President Aquino had no authority to fund the Agrarian Reform
Program and that, in any event, the appropriation is invalid because of
uncertainty in the amount appropriated. Section 2 of Proc. No. 131 and Sections
20 and 21 of E.O. No. 229 provide for an initial appropriation of fifty billion pesos
and thus specifies the minimum rather than the maximum authorized amount. This
is not allowed. Furthermore, the stated initial amount has not been certified to by
the National Treasurer as actually available.
Two additional arguments are made by Barcelona, to wit, the failure to establish
by clear and convincing evidence the necessity for the exercise of the powers of
eminent domain, and the violation of the fundamental right to own property.
The petitioners also decry the penalty for non-registration of the lands, which is the
expropriation of the said land for an amount equal to the government assessor's
valuation of the land for tax purposes. On the other hand, if the landowner
declares his own valuation he is unjustly required to immediately pay the
corresponding taxes on the land, in violation of the uniformity rule.
In his consolidated Comment, the Solicitor General first invokes the presumption of
constitutionality in favor of Proc. No. 131 and E.O. No. 229. He also justifies the
necessity for the expropriation as explained in the "whereas" clauses of the
Proclamation and submits that, contrary to the petitioner's contention, a pilot
project to determine the feasibility of CARP and a general survey on the people's
opinion thereon are not indispensable prerequisites to its promulgation.
On the alleged violation of the equal protection clause, the sugar planters have
failed to show that they belong to a different class and should be differently
treated. The Comment also suggests the possibility of Congress first distributing
public agricultural lands and scheduling the expropriation of private agricultural
lands later. From this viewpoint, the petition for prohibition would be premature.
The public respondent also points out that the constitutional prohibition is against
the payment of public money without the corresponding appropriation. There is
no rule that only money already in existence can be the subject of an
appropriation law. Finally, the earmarking of fifty billion pesos as Agrarian Reform
Fund, although denominated as an initial amount, is actually the maximum sum
appropriated. The word "initial" simply means that additional amounts may be
appropriated later when necessary.
On April 11, 1988, Prudencio Serrano, a coconut planter, filed a petition on his own
behalf, assailing the constitutionality of E.O. No. 229. In addition to the arguments
already raised, Serrano contends that the measure is unconstitutional because:
(1) Only public lands should be included in the CARP;
(2) E.O. No. 229 embraces more than one subject which is not
expressed in the title;
(3) The power of the President to legislate was terminated on July
2, 1987; and
(4) The appropriation of a P50 billion special fund from the
National Treasury did not originate from the House of
Representatives.
G.R. No. 79744
The petitioner alleges that the then Secretary of Department of Agrarian Reform, in
violation of due process and the requirement for just compensation, placed his
landholding under the coverage of Operation Land Transfer. Certificates of Land
Transfer were subsequently issued to the private respondents, who then refused
payment of lease rentals to him.
On September 3, 1986, the petitioner protested the erroneous inclusion of his small
landholding under Operation Land transfer and asked for the recall and
cancellation of the Certificates of Land Transfer in the name of the private
respondents. He claims that on December 24, 1986, his petition was denied
without hearing. On February 17, 1987, he filed a motion for reconsideration, which
had not been acted upon when E.O. Nos. 228 and 229 were issued. These orders
rendered his motion moot and academic because they directly effected the
transfer of his land to the private respondents.
The petitioner now argues that:
(1) E.O. Nos. 228 and 229 were invalidly issued by the President of
the Philippines.
(2) The said executive orders are violative of the constitutional
provision that no private property shall be taken without due
process or just compensation.
(3) The petitioner is denied the right of maximum retention
provided for under the 1987 Constitution.
The petitioner contends that the issuance of E.0. Nos. 228 and 229 shortly before
Congress convened is anomalous and arbitrary, besides violating the doctrine of
separation of powers. The legislative power granted to the President under the
Transitory Provisions refers only to emergency measures that may be promulgated
in the proper exercise of the police power.
The petitioner also invokes his rights not to be deprived of his property without due
process of law and to the retention of his small parcels of riceholding as
guaranteed under Article XIII, Section 4 of the Constitution. He likewise argues that,
besides denying him just compensation for his land, the provisions of E.O. No. 228
declaring that:
Lease rentals paid to the landowner by the farmer-beneficiary
after October 21, 1972 shall be considered as advance payment
for the land.
is an unconstitutional taking of a vested property right. It is also his contention that
the inclusion of even small landowners in the program along with other landowners
with lands consisting of seven hectares or more is undemocratic.
In his Comment, the Solicitor General submits that the petition is premature
because the motion for reconsideration filed with the Minister of Agrarian Reform is
still unresolved. As for the validity of the issuance of E.O. Nos. 228 and 229, he
argues that they were enacted pursuant to Section 6, Article XVIII of the Transitory
Provisions of the 1987 Constitution which reads:
The incumbent president shall continue to exercise legislative powers until the first
Congress is convened.
On the issue of just compensation, his position is that when P.D. No. 27 was
promulgated on October 21. 1972, the tenant-farmer of agricultural land was
deemed the owner of the land he was tilling. The leasehold rentals paid after that
date should therefore be considered amortization payments.
In his Reply to the public respondents, the petitioner maintains that the motion he
filed was resolved on December 14, 1987. An appeal to the Office of the President
would be useless with the promulgation of E.O. Nos. 228 and 229, which in effect
sanctioned the validity of the public respondent's acts.
G.R. No. 78742
The petitioners in this case invoke the right of retention granted by P.D. No. 27 to
owners of rice and corn lands not exceeding seven hectares as long as they are
cultivating or intend to cultivate the same. Their respective lands do not exceed
the statutory limit but are occupied by tenants who are actually cultivating such
lands.
According to P.D. No. 316, which was promulgated in implementation of P.D. No.
27:
 No tenant-farmer in agricultural lands primarily devoted to rice
and corn shall be ejected or removed from his farmholding until
such time as the respective rights of the tenant- farmers and the
landowner shall have been determined in accordance with the
rules and regulations implementing P.D. No. 27.
The petitioners claim they cannot eject their tenants and so are unable to enjoy
their right of retention because the Department of Agrarian Reform has so far not
issued the implementing rules required under the above-quoted decree. They
therefore ask the Court for a writ of mandamus to compel the respondent to issue
the said rules.
In his Comment, the public respondent argues that P.D. No. 27 has been
amended by LOI 474 removing any right of retention from persons who own other
agricultural lands of more than 7 hectares in aggregate area or lands used for
residential, commercial, industrial or other purposes from which they derive
adequate income for their family. And even assuming that the petitioners do not
fall under its terms, the regulations implementing P.D. No. 27 have already been
issued, to wit, the Memorandum dated July 10, 1975 (Interim Guidelines on
Retention by Small Landowners, with an accompanying Retention Guide Table),
Memorandum Circular No. 11 dated April 21, 1978, (Implementation Guidelines of
LOI No. 474), Memorandum Circular No. 18-81 dated December 29,1981
(Clarificatory Guidelines on Coverage of P.D. No. 27 and Retention by Small
Landowners), and DAR Administrative Order No. 1, series of 1985 (Providing for a
Cut-off Date for Landowners to Apply for Retention and/or to Protest the
Coverage of their Landholdings under Operation Land Transfer pursuant to P.D. No.
27). For failure to file the corresponding applications for retention under these
measures, the petitioners are now barred from invoking this right.
The public respondent also stresses that the petitioners have prematurely initiated
this case notwithstanding the pendency of their appeal to the President of the
Philippines. Moreover, the issuance of the implementing rules, assuming this has not
yet been done, involves the exercise of discretion which cannot be controlled
through the writ of mandamus. This is especially true if this function is entrusted, as
in this case, to a separate department of the government.
In their Reply, the petitioners insist that the above-cited measures are not
applicable to them because they do not own more than seven hectares of
agricultural land. Moreover, assuming arguendo that the rules were intended to
cover them also, the said measures are nevertheless not in force because they
have not been published as required by law and the ruling of this Court in Tanada
v. Tuvera. 10 As for LOI 474, the same is ineffective for the additional reason that a
mere letter of instruction could not have repealed the presidential decree.
I conscience give it the light to probe its meaning and discover its purpose. Personal
Although holding neither purse nor sword and so regarded as the weakest of the
three departments of the government, the judiciary is nonetheless vested with the
power to annul the acts of either the legislative or the executive or of both when
not conformable to the fundamental law. This is the reason for what some quarters
call the doctrine of judicial supremacy. Even so, this power is not lightly assumed or
readily exercised. The doctrine of separation of powers imposes upon the courts a
proper restraint, born of the nature of their functions and of their respect for the
other departments, in striking down the acts of the legislative and the executive as
unconstitutional. The policy, indeed, is a blend of courtesy and caution. To doubt is
to sustain. The theory is that before the act was done or the law was enacted,
earnest studies were made by Congress or the President, or both, to insure that the
Constitution would not be breached.
In addition, the Constitution itself lays down stringent conditions for a declaration
of unconstitutionality, requiring therefor the concurrence of a majority of the
members of the Supreme Court who took part in the deliberations and voted on
the issue during their session en banc. 11 And as established by judge made
doctrine, the Court will assume jurisdiction over a constitutional question only if it is
shown that the essential requisites of a judicial inquiry into such a question are first
satisfied. Thus, there must be an actual case or controversy involving a conflict of
legal rights susceptible of judicial determination, the constitutional question must
have been opportunely raised by the proper party, and the resolution of the
question is unavoidably necessary to the decision of the case itself. 12
With particular regard to the requirement of proper party as applied in the cases
before us, we hold that the same is satisfied by the petitioners and intervenors
because each of them has sustained or is in danger of sustaining an immediate
injury as a result of the acts or measures complained of. 13 And even if, strictly
speaking, they are not covered by the definition, it is still within the wide discretion
of the Court to waive the requirement and so remove the impediment to its
addressing and resolving the serious constitutional questions raised.
In the first Emergency Powers Cases, 14 ordinary citizens and taxpayers were
allowed to question the constitutionality of several executive orders issued by
President Quirino although they were invoking only an indirect and general interest
shared in common with the public. The Court dismissed the objection that they
were not proper parties and ruled that "the transcendental importance to the
public of these cases demands that they be settled promptly and definitely,
brushing aside, if we must, technicalities of procedure." We have since then
applied this exception in many other cases. 15
The other above-mentioned requisites have also been met in the present petitions.
In must be stressed that despite the inhibitions pressing upon the Court when
confronted with constitutional issues like the ones now before it, it will not hesitate
to declare a law or act invalid when it is convinced that this must be done. In
arriving at this conclusion, its only criterion will be the Constitution as God and its
motives and political considerations are irrelevancies that cannot influence its
decision. Blandishment is as ineffectual as intimidation.
For all the awesome power of the Congress and the Executive, the Court will not
hesitate to "make the hammer fall, and heavily," to use Justice Laurel's pithy
language, where the acts of these departments, or of any public official, betray
the people's will as expressed in the Constitution.
It need only be added, to borrow again the words of Justice Laurel, that
... when the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act of the
Legislature, but only asserts the solemn and sacred obligation
assigned to it by the Constitution to determine conflicting claims
of authority under the Constitution and to establish for the parties
in an actual controversy the rights which that instrument secures
and guarantees to them. This is in truth all that is involved in what is
termed "judicial supremacy" which properly is the power of
judicial review under the Constitution. 16
The cases before us categorically raise constitutional questions that this Court must
categorically resolve. And so we shall.
II
We proceed first to the examination of the preliminary issues before resolving the
more serious challenges to the constitutionality of the several measures involved in
these petitions.
The promulgation of P.D. No. 27 by President Marcos in the exercise of his powers
under martial law has already been sustained in Gonzales v. Estrella and we find
no reason to modify or reverse it on that issue. As for the power of President Aquino
to promulgate Proc. No. 131 and E.O. Nos. 228 and 229, the same was authorized
under Section 6 of the Transitory Provisions of the 1987 Constitution, quoted above.
The said measures were issued by President Aquino before July 27, 1987, when the
Congress of the Philippines was formally convened and took over legislative power
from her. They are not "midnight" enactments intended to pre-empt the legislature
because E.O. No. 228 was issued on July 17, 1987, and the other measures, i.e.,
Proc. No. 131 and E.O. No. 229, were both issued on July 22, 1987. Neither is it
correct to say that these measures ceased to be valid when she lost her legislative
power for, like any statute, they continue to be in force unless modified or
repealed by subsequent law or declared invalid by the courts. A statute does
not ipso facto become inoperative simply because of the dissolution of the
legislature that enacted it. By the same token, President Aquino's loss of legislative
power did not have the effect of invalidating all the measures enacted by her
when and as long as she possessed it.
Significantly, the Congress she is alleged to have undercut has not rejected but in
fact substantially affirmed the challenged measures and has specifically provided
that they shall be suppletory to R.A. No. 6657 whenever not inconsistent with its
provisions. 17 Indeed, some portions of the said measures, like the creation of the
P50 billion fund in Section 2 of Proc. No. 131, and Sections 20 and 21 of E.O. No. 229,
have been incorporated by reference in the CARP Law. 18
That fund, as earlier noted, is itself being questioned on the ground that it does not
conform to the requirements of a valid appropriation as specified in the
Constitution. Clearly, however, Proc. No. 131 is not an appropriation measure even
if it does provide for the creation of said fund, for that is not its principal purpose.
An appropriation law is one the primary and specific purpose of which is to
authorize the release of public funds from the treasury. 19 The creation of the fund
is only incidental to the main objective of the proclamation, which is agrarian
reform.
It should follow that the specific constitutional provisions invoked, to wit, Section 24
and Section 25(4) of Article VI, are not applicable. With particular reference to
Section 24, this obviously could not have been complied with for the simple reason
that the House of Representatives, which now has the exclusive power to initiate
appropriation measures, had not yet been convened when the proclamation was
issued. The legislative power was then solely vested in the President of the
Philippines, who embodied, as it were, both houses of Congress.
The argument of some of the petitioners that Proc. No. 131 and E.O. No. 229 should
be invalidated because they do not provide for retention limits as required by
Article XIII, Section 4 of the Constitution is no longer tenable. R.A. No. 6657 does
provide for such limits now in Section 6 of the law, which in fact is one of its most
controversial provisions. This section declares:
Retention Limits. Except as otherwise provided in this Act, no person
may own or retain, directly or indirectly, any public or private agricultural
land, the size of which shall vary according to factors governing a viable
family-sized farm, such as commodity produced, terrain, infrastructure,
and soil fertility as determined by the Presidential Agrarian Reform Council
(PARC) created hereunder, but in no case shall retention by the
landowner exceed five (5) hectares. Three (3) hectares may be awarded
to each child of the landowner, subject to the following qualifications: (1)
that he is at least fifteen (15) years of age; and (2) that he is actually tilling
the land or directly managing the farm; Provided, That landowners whose
lands have been covered by Presidential Decree No. 27 shall be allowed
to keep the area originally retained by them thereunder, further, That
original homestead grantees or direct compulsory heirs who still own the
original homestead at the time of the approval of this Act shall retain the
same areas as long as they continue to cultivate said homestead.
The argument that E.O. No. 229 violates the constitutional requirement that a bill
shall have only one subject, to be expressed in its title, deserves only short attention.
It is settled that the title of the bill does not have to be a catalogue of its contents
and will suffice if the matters embodied in the text are relevant to each other and
may be inferred from the title. 20
The Court wryly observes that during the past dictatorship, every presidential
issuance, by whatever name it was called, had the force and effect of law
because it came from President Marcos. Such are the ways of despots. Hence, it is
futile to argue, as the petitioners do in G.R. No. 79744, that LOI 474 could not have
repealed P.D. No. 27 because the former was only a letter of instruction. The
important thing is that it was issued by President Marcos, whose word was law
during that time.
But for all their peremptoriness, these issuances from the President Marcos still had
to comply with the requirement for publication as this Court held in Tanada v.
Tuvera. 21 Hence, unless published in the Official Gazette in accordance with
Article 2 of the Civil Code, they could not have any force and effect if they were
among those enactments successfully challenged in that case. LOI 474 was
published, though, in the Official Gazette dated November 29,1976.)
Finally, there is the contention of the public respondent in G.R. No. 78742 that the
writ of mandamus cannot issue to compel the performance of a discretionary act,
especially by a specific department of the government. That is true as a general
proposition but is subject to one important qualification. Correctly and
categorically stated, the rule is that mandamus will lie to compel the discharge of
the discretionary duty itself but not to control the discretion to be exercised. In
other words, mandamus can issue to require action only but not specific action.
Whenever a duty is imposed upon a public official and an
unnecessary and unreasonable delay in the exercise of such duty
occurs, if it is a clear duty imposed by law, the courts will intervene
by the extraordinary legal remedy of mandamus to compel
action. If the duty is purely ministerial, the courts will require
specific action. If the duty is purely discretionary, the courts
by mandamus will require action only. For example, if an inferior
court, public official, or board should, for an unreasonable length
of time, fail to decide a particular question to the great detriment
of all parties concerned, or a court should refuse to take
jurisdiction of a cause when the law clearly gave it jurisdiction
mandamus will issue, in the first case to require a decision, and in
the second to require that jurisdiction be taken of the cause. 22
And while it is true that as a rule the writ will not be proper as long as there is still a
plain, speedy and adequate remedy available from the administrative authorities,
resort to the courts may still be permitted if the issue raised is a question of law. 23
III
There are traditional distinctions between the police power and the power of
eminent domain that logically preclude the application of both powers at the
same time on the same subject. In the case of City of Baguio v. NAWASA, 24 for
example, where a law required the transfer of all municipal waterworks systems to
the NAWASA in exchange for its assets of equivalent value, the Court held that the
power being exercised was eminent domain because the property involved was
wholesome and intended for a public use. Property condemned under the police
power is noxious or intended for a noxious purpose, such as a building on the
verge of collapse, which should be demolished for the public safety, or obscene
materials, which should be destroyed in the interest of public morals. The
confiscation of such property is not compensable, unlike the taking of property
under the power of expropriation, which requires the payment of just
compensation to the owner.
In the case of Pennsylvania Coal Co. v. Mahon, 25 Justice Holmes laid down the
limits of the police power in a famous aphorism: "The general rule at least is that
while property may be regulated to a certain extent, if regulation goes too far it
will be recognized as a taking." The regulation that went "too far" was a law
prohibiting mining which might cause the subsidence of structures for human
habitation constructed on the land surface. This was resisted by a coal company
which had earlier granted a deed to the land over its mine but reserved all mining
rights thereunder, with the grantee assuming all risks and waiving any damage
claim. The Court held the law could not be sustained without compensating the
grantor. Justice Brandeis filed a lone dissent in which he argued that there was a
valid exercise of the police power. He said:
Every restriction upon the use of property imposed in the exercise
of the police power deprives the owner of some right theretofore
enjoyed, and is, in that sense, an abridgment by the State of rights
in property without making compensation. But restriction imposed
to protect the public health, safety or morals from dangers
threatened is not a taking. The restriction here in question is merely
the prohibition of a noxious use. The property so restricted remains
in the possession of its owner. The state does not appropriate it or
make any use of it. The state merely prevents the owner from
making a use which interferes with paramount rights of the public.
Whenever the use prohibited ceases to be noxious as it may
because of further changes in local or social conditions the
restriction will have to be removed and the owner will again be
free to enjoy his property as heretofore.
Recent trends, however, would indicate not a polarization but a mingling of the
police power and the power of eminent domain, with the latter being used as an
implement of the former like the power of taxation. The employment of the taxing
power to achieve a police purpose has long been accepted. 26 As for the power
of expropriation, Prof. John J. Costonis of the University of Illinois College of Law
(referring to the earlier case of Euclid v. Ambler Realty Co., 272 US 365, which
sustained a zoning law under the police power) makes the following significant
remarks:
Euclid, moreover, was decided in an era when judges located
the Police and eminent domain powers on different planets.
Generally speaking, they viewed eminent domain as
encompassing public acquisition of private property for
improvements that would be available for public use," literally
construed. To the police power, on the other hand, they assigned
 the less intrusive task of preventing harmful externalities a point
reflected in the Euclid opinion's reliance on an analogy to
nuisance law to bolster its support of zoning. So long as
suppression of a privately authored harm bore a plausible relation
to some legitimate "public purpose," the pertinent measure need
have afforded no compensation whatever. With the progressive
growth of government's involvement in land use, the distance
between the two powers has contracted considerably. Today
government often employs eminent domain interchangeably with
or as a useful complement to the police power-- a trend expressly
approved in the Supreme Court's 1954 decision in Berman v.
Parker, which broadened the reach of eminent domain's "public
use" test to match that of the police power's standard of "public
purpose." 27
The Berman case sustained a redevelopment project and the improvement of
blighted areas in the District of Columbia as a proper exercise of the police power.
On the role of eminent domain in the attainment of this purpose, Justice Douglas
declared:
If those who govern the District of Columbia decide that the
Nation's Capital should be beautiful as well as sanitary, there is
nothing in the Fifth Amendment that stands in the way.
Once the object is within the authority of Congress, the right to
realize it through the exercise of eminent domain is clear.
For the power of eminent domain is merely the means to the
end. 28
In Penn Central Transportation Co. v. New York City, 29 decided by a 6-3 vote in
1978, the U.S Supreme Court sustained the respondent's Landmarks Preservation
Law under which the owners of the Grand Central Terminal had not been allowed
to construct a multi-story office building over the Terminal, which had been
designated a historic landmark. Preservation of the landmark was held to be a
valid objective of the police power. The problem, however, was that the owners of
the Terminal would be deprived of the right to use the airspace above it although
other landowners in the area could do so over their respective properties. While
insisting that there was here no taking, the Court nonetheless recognized certain
compensatory rights accruing to Grand Central Terminal which it said would
"undoubtedly mitigate" the loss caused by the regulation. This "fair compensation,"
as he called it, was explained by Prof. Costonis in this wise:
In return for retaining the Terminal site in its pristine landmark status, Penn Central
was authorized to transfer to neighboring properties the authorized but unused
rights accruing to the site prior to the Terminal's designation as a landmark the
rights which would have been exhausted by the 59-story building that the city
refused to countenance atop the Terminal. Prevailing bulk restrictions on
neighboring sites were proportionately relaxed, theoretically enabling Penn
Central to recoup its losses at the Terminal site by constructing or selling to others
the right to construct larger, hence more profitable buildings on the transferee
sites. 30
The cases before us present no knotty complication insofar as the question of
compensable taking is concerned. To the extent that the measures under
challenge merely prescribe retention limits for landowners, there is an exercise of
the police power for the regulation of private property in accordance with the
Constitution. But where, to carry out such regulation, it becomes necessary to
deprive such owners of whatever lands they may own in excess of the maximum
area allowed, there is definitely a taking under the power of eminent domain for
which payment of just compensation is imperative. The taking contemplated is not
a mere limitation of the use of the land. What is required is the surrender of the title
to and the physical possession of the said excess and all beneficial rights accruing
to the owner in favor of the farmer-beneficiary. This is definitely an exercise not of
the police power but of the power of eminent domain.
Whether as an exercise of the police power or of the power of eminent domain,
the several measures before us are challenged as violative of the due process and
equal protection clauses.
The challenge to Proc. No. 131 and E.O. Nos. 228 and 299 on the ground that no
retention limits are prescribed has already been discussed and dismissed. It is
noted that although they excited many bitter exchanges during the deliberation
of the CARP Law in Congress, the retention limits finally agreed upon are, curiously
enough, not being questioned in these petitions. We therefore do not discuss them
here. The Court will come to the other claimed violations of due process in
connection with our examination of the adequacy of just compensation as
required under the power of expropriation.
The argument of the small farmers that they have been denied equal protection
because of the absence of retention limits has also become academic under
Section 6 of R.A. No. 6657. Significantly, they too have not questioned the area of
such limits. There is also the complaint that they should not be made to share the
burden of agrarian reform, an objection also made by the sugar planters on the
ground that they belong to a particular class with particular interests of their own.
However, no evidence has been submitted to the Court that the requisites of a
valid classification have been violated.
Classification has been defined as the grouping of persons or things similar to each
other in certain particulars and different from each other in these same
particulars. 31 To be valid, it must conform to the following requirements: (1) it must
be based on substantial distinctions; (2) it must be germane to the purposes of the
law; (3) it must not be limited to existing conditions only; and (4) it must apply
equally to all the members of the class. 32 The Court finds that all these requisites
have been met by the measures here challenged as arbitrary and discriminatory.
Equal protection simply means that all persons or things similarly situated must be
treated alike both as to the rights conferred and the liabilities imposed. 33 The
petitioners have not shown that they belong to a different class and entitled to a
different treatment. The argument that not only landowners but also owners of
other properties must be made to share the burden of implementing land reform
must be rejected. There is a substantial distinction between these two classes of
owners that is clearly visible except to those who will not see. There is no need to
elaborate on this matter. In any event, the Congress is allowed a wide leeway in
providing for a valid classification. Its decision is accorded recognition and respect
by the courts of justice except only where its discretion is abused to the detriment
of the Bill of Rights.
It is worth remarking at this juncture that a statute may be sustained under the
police power only if there is a concurrence of the lawful subject and the lawful
method. Put otherwise, the interests of the public generally as distinguished from
those of a particular class require the interference of the State and, no less
important, the means employed are reasonably necessary for the attainment of
the purpose sought to be achieved and not unduly oppressive upon
individuals. 34 As the subject and purpose of agrarian reform have been laid down
by the Constitution itself, we may say that the first requirement has been satisfied.
What remains to be examined is the validity of the method employed to achieve
the constitutional goal.
One of the basic principles of the democratic system is that where the rights of the
individual are concerned, the end does not justify the means. It is not enough that
there be a valid objective; it is also necessary that the means employed to pursue
it be in keeping with the Constitution. Mere expediency will not excuse
constitutional shortcuts. There is no question that not even the strongest moral
conviction or the most urgent public need, subject only to a few notable
exceptions, will excuse the bypassing of an individual's rights. It is no exaggeration
to say that a, person invoking a right guaranteed under Article III of the
Constitution is a majority of one even as against the rest of the nation who would
deny him that right.
That right covers the person's life, his liberty and his property under Section 1 of
Article III of the Constitution. With regard to his property, the owner enjoys the
added protection of Section 9, which reaffirms the familiar rule that private
property shall not be taken for public use without just compensation.
This brings us now to the power of eminent domain.
IV
Eminent domain is an inherent power of the State that enables it
to forcibly acquire private lands intended for public use upon
payment of just compensation to the owner. Obviously, there is no
need to expropriate where the owner is willing to sell under terms
also acceptable to the purchaser, in which case an ordinary
deed of sale may be agreed upon by the parties. 35 It is only
where the owner is unwilling to sell, or cannot accept the price or
other conditions offered by the vendee, that the power of
eminent domain will come into play to assert the paramount
authority of the State over the interests of the property owner.
Private rights must then yield to the irresistible demands of the
public interest on the time-honored justification, as in the case of
the police power, that the welfare of the people is the supreme
law.
But for all its primacy and urgency, the power of expropriation is by no means
absolute (as indeed no power is absolute). The limitation is found in the
constitutional injunction that "private property shall not be taken for public use
without just compensation" and in the abundant jurisprudence that has evolved
from the interpretation of this principle. Basically, the requirements for a proper
exercise of the power are: (1) public use and (2) just compensation.
Let us dispose first of the argument raised by the petitioners in G.R. No. 79310 that
the State should first distribute public agricultural lands in the pursuit of agrarian
reform instead of immediately disturbing property rights by forcibly acquiring
private agricultural lands. Parenthetically, it is not correct to say that only public
agricultural lands may be covered by the CARP as the Constitution calls for "the
just distribution of all agricultural lands." In any event, the decision to redistribute
private agricultural lands in the manner prescribed by the CARP was made by the
legislative and executive departments in the exercise of their discretion. We are
not justified in reviewing that discretion in the absence of a clear showing that it
has been abused.
A becoming courtesy admonishes us to respect the decisions of the political
departments when they decide what is known as the political question. As
explained by Chief Justice Concepcion in the case of Taada v. Cuenco: 36
The term "political question" connotes what it means in ordinary
parlance, namely, a question of policy. It refers to "those questions
which, under the Constitution, are to be decided by the people in
their sovereign capacity; or in regard to which full discretionary
authority has been delegated to the legislative or executive
branch of the government." It is concerned with issues dependent
upon the wisdom, not legality, of a particular measure.
It is true that the concept of the political question has been constricted with the
enlargement of judicial power, which now includes the authority of the courts "to
determine whether or not there has been a grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government." 37 Even so, this should not be construed as a license for us to reverse
the other departments simply because their views may not coincide with ours.
The legislature and the executive have been seen fit, in their wisdom, to include in
the CARP the redistribution of private landholdings (even as the distribution of
public agricultural lands is first provided for, while also continuing apace under the
Public Land Act and other cognate laws). The Court sees no justification to
interpose its authority, which we may assert only if we believe that the political
decision is not unwise, but illegal. We do not find it to be so.
In U.S. v. Chandler-Dunbar Water Power Company, 38 it was held:
Congress having determined, as it did by the Act of March 3,1909
that the entire St. Mary's river between the American bank and
the international line, as well as all of the upland north of the
present ship canal, throughout its entire length, was "necessary for
the purpose of navigation of said waters, and the waters
connected therewith," that determination is conclusive in
condemnation proceedings instituted by the United States under
that Act, and there is no room for judicial review of the judgment
of Congress ... .
As earlier observed, the requirement for public use has already been settled for us
by the Constitution itself No less than the 1987 Charter calls for agrarian reform,
which is the reason why private agricultural lands are to be taken from their
owners, subject to the prescribed maximum retention limits. The purposes specified
in P.D. No. 27, Proc. No. 131 and R.A. No. 6657 are only an elaboration of the
constitutional injunction that the State adopt the necessary measures "to
encourage and undertake the just distribution of all agricultural lands to enable
farmers who are landless to own directly or collectively the lands they till." That
public use, as pronounced by the fundamental law itself, must be binding on us.
The second requirement, i.e., the payment of just compensation, needs a longer
and more thoughtful examination.
Just compensation is defined as the full and fair equivalent of the property taken
from its owner by the expropriator. 39 It has been repeatedly stressed by this Court
that the measure is not the taker's gain but the owner's loss. 40 The word "just" is
used to intensify the meaning of the word "compensation" to convey the idea that
the equivalent to be rendered for the property to be taken shall be real,
substantial, full, ample. 41
It bears repeating that the measures challenged in these petitions contemplate
more than a mere regulation of the use of private lands under the police power.
We deal here with an actual taking of private agricultural lands that has
dispossessed the owners of their property and deprived them of all its beneficial
use and enjoyment, to entitle them to the just compensation mandated by the
Constitution.
As held in Republic of the Philippines v. Castellvi, 42 there is compensable taking
when the following conditions concur: (1) the expropriator must enter a private
property; (2) the entry must be for more than a momentary period; (3) the entry
must be under warrant or color of legal authority; (4) the property must be
devoted to public use or otherwise informally appropriated or injuriously affected;
and (5) the utilization of the property for public use must be in such a way as to
oust the owner and deprive him of beneficial enjoyment of the property. All these
requisites are envisioned in the measures before us.
Where the State itself is the expropriator, it is not necessary for it to make a deposit
upon its taking possession of the condemned property, as "the compensation is a
public charge, the good faith of the public is pledged for its payment, and all the
resources of taxation may be employed in raising the amount." 43 Nevertheless,
Section 16(e) of the CARP Law provides that:
Upon receipt by the landowner of the corresponding payment or,
in case of rejection or no response from the landowner, upon the
deposit with an accessible bank designated by the DAR of the
compensation in cash or in LBP bonds in accordance with this Act,
the DAR shall take immediate possession of the land and shall
request the proper Register of Deeds to issue a Transfer Certificate
of Title (TCT) in the name of the Republic of the Philippines. The
DAR shall thereafter proceed with the redistribution of the land to
the qualified beneficiaries.
Objection is raised, however, to the manner of fixing the just compensation, which
it is claimed is entrusted to the administrative authorities in violation of judicial
prerogatives. Specific reference is made to Section 16(d), which provides that in
case of the rejection or disregard by the owner of the offer of the government to
buy his land-
... the DAR shall conduct summary administrative proceedings to
determine the compensation for the land by requiring the
landowner, the LBP and other interested parties to submit
evidence as to the just compensation for the land, within fifteen
(15) days from the receipt of the notice. After the expiration of the
above period, the matter is deemed submitted for decision. The
DAR shall decide the case within thirty (30) days after it is
submitted for decision.
To be sure, the determination of just compensation is a function addressed to the
courts of justice and may not be usurped by any other branch or official of the
government. EPZA v. Dulay 44 resolved a challenge to several decrees
promulgated by President Marcos providing that the just compensation for
property under expropriation should be either the assessment of the property by
the government or the sworn valuation thereof by the owner, whichever was lower.
In declaring these decrees unconstitutional, the Court held through Mr. Justice
Hugo E. Gutierrez, Jr.:
The method of ascertaining just compensation under the aforecited decrees
constitutes impermissible encroachment on judicial prerogatives. It tends to
render this Court inutile in a matter which under this Constitution is reserved to
it for final determination.
 Thus, although in an expropriation proceeding the court technically would still
have the power to determine the just compensation for the property, following
the applicable decrees, its task would be relegated to simply stating the lower
value of the property as declared either by the owner or the assessor. As a
necessary consequence, it would be useless for the court to appoint
commissioners under Rule 67 of the Rules of Court. Moreover, the need to
satisfy the due process clause in the taking of private property is seemingly
fulfilled since it cannot be said that a judicial proceeding was not had before
the actual taking. However, the strict application of the decrees during the
proceedings would be nothing short of a mere formality or charade as the
court has only to choose between the valuation of the owner and that of the
assessor, and its choice is always limited to the lower of the two. The court
cannot exercise its discretion or independence in determining what is just or
fair. Even a grade school pupil could substitute for the judge insofar as the
determination of constitutional just compensation is concerned.
xxx
In the present petition, we are once again confronted with the same question
of whether the courts under P.D. No. 1533, which contains the same provision
on just compensation as its predecessor decrees, still have the power and
authority to determine just compensation, independent of what is stated by
the decree and to this effect, to appoint commissioners for such purpose.
This time, we answer in the affirmative.
xxx
It is violative of due process to deny the owner the opportunity to prove that
the valuation in the tax documents is unfair or wrong. And it is repulsive to the
basic concepts of justice and fairness to allow the haphazard work of a minor
bureaucrat or clerk to absolutely prevail over the judgment of a court
promulgated only after expert commissioners have actually viewed the
property, after evidence and arguments pro and con have been presented,
and after all factors and considerations essential to a fair and just
determination have been judiciously evaluated.
A reading of the aforecited Section 16(d) will readily show that it does not suffer
from the arbitrariness that rendered the challenged decrees constitutionally
objectionable. Although the proceedings are described as summary, the
landowner and other interested parties are nevertheless allowed an opportunity to
submit evidence on the real value of the property. But more importantly, the
determination of the just compensation by the DAR is not by any means final and
conclusive upon the landowner or any other interested party, for Section 16(f)
clearly provides:
Any party who disagrees with the decision may bring the matter
to the court of proper jurisdiction for final determination of just
compensation.
The determination made by the DAR is only preliminary unless accepted by all
parties concerned. Otherwise, the courts of justice will still have the right to review
with finality the said determination in the exercise of what is admittedly a judicial
function.
The second and more serious objection to the provisions on just compensation is
not as easily resolved.
This refers to Section 18 of the CARP Law providing in full as follows:
SEC. 18. Valuation and Mode of Compensation. The LBP shall
compensate the landowner in such amount as may be agreed upon by
the landowner and the DAR and the LBP, in accordance with the criteria
provided for in Sections 16 and 17, and other pertinent provisions hereof,
or as may be finally determined by the court, as the just compensation for
the land.
The compensation shall be paid in one of the following modes, at the
option of the landowner:
(1) Cash payment, under the following terms and conditions:
(a) For lands above fifty (50) hectares, insofar as the excess
hectarage is concerned Twenty-five percent (25%) cash, the
balance to be paid in government financial instruments
negotiable at any time.
(b) For lands above twenty-four (24) hectares and up to fifty (50)
hectares Thirty percent (30%) cash, the balance to be paid in
government financial instruments negotiable at any time.
(c) For lands twenty-four (24) hectares and below Thirty-five
percent (35%) cash, the balance to be paid in government
financial instruments negotiable at any time.
(2) Shares of stock in government-owned or controlled corporations, LBP
preferred shares, physical assets or other qualified investments in
accordance with guidelines set by the PARC;
(3) Tax credits which can be used against any tax liability;
(4) LBP bonds, which shall have the following features:
(a) Market interest rates aligned with 91-day treasury bill rates. Ten
percent (10%) of the face value of the bonds shall mature every
year from the date of issuance until the tenth (10th) year:
Provided, That should the landowner choose to forego the cash
 portion, whether in full or in part, he shall be paid correspondingly
in LBP bonds;
(b) Transferability and negotiability. Such LBP bonds may be used
by the landowner, his successors-in- interest or his assigns, up to
the amount of their face value, for any of the following:
(i) Acquisition of land or other real properties of the government,
including assets under the Asset Privatization Program and other
assets foreclosed by government financial institutions in the same
province or region where the lands for which the bonds were paid
are situated;
(ii) Acquisition of shares of stock of government-owned or
controlled corporations or shares of stock owned by the
government in private corporations;
(iii) Substitution for surety or bail bonds for the provisional release
of accused persons, or for performance bonds;
(iv) Security for loans with any government financial institution,
provided the proceeds of the loans shall be invested in an
economic enterprise, preferably in a small and medium- scale
industry, in the same province or region as the land for which the
bonds are paid;
(v) Payment for various taxes and fees to government: Provided,
That the use of these bonds for these purposes will be limited to a
certain percentage of the outstanding balance of the financial
instruments; Provided, further, That the PARC shall determine the
percentages mentioned above;
(vi) Payment for tuition fees of the immediate family of the original
bondholder in government universities, colleges, trade schools,
and other institutions;
(vii) Payment for fees of the immediate family of the original
bondholder in government hospitals; and
(viii) Such other uses as the PARC may from time to time allow.
The contention of the petitioners in G.R. No. 79777 is that the above provision is
unconstitutional insofar as it requires the owners of the expropriated properties to
accept just compensation therefor in less than money, which is the only medium of
payment allowed. In support of this contention, they cite jurisprudence holding
that:
The fundamental rule in expropriation matters is that the owner of
the property expropriated is entitled to a just compensation,
which should be neither more nor less, whenever it is possible to
make the assessment, than the money equivalent of said property.
Just compensation has always been understood to be the just
and complete equivalent of the loss which the owner of the thing
expropriated has to suffer by reason of the
expropriation . 45 (Emphasis supplied.)
In J.M. Tuazon Co. v. Land Tenure Administration, 46 this Court held:
It is well-settled that just compensation means the equivalent for
the value of the property at the time of its taking. Anything
beyond that is more, and anything short of that is less, than just
compensation. It means a fair and full equivalent for the loss
sustained, which is the measure of the indemnity, not whatever
gain would accrue to the expropriating entity. The market value
of the land taken is the just compensation to which the owner of
condemned property is entitled, the market value being that sum
of money which a person desirous, but not compelled to buy, and
an owner, willing, but not compelled to sell, would agree on as a
price to be given and received for such property. (Emphasis
supplied.)
In the United States, where much of our jurisprudence on the subject has been
derived, the weight of authority is also to the effect that just compensation for
property expropriated is payable only in money and not otherwise. Thus
The medium of payment of compensation is ready money or cash.
The condemnor cannot compel the owner to accept anything
but money, nor can the owner compel or require the condemnor
to pay him on any other basis than the value of the property in
money at the time and in the manner prescribed by the
Constitution and the statutes. When the power of eminent
domain is resorted to, there must be a standard medium of
payment, binding upon both parties, and the law has fixed that
standard as money in cash. 47 (Emphasis supplied.)
Part cash and deferred payments are not and cannot, in the
nature of things, be regarded as a reliable and constant standard
of compensation. 48
"Just compensation" for property taken by condemnation means
a fair equivalent in money, which must be paid at least within a
reasonable time after the taking, and it is not within the power of
the Legislature to substitute for such payment future obligations,
bonds, or other valuable advantage. 49 (Emphasis supplied.)
It cannot be denied from these cases that the traditional medium for the payment
of just compensation is money and no other. And so, conformably, has just
compensation been paid in the past solely in that medium. However, we do not
deal here with the traditional excercise of the power of eminent domain. This is not
an ordinary expropriation where only a specific property of relatively limited area is
sought to be taken by the State from its owner for a specific and perhaps local
purpose.
What we deal with here is a revolutionary kind of expropriation.
The expropriation before us affects all private agricultural lands whenever found
and of whatever kind as long as they are in excess of the maximum retention limits
allowed their owners. This kind of expropriation is intended for the benefit not only
of a particular community or of a small segment of the population but of the entire
Filipino nation, from all levels of our society, from the impoverished farmer to the
land-glutted owner. Its purpose does not cover only the whole territory of this
country but goes beyond in time to the foreseeable future, which it hopes to
secure and edify with the vision and the sacrifice of the present generation of
Filipinos. Generations yet to come are as involved in this program as we are today,
although hopefully only as beneficiaries of a richer and more fulfilling life we will
guarantee to them tomorrow through our thoughtfulness today. And, finally, let it
not be forgotten that it is no less than the Constitution itself that has ordained this
revolution in the farms, calling for "a just distribution" among the farmers of lands
that have heretofore been the prison of their dreams but can now become the
key at least to their deliverance.
Such a program will involve not mere millions of pesos. The cost will be tremendous.
Considering the vast areas of land subject to expropriation under the laws before
us, we estimate that hundreds of billions of pesos will be needed, far more indeed
than the amount of P50 billion initially appropriated, which is already staggering as
it is by our present standards. Such amount is in fact not even fully available at this
time.
We assume that the framers of the Constitution were aware of this difficulty when
they called for agrarian reform as a top priority project of the government. It is a
part of this assumption that when they envisioned the expropriation that would be
needed, they also intended that the just compensation would have to be paid
not in the orthodox way but a less conventional if more practical method. There
can be no doubt that they were aware of the financial limitations of the
government and had no illusions that there would be enough money to pay in
cash and in full for the lands they wanted to be distributed among the farmers. We
may therefore assume that their intention was to allow such manner of payment
as is now provided for by the CARP Law, particularly the payment of the balance
(if the owner cannot be paid fully with money), or indeed of the entire amount of
the just compensation, with other things of value. We may also suppose that what
they had in mind was a similar scheme of payment as that prescribed in P.D. No.
27, which was the law in force at the time they deliberated on the new Charter
and with which they presumably agreed in principle.
The Court has not found in the records of the Constitutional Commission any
categorical agreement among the members regarding the meaning to be given
the concept of just compensation as applied to the comprehensive agrarian
reform program being contemplated. There was the suggestion to "fine tune" the
requirement to suit the demands of the project even as it was also felt that they
should "leave it to Congress" to determine how payment should be made to the
landowner and reimbursement required from the farmer-beneficiaries. Such
innovations as "progressive compensation" and "State-subsidized compensation"
were also proposed. In the end, however, no special definition of the just
compensation for the lands to be expropriated was reached by the
Commission. 50
On the other hand, there is nothing in the records either that militates against the
assumptions we are making of the general sentiments and intention of the
members on the content and manner of the payment to be made to the
landowner in the light of the magnitude of the expenditure and the limitations of
the expropriator.
With these assumptions, the Court hereby declares that the content and manner
of the just compensation provided for in the afore- quoted Section 18 of the CARP
Law is not violative of the Constitution. We do not mind admitting that a certain
degree of pragmatism has influenced our decision on this issue, but after all this
Court is not a cloistered institution removed from the realities and demands of
society or oblivious to the need for its enhancement. The Court is as acutely
anxious as the rest of our people to see the goal of agrarian reform achieved at
last after the frustrations and deprivations of our peasant masses during all these
disappointing decades. We are aware that invalidation of the said section will
result in the nullification of the entire program, killing the farmer's hopes even as
they approach realization and resurrecting the spectre of discontent and dissent in
the restless countryside. That is not in our view the intention of the Constitution, and
that is not what we shall decree today.
Accepting the theory that payment of the just compensation is not always
required to be made fully in money, we find further that the proportion of cash
payment to the other things of value constituting the total payment, as
determined on the basis of the areas of the lands expropriated, is not unduly
oppressive upon the landowner. It is noted that the smaller the land, the bigger
the payment in money, primarily because the small landowner will be needing it
more than the big landowners, who can afford a bigger balance in bonds and
other things of value. No less importantly, the government financial instruments
making up the balance of the payment are "negotiable at any time." The other
modes, which are likewise available to the landowner at his option, are also not
unreasonable because payment is made in shares of stock, LBP bonds, other
properties or assets, tax credits, and other things of value equivalent to the
amount of just compensation.
Admittedly, the compensation contemplated in the law will cause the landowners,
big and small, not a little inconvenience. As already remarked, this cannot be
avoided. Nevertheless, it is devoutly hoped that these countrymen of ours,
conscious as we know they are of the need for their forebearance and even
sacrifice, will not begrudge us their indispensable share in the attainment of the
ideal of agrarian reform. Otherwise, our pursuit of this elusive goal will be like the
quest for the Holy Grail.
The complaint against the effects of non-registration of the land under E.O. No.
229 does not seem to be viable any more as it appears that Section 4 of the said
Order has been superseded by Section 14 of the CARP Law. This repeats the
requisites of registration as embodied in the earlier measure but does not provide,
as the latter did, that in case of failure or refusal to register the land, the valuation
thereof shall be that given by the provincial or city assessor for tax purposes. On
the contrary, the CARP Law says that the just compensation shall be ascertained
on the basis of the factors mentioned in its Section 17 and in the manner provided
for in Section 16.
The last major challenge to CARP is that the landowner is divested of his property
even before actual payment to him in full of just compensation, in contravention
of a well- accepted principle of eminent domain.
The recognized rule, indeed, is that title to the property expropriated shall pass
from the owner to the expropriator only upon full payment of the just
compensation. Jurisprudence on this settled principle is consistent both here and
in other democratic jurisdictions. Thus:
Title to property which is the subject of condemnation proceedings does not vest
the condemnor until the judgment fixing just compensation is entered and paid,
but the condemnor's title relates back to the date on which the petition under the
Eminent Domain Act, or the commissioner's report under the Local Improvement
Act, is filed. 51
... although the right to appropriate and use land taken for a canal is complete at
the time of entry, title to the property taken remains in the owner until payment is
actually made. 52 (Emphasis supplied.)
In Kennedy v. Indianapolis, 53 the US Supreme Court cited several cases holding
that title to property does not pass to the condemnor until just compensation had
actually been made. In fact, the decisions appear to be uniformly to this effect. As
early as 1838, in Rubottom v. McLure, 54 it was held that "actual payment to the
owner of the condemned property was a condition precedent to the investment
of the title to the property in the State" albeit "not to the appropriation of it to
public use." In Rexford v. Knight, 55 the Court of Appeals of New York said that the
construction upon the statutes was that the fee did not vest in the State until the
payment of the compensation although the authority to enter upon and
appropriate the land was complete prior to the payment. Kennedy further said
that "both on principle and authority the rule is ... that the right to enter on and use
the property is complete, as soon as the property is actually appropriated under
the authority of law for a public use, but that the title does not pass from the owner
without his consent, until just compensation has been made to him."
Our own Supreme Court has held in Visayan Refining Co. v. Camus and
Paredes, 56 that:
If the laws which we have exhibited or cited in the preceding discussion
are attentively examined it will be apparent that the method of
expropriation adopted in this jurisdiction is such as to afford absolute
reassurance that no piece of land can be finally and irrevocably taken
from an unwilling owner until compensation is paid ... . (Emphasis supplied.)
It is true that P.D. No. 27 expressly ordered the emancipation of tenant-farmer as
October 21, 1972 and declared that he shall "be deemed the owner" of a portion
of land consisting of a family-sized farm except that "no title to the land owned by
him was to be actually issued to him unless and until he had become a full-
fledged member of a duly recognized farmers' cooperative." It was understood,
however, that full payment of the just compensation also had to be made first,
conformably to the constitutional requirement.
When E.O. No. 228, categorically stated in its Section 1 that:
All qualified farmer-beneficiaries are now deemed full owners as of
October 21, 1972 of the land they acquired by virtue of Presidential
Decree No. 27. (Emphasis supplied.)
it was obviously referring to lands already validly acquired under the said decree,
after proof of full-fledged membership in the farmers' cooperatives and full
payment of just compensation. Hence, it was also perfectly proper for the Order to
also provide in its Section 2 that the "lease rentals paid to the landowner by the
farmer- beneficiary after October 21, 1972 (pending transfer of ownership after full
payment of just compensation), shall be considered as advance payment for the
land."
The CARP Law, for its part, conditions the transfer of possession and ownership of
the land to the government on receipt by the landowner of the corresponding
payment or the deposit by the DAR of the compensation in cash or LBP bonds with
an accessible bank. Until then, title also remains with the landowner. 57 No outright
change of ownership is contemplated either.
Hence, the argument that the assailed measures violate due process by arbitrarily
transferring title before the land is fully paid for must also be rejected.
It is worth stressing at this point that all rights acquired by the tenant-farmer under
P.D. No. 27, as recognized under E.O. No. 228, are retained by him even now
under R.A. No. 6657. This should counter-balance the express provision in Section 6
of the said law that "the landowners whose lands have been covered by
Presidential Decree No. 27 shall be allowed to keep the area originally retained by
them thereunder, further, That original homestead grantees or direct compulsory
heirs who still own the original homestead at the time of the approval of this Act
shall retain the same areas as long as they continue to cultivate said homestead."
In connection with these retained rights, it does not appear in G.R. No. 78742 that 3. All rights previously acquired by the tenant- farmers under P.D. No. 27
the appeal filed by the petitioners with the Office of the President has already are retained and recognized.
been resolved. Although we have said that the doctrine of exhaustion of
administrative remedies need not preclude immediate resort to judicial action, 4. Landowners who were unable to exercise their rights of retention under
there are factual issues that have yet to be examined on the administrative level, P.D. No. 27 shall enjoy the retention rights granted by R.A. No. 6657 under
especially the claim that the petitioners are not covered by LOI 474 because they the conditions therein prescribed.
do not own other agricultural lands than the subjects of their petition.
5. Subject to the above-mentioned rulings all the petitions are DISMISSED,
Obviously, the Court cannot resolve these issues. In any event, assuming that the without pronouncement as to costs.
petitioners have not yet exercised their retention rights, if any, under P.D. No. 27,
the Court holds that they are entitled to the new retention rights provided for by
SO ORDERED.
R.A. No. 6657, which in fact are on the whole more liberal than those granted by
the decree.

The CARP Law and the other enactments also involved in these cases have been
the subject of bitter attack from those who point to the shortcomings of these
measures and ask that they be scrapped entirely. To be sure, these enactments
are less than perfect; indeed, they should be continuously re-examined and
rehoned, that they may be sharper instruments for the better protection of the
farmer's rights. But we have to start somewhere. In the pursuit of agrarian reform,
we do not tread on familiar ground but grope on terrain fraught with pitfalls and
expected difficulties. This is inevitable. The CARP Law is not a tried and tested
project. On the contrary, to use Justice Holmes's words, "it is an experiment, as all
life is an experiment," and so we learn as we venture forward, and, if necessary, by
our own mistakes. We cannot expect perfection although we should strive for it by
all means. Meantime, we struggle as best we can in freeing the farmer from the
iron shackles that have unconscionably, and for so long, fettered his soul to the soil.

By the decision we reach today, all major legal obstacles to the comprehensive
agrarian reform program are removed, to clear the way for the true freedom of
the farmer. We may now glimpse the day he will be released not only from want
but also from the exploitation and disdain of the past and from his own feelings of
inadequacy and helplessness. At last his servitude will be ended forever. At last the
farm on which he toils will be his farm. It will be his portion of the Mother Earth that
will give him not only the staff of life but also the joy of living. And where once it
bred for him only deep despair, now can he see in it the fruition of his hopes for a
more fulfilling future. Now at last can he banish from his small plot of earth his
insecurities and dark resentments and "rebuild in it the music and the dream."

WHEREFORE, the Court holds as follows:

1. R.A. No. 6657, P.D. No. 27, Proc. No. 131, and E.O. Nos. 228 and 229 are
SUSTAINED against all the constitutional objections raised in the herein
petitions.

2. Title to all expropriated properties shall be transferred to the State only

upon full payment of compensation to their respective owners.
CONSTI2- EMINENT DOMAIN
G.R. No. 147511 January 20, 2003
MARINA Z. REYES; ALFREDO A. FRANCISCO; ANGELITA Z. GARCIA; ALFREDO Z.
FRANCISCO, JR; ARMANDO Z. FRANCISCO; ALMA C. FRANCISCO; EUGENIA Z. LUNA;
CLARITA Z. ZABALLERO, LEONARDO Z. ZABALLERO, JR, and TEODORO Z. ZABALLERO,
in substitution of LEONARDO M. ZABALLERO; AUGUSTO M. ZABALLERO; FRINE A.
ZABALLERO; ELENA FRONDA ZABALLERO; VICTOR GREGORIO F. ZABALLERO; MARIA
ELENA F. ZABALLERO; LOURDES ZABALLERO-LAVA; SOCORRO EMILIA ZABALLERO-
YAP; and TERESITA F. ZABALLERO, petitioners,
vs.
NATIONAL HOUSING AUTHORITY, respondent.
PUNO, J.:
This is an appeal by certiorari from the decision of the Court of Appeals in CA-GR
CV No. 51641 dated September 29, 20001 affirming the judgment of the Regional
Trial Court of Quezon City, Branch 79 which dismissed the complaint for forfeiture
of rights filed by herein petitioners, as well as the Resolution dated March 13, 2001
denying petitioners' motion for reconsideration.
Records show that in 1977, respondent National Housing Authority (NHA) filed
separate complaints for the expropriation of sugarcane lands, particularly Lot Nos.
6450, 6448-E, 6198-A and 6199 of the cadastral survey of Dasmarias, Cavite
belonging to the petitioners, before the then Court of First Instance of Cavite, and
docketed as Civil Case Nos. T.G.-392, T.G.-396 and T.G.-417. The stated public
purpose of the expropriation was the expansion of the Dasmarias Resettlement
Project to accommodate the squatters who were relocated from the Metropolitan
Manila area. The trial court rendered judgment ordering the expropriation of these
lots and the payment of just compensation. This was affirmed by the Supreme
Court in a decision rendered on October 29, 1987 in the case of NHA vs.
Zaballero2 and which became final on November 26, 1987.3
On February 24, 1989, the expropriation court (now Branch 18, Regional Trial Court
of Tagaytay City) issued an Order4 the dispositive portion of which reads:
"WHEREFORE, and resolving thus, let an Alias Writ of Execution be
immediately issued and that:
(1) The Register of Deeds of the Province of Cavite is hereby ordered to
transfer, in the name of the plaintiff National Housing Authority, the
following:
(a) Transfer Certificate No. RT-638 containing an area of 79,167
square meters situated in Barrio Bangkal, Dasmarias, Cavite;
(b) Transfer Certificate of Title No. T-55702 containing an area of
20,872 square meters situated in Barrio Bangkal, Dasmarias,
Cavite;
(c) Transfer Certificate of Title No. RT-639 and RT-4641 covering Lot
Nos. 6198-A and 6199 with an aggregate area of 159,985 square
meters also situated in Barrio Bangkal, Dasmarias, Cavite.
(2) Plaintiff National Housing Authority is likewise hereby ordered, under
pain of contempt, to immediately pay the defendants, the amounts
stated in the Writ of Execution as the adjudicated compensation of their
expropriated properties, which process was received by it according to
the records, on September 26, 1988, segregating therefrom, and in
separate check, the lawyer's fees in favor of Atty. Bobby P. Yuseco, in the
amount of P322,123.05, as sustained by their contract as gleaned from the
records, with no other deduction, paying on its own (NHA) account, the
necessary legal expenses incident to the registration or issuance of new
certificates of title, pursuant to the provisions of the Property Registration
Law (PD 1529);
(3) Defendants, however, are directed to pay the corresponding capital
gains tax on the subject properties, directing them additionally, to
coordinate with the plaintiff NHA in this regard, in order to facilitate the
termination of this case, put an end to this controversy and consign the
same to its final rest."
For the alleged failure of respondent NHA to comply with the above order,
petitioners filed on April 28, 1992 a complaint5 for forfeiture of rights before the
Regional Trial Court of Quezon City, Branch 79, in Civil Case No. Q-92-12093. They
alleged that respondent NHA had not relocated squatters from the Metropolitan
Manila area on the expropriated lands in violation of the stated public purpose for
expropriation and had not paid the just compensation fixed by the court. They
prayed that respondent NHA be enjoined from disposing and alienating the
expropriated properties and that judgment be rendered forfeiting all its rights and
interests under the expropriation judgment. In its Answer,6 respondent NHA averred
that it had already paid a substantial amount to herein petitioners and that the
expropriation judgment could not be executed in view of several issues raised by
respondent NHA before the expropriation court (now Branch 18, RTC, Tagaytay
City) concerning capital gains tax, registration fees and other expenses for the
transfer of title to respondent NHA, as well as the claims for attorney's fees of Atty.
Joaquin Yuseco, Jr., collaborating counsel for petitioners.
Ocular inspections7 conducted by the trial court on the subject properties show
that:
"1. 80% of Lot No. 6198-A with an area of 120,146 square meters is already
occupied by relocatees whose houses are made of light materials with
very few houses partly made of hollow blocks. The relocatees were
relocated only on (sic) March of 1994;
 2. Most of the area covered by Lot No. 2075 is almost occupied by houses
and structures, most of which are made of concrete materials. These
houses are not being occupied by squatters relocated to the said lot by
the defendant NHA;
3. Lot No. 6199 is also occupied by concrete houses and structures but
likewise there are no relocatees in said lot. A large area of the same is still
unoccupied."
On September 29, 1995, the trial court rendered judgment dismissing the
complaint. Finding that the failure of respondent NHA to pay just compensation
and of petitioners to pay capital gains tax are both unjustified and unreasonable,
the trial court held that: (1) respondent NHA is not deemed to have abandoned
the public purpose for which the subject properties were expropriated because
the relocation of squatters involves a long and tedious process. It ruled that
respondent NHA actually pursued the public purpose of the expropriation when it
entered into a contract with Arceo C. Cruz involving the construction of low cost
housing on the expropriated lots to be sold to qualified low income beneficiaries;
(2) there is no condition imposed in the expropriation judgment that the subject
properties shall revert back to its original owners in case the purpose of
expropriation is terminated or abandoned; (3) the payment of just compensation
is independent of the obligation of herein petitioners to pay capital gains tax; and
(4) in the payment of just compensation, the basis should be the value at the time
the property was taken. On appeal, the Court of Appeals affirmed the decision of
the trial court.
Petitioners are now before us raising the following assignment of errors:
"1. The Honorable Court of Appeals had decided a question of substance
not in accord with justice and equity when it ruled that, as the judgment
of the expropriation court did not contain a condition that should the
expropriated property be not used for the intended purpose it would
revert to the condemnee, the action to declare the forfeiture of rights
under the expropriation judgment can not prosper;
2. The Honorable Court of Appeals decided a question of substance not in
accord with jurisprudence, justice and equity when it ruled that the non-
payment is not a ground for forfeiture;
3. The Honorable Court of Appeals erred in not declaring the judgment of
expropriation forfeited in light of the failure of respondent to use the
expropriated property for the intended purpose but for a totally different
purpose."
The petition is not impressed with merit.
Petitioners contend that respondent NHA violated the stated public purpose for
the expansion of the Dasmarias Resettlement Project when it failed to relocate
the squatters from the Metro Manila area, as borne out by the ocular inspection
conducted by the trial court which showed that most of the expropriated
properties remain unoccupied. Petitioners likewise question the public nature of
the use by respondent NHA when it entered into a contract for the construction of
low cost housing units, which is allegedly different from the stated public purpose
in the expropriation proceedings. Hence, it is claimed that respondent NHA has
forfeited its rights and interests by virtue of the expropriation judgment and the
expropriated properties should now be returned to herein petitioners. We are not
persuaded.
The 1987 Constitution explicitly provides for the exercise of the power of eminent
domain over private properties upon payment of just compensation. More
specifically, section 9, Article III states that private property shall not be taken for
public use without just compensation. The constitutional restraints are public use
and just compensation.
Petitioners cannot insist on a restrictive view of the eminent domain provision of the
Constitution by contending that the contract for low cost housing is a deviation
from the stated public use. It is now settled doctrine that the concept of public use
is no longer limited to traditional purposes. Here, as elsewhere, the idea that
"public use" is strictly limited to clear cases of "use by the public" has been
abandoned. The term "public use" has now been held to be synonymous with
"public interest," "public benefit," "public welfare," and "public convenience."8 The
rationale for this new approach is well explained in the case of Heirs of Juancho
Ardona, et al. vs. Reyes, et al.,9to wit:
"The restrictive view of public use may be appropriate for a nation which
circumscribes the scope of government activities and public concerns
and which possesses big and correctly located public lands that obviate
the need to take private property for public purposes. Neither
circumstance applies to the Philippines. We have never been a laissez
faire State. And the necessities which impel the exertion of sovereign
power are all too often found in areas of scarce public land or limited
government resources.
xxx xxx xxx
The taking to be valid must be for public use. There was a time when it was
felt that a literal meaning should be attached to such a requirement.
Whatever project is undertaken must be for the public to enjoy, as in the
case of streets or parks. Otherwise, expropriation is not allowable. It is not
anymore. As long as the purpose of the taking is public, then the power of
eminent domain comes into play. As just noted, the constitution in at least
two cases, to remove any doubt, determines what is public use. One is the
expropriation of lands to be subdivided into small lots for resale at cost to
individuals. The other is in the transfer, through the exercise of this power,
of utilities and other private enterprise to the government. It is accurate to
state then that at present whatever may be beneficially employed for the
general welfare satisfies the requirement of public use." (emphasis
supplied)
The act of respondent NHA in entering into a contract with a real estate developer
for the construction of low cost housing on the expropriated lots to be sold to
qualified low income beneficiaries cannot be taken to mean as a deviation from
the stated public purpose of their taking. Jurisprudence has it that the
expropriation of private land for slum clearance and urban development is for a
public purpose even if the developed area is later sold to private homeowners,
commercials firms, entertainment and service companies, and other private
concerns.10
Moreover, the Constitution itself allows the State to undertake, for the common
good and in cooperation with the private sector, a continuing program of urban
land reform and housing which will make at affordable cost decent housing and
basic services to underprivileged and homeless citizens in urban centers
and resettlement areas.11 The expropriation of private property for the purpose of
socialized housing for the marginalized sector is in furtherance of the social justice
provision under Section 1, Article XIII of the Constitution which provides that:
"SECTION 1. The Congress shall give highest priority to the enactment of
measures that protect and enhance the right of all the people to human
dignity, reduce social, economic, and political inequalities, and remove
cultural inequities by equitably diffusing wealth and political power for the
common good.
To this end, the State shall require the acquisition, ownership, use and
disposition of property and its increments."
It follows that the low cost housing project of respondent NHA on the expropriated
lots is compliant with the "public use" requirement.
We likewise do not subscribe to petitioners' contention that the stated public
purpose was abandoned when respondent NHA failed to occupy the
expropriated lots by relocating squatters from the Metro Manila area. The
expropriation judgment declared that respondent NHA has a lawful right to take
petitioners properties "for the public use or purpose of expanding the Dasmarias
Resettlement Project." The taking here is absolute, without any condition, restriction
or qualification. Contrary to petitioners' submission, the ruling enunciated in the
early case of Fery vs. Municipality of Cabanatuan,12 is still good and sound
doctrine, viz.:
"x x x If, for example, land is expropriated for a particular purpose, with the
condition that when that purpose is ended or abandoned the property
shall return to its former owner, then, of course, when the purpose is
terminated or abandoned the former owner reacquires the property so
expropriated. x x x If, upon the contrary, however, the decree of
expropriation gives to the entity a fee simple title, then, of course, the land
becomes the absolute property of the expropriator x x x.
When land has been acquired for public use in fee simple unconditionally,
either by the exercise of eminent domain or by purchase, the former
owner retains no rights in the land, and the public use may be abandoned,
or the land may be devoted to a different use, without any impairment of
the estate or title acquired, or any reversion to the former owner."
Petitioners further aver that the continued failure of respondent NHA to pay just
compensation for a long period of time justifies the forfeiture of its rights and
interests over the expropriated lots. They demand the return of the expropriated
lots. Respondent NHA justifies the delay to pay just compensation by reason of the
failure of petitioners to pay the capital gains tax and to surrender the owners'
duplicate certificates of title.
In the recent case of Republic of the Philippines vs. Court of Appeals, et al.,13 the
Court ruled that non-payment of just compensation does not entitle the private
landowners to recover possession of their expropriated lots. Thus:
"Thus, in Valdehueza vs. Republic where the private landowners had
remained unpaid ten years after the termination of the expropriation
proceedings, this Court ruled
'The points in dispute are whether such payment can still be made and, if
so, in what amount. Said lots have been the subject of expropriation
proceedings. By final and executory judgment in said proceedings, they
were condemned for public use, as part of an airport, and ordered sold to
the government. x x x. It follows that both by virtue of the judgment, long
final, in the expropriation suit, as well as the annotations upon their title
certificates, plaintiffs are not entitled to recover possession of their
expropriated lots which are still devoted to the public use for which they
were expropriated but only to demand the market value of the same.
Said relief may be granted under plaintiffs' prayer for such other remedies,
which may be deemed just and equitable under the premises.'
The Court proceeded to reiterate its pronouncement in Alfonso vs. Pasay
City where the recovery of possession of property taken for public use
prayed for by the unpaid landowner was denied even while no requisite
expropriation proceedings were first instituted. The landowner was merely
given the relief of recovering compensation for his property computed at
its market value at the time it was taken and appropriated by the State.
The judgment rendered by the Bulacan RTC in 1979 on the expropriation
proceedings provides not only for the payment of just compensation to
herein respondents but likewise adjudges the property condemned in
favor of petitioner over which parties, as well as their privies, are bound.
Petitioner has occupied, utilized and, for all intents and purposes,
exercised dominion over the property pursuant to the judgment. The
exercise of such rights vested to it as the condemnee indeed has
amounted to at least a partial compliance or satisfaction of the 1979
judgment, thereby preempting any claim of bar by prescription on
grounds of non-execution. In arguing for the return of their property on the
 basis of non-payment, respondents ignore the fact that the right of the
expropriating authority is far from that of an unpaid seller in ordinary sales,
to which the remedy of rescission might perhaps apply. An in rem
proceeding, condemnation acts upon the property. After condemnation,
the paramount title is in the public under a new and independent title;
thus, by giving notice to all claimants to a disputed title, condemnation
proceedings provide a judicial process for securing better title against all
the world than may be obtained by voluntary conveyance." (emphasis
supplied)
We, however, likewise find the refusal of respondent NHA to pay just compensation,
allegedly for failure of petitioners to pay capital gains tax and surrender the
owners' duplicate certificates of title, to be unfounded and unjustified.
First, under the expropriation judgment the payment of just compensation is not
subject to any condition. Second, it is a recognized rule that although the right to
enter upon and appropriate the land to public use is completed prior to payment,
title to the property expropriated shall pass from the owner to the expropriator only
upon full payment of the just compensation. In the case of Association of Small
Landowners in the Phils., Inc., et al. vs. Secretary of Agrarian Reform,14 it was held
that:
"Title to property which is the subject of condemnation proceedings does
not vest the condemnor until the judgment fixing just compensation is
entered and paid, but the condemnor's title relates back to the date on
which the petition under the Eminent Domain Act, or the commissioner's
report under the Local Improvement Act, is filed.
x x x Although the right to appropriate and use land taken for a canal is
complete at the time of entry, title to the property taken remains in the
owner until payment is actually made.
In Kennedy v. Indianapolis, the US Supreme Court cited several cases
holding that title to property does not pass to the condemnor until just
compensation had actually been made. In fact, the decisions appear to
be uniformly to this effect. As early as 1838, in Rubottom v. McLure, it was
held that 'actual payment to the owner of the condemned property was
a condition precedent to the investment of the title to the property in the
State' albeit 'not to the appropriation of it to public use.' In Rexford v.
Knight, the Court of Appeals of New York said that the construction upon
the statutes was that the fee did not vest in the State until the payment of
the compensation although the authority to enter upon and appropriate
the land was complete prior to the payment. Kennedy further said that
'both on principle and authority the rule is x x x that the right to enter on
and use the property is complete, as soon as the property is actually
appropriated under the authority of law for a public use, but that the title
does not pass from the owner without his consent, until just compensation
has been made to him.'"
Our own Supreme Court has held in Visayan Refining Co. v. Camus and
Paredes, that:
If the laws which we have exhibited or cited in the preceding discussion
are attentively examined it will be apparent that the method of
expropriation adopted in this jurisdiction is such as to afford absolute
reassurance that no piece of land can be finally and irrevocably taken
from an unwilling owner until compensation is paid. x x x." (emphasis
supplied)
With respect to the amount of the just compensation still due and demandable
from respondent NHA, the lower courts erred in not awarding interest computed
from the time the property is actually taken to the time when compensation is
actually paid or deposited in court. In Republic, et al. vs. Court of Appeals, et
al.,15 the Court imposed interest at 12% per annum in order to help eliminate the
issue of the constant fluctuation and inflation of the value of the currency over
time, thus:
"The constitutional limitation of 'just compensation' is considered to be the
sum equivalent to the market value of the property, broadly described to
be the price fixed by the seller in open market in the usual and ordinary
course of legal action and competition or the fair value of the property as
between one who receives, and one who desires to sell, it being fixed at
the time of the actual taking by the government. Thus, if property is taken
for public use before compensation is deposited with the court having
jurisdiction over the case, the final compensation must include interests on
its just value to be computed from the time the property is taken to the
time when compensation is actually paid or deposited with the court. In
fine, between the taking of the property and the actual payment, legal
interests accrue in order to place the owner in a position as good as (but
not better than) the position he was in before the taking occurred.
x x x This allowance of interest on the amount found to be the value of the
property as of the time of the taking computed, being an effective
forbearance, at 12% per annum should help eliminate the issue of the
constant fluctuation and inflation of the value of the currency over time.
Article 1250 of the Civil Code, providing that, in case of extraordinary
inflation or deflation, the value of the currency at the time of the
establishment of the obligation shall be the basis for the payment when no
agreement to the contrary is stipulated, has strict application only to
contractual obligations. In other words, a contractual agreement is
needed for the effects of extraordinary inflation to be taken into account
to alter the value of the currency."
Records show that there is an outstanding balance of P1,218,574.35 that ought to
be paid to petitioners.16 It is not disputed that respondent NHA took actual
possession of the expropriated properties in 1977.17 Perforce, while petitioners are
not entitled to the return of the expropriated property, they are entitled to be paid
the balance of P1,218,574.35 with legal interest thereon at 12% per annum
computed from the taking of the property in 1977 until the due amount shall have
been fully paid.

WHEREFORE, the appealed judgment is modified as follows:

1. Ordering respondent National Housing Authority to pay petitioners the

amount of P1,218,574.35 with legal interest thereon at 12% per annum
computed from the taking of the expropriated properties in 1997 until the
amount due shall have been fully paid;

2. Ordering petitioners to pay the capital gains tax; and

3. Ordering petitioners to surrender to respondent National Housing

Authority the owners' duplicate certificates of title of the expropriated
properties upon full payment of just compensation.

SO ORDERED.
CONSTI2- EMINENT DOMAIN
G.R. No. 137152 January 29, 2001
CITY OF MANDALUYONG, petitioner,
vs.
ANTONIO N., FRANCISCO N., THELMA N., EUSEBIO N., RODOLFO N., all surnamed
AGUILAR, respondents.
PUNO, J.:
This is a petition for review under Rule 45 of the Rules of Court of the Orders dated
September 17, 1998 and December 29, 1998 of the Regional Trial Court, Branch
168, Pasig City1 dismissing the petitioner's Amended Complaint in SCA No. 1427 for
expropriation of two (2) parcels of land in Mandaluyong City. 1wphi1.nt
The antecedent facts are as follows:
On August 4, 1997, petitioner filed with the Regional Trial Court, Branch 168, Pasig
City a complaint for expropriation entitled "City of Mandaluyong, plaintiff v.
Antonio N., Francisco N, Thelma N, Eusebio N, Rodolfo N., all surnamed Aguilar,
defendants." Petitioner sought to expropriate three (3) adjoining parcels of land
with an aggregate area of 1,847 square meters registered under Transfer
Certificates of Title Nos. 59780, 63766 and 63767 in the names of the defendants,
herein respondents, located at 9 de Febrero Street, Barangay Mauwag, City of
Mandaluyong; on a portion of the 3 lots, respondents constructed residential
houses several decades ago which they had since leased out to tenants until the
present; on the vacant portion of the lots, other families constructed residential
structures which they likewise occupied; in 1983, the lots were classified by
Resolution No. 125 of the Board of the Housing and Urban Development
Coordinating Council as an Area for Priority Development for urban land reform
under Proclamation Nos. 1967 and 2284 of then President Marcos; as a result of this
classification, the tenants and occupants of the lots offered to purchase the land
from respondents, but the latter refused to sell; on November 7, 1996, the
Sangguniang Panlungsod of petitioner, upon petition of the Kapitbisig, an
association of tenants and occupants of the subject land, adopted Resolution No.
516, Series of 1996 authorizing Mayor Benjamin Abalos of the City of Mandaluyong
to initiate action for the expropriation of the subject lots and construction of a
medium-rise condominium for qualified occupants of the land; on January 10,
1996, Mayor Abalos sent a letter to respondents offering to purchase the said
property at P3,000.00 per square meter; respondents did not answer the letter.
Petitioner thus prayed for the expropriation of the said lots and the fixing of just
compensation at the fair market value of P3,000.00 per square meter.2
In their answer, respondents, except Eusebio N. Aguilar who died in 1995, denied
having received a copy of Mayor Abalos' offer to purchase their lots. They alleged
that the expropriation of their land is arbitrary and capricious, and is not for a
public purpose; the subject lots are their only real property and are too small for
expropriation, while petitioner has several properties inventoried for socialized
housing; the fair market value of P3,000.00 per square meter is arbitrary because
the zonal valuation set by the Bureau of Internal Revenue is P7,000.00 per square
meter. As counterclaim, respondents prayed for damages of P21 million.3
Respondents filed a "Motion for Preliminary Hearing" claiming that the defenses
alleged in their Answer are valid grounds for dismissal of the complaint for lack of
jurisdiction over the person of the defendants and lack of cause of action.
Respondents prayed that the affirmative defenses be set for preliminary hearing
and that the complaint be dismissed.4 Petitioner replied.
On November 5, 1997, petitioner filed an Amended Complaint and named as an
additional defendant Virginia N. Aguilar and, at the same time, substituted Eusebio
Aguilar with his heirs. Petitioner also excluded from expropriation TCT No. 59870
and thereby reduced the area sought to be expropriated from three (3) parcels of
land to two (2) parcels totalling 1,636 square meters under TCT Nos. 63766 and
63767.5
The Amended Complaint was admitted by the trial court on December 18, 1997.
Respondents, who, with the exception of Virginia Aguilar and the Heirs of Eusebio
Aguilar had yet to be served with summons and copies of the Amended
Complaint, filed a "Manifestation and Motion" adopting their "Answer with
Counterclaim" and "Motion for Preliminary Hearing" as their answer to the
Amended Complaint.6
The motion was granted. At the hearing of February 25, 1998, respondents
presented Antonio Aguilar who testified and identified several documentary
evidence. Petitioner did not present any evidence. Thereafter, both parties filed
their respective memoranda.7
On September 17, 1998, the trial court issued an order dismissing the Amended
Complaint after declaring respondents as "small property owners" whose land is
exempt from expropriation under Republic Act No. 7279. The court also found that
the expropriation was not for a public purpose for petitioner's failure to present any
evidence that the intended beneficiaries of the expropriation are landless and
homeless residents of Mandaluyong. The court thus disposed of as follows:
"WHEREFORE, the Amended Complaint is hereby ordered dismissed
without pronouncement as to cost.
SO ORDERED."8
Petitioner moved for reconsideration. On December 29, 1998, the court denied the
motion. Hence this petition.
Petitioner claims that the trial court erred
"IN UPHOLDING RESPONDENT'S CONTENTION THAT THEY QUALIFY AS SMALL
PROPERTY OWNERS AND ARE THUS EXEMPT FROM EXPROPRIATION."9
Petitioner mainly claims that the size of the lots in litigation does not exempt the
same from expropriation in view of the fact that the said lots have been declared
to be within the Area for Priority Development (APD) No. 5 of Mandaluyong by
virtue of Proclamation No. 1967, as amended by Proclamation No. 2284 in relation
to Presidential Decree No. 1517.10 This declaration allegedly authorizes petitioner to
expropriate the property, ipso facto, regardless of the area of the land.
Presidential Decree (P.D.) No. 1517, the Urban Land Reform Act, was issued by
then President Marcos in 1978. The decree adopted as a State policy the liberation
of human communities from blight, congestion and hazard, and promotion of their
development and modernization, the optimum use of land as a national resource
for public welfare.11 Pursuant to this law, Proclamation No. 1893 was issued in 1979
declaring the entire Metro Manila as Urban Land Reform Zone for purposes of
urban land reform. This was amended in 1980 by Proclamation No. 1967 and in
1983 by Proclamation No. 2284 which identified and specified 245 sites in Metro
Manila as Areas for Priority Development and Urban Land Reform Zones.
In 1992, the Congress of the Philippines passed Republic Act No. 7279, the "Urban
Development and Housing Act of 1992." The law lays down as a policy that the
state, in cooperation with the private sector, undertake a comprehensive and
continuing Urban Development and Housing Program; uplift the conditions of the
underprivileged and homeless citizens in urban, areas and resettlement areas by
making available to them decent housing at affordable cost, basic services and
employment opportunities and provide for the rational use and development of
urban land to bring about, among others, equitable utilization of residential lands;
encourage more effective people's participation in the urban development
process and improve the capability of local government units in undertaking
urban development and housing programs and projects.12 Towards this end, all
city and municipal governments are mandated to conduct an inventory of all
lands and improvements within their respective localities, and in coordination with
the National Housing Authority, the Housing and Land Use Regulatory Board, the
National Mapping Resource Information Authority, and the Land Management
Bureau, identify lands for socialized housing and resettlement areas for the
immediate and future needs of the underprivileged and homeless in the urban
areas, acquire the lands, and dispose of said lands to the beneficiaries of the
program.13
The acquisition of lands for socialized housing is governed by several provisions in
the law. Section 9 of R.A. 7279 provides:
"Sec. 9. Priorities in the Acquisition of Land. Lands for socialized housing
shall be acquired in the following order:
(a) Those owned by the Government or any of its subdivisions,
instrumentalities, or agencies, including government-owned or
controlled corporations and their subsidiaries;
(b) Alienable lands of the public domain;
(c) Unregistered or abandoned and idle lands;
(d) Those within the declared Areas for Priority Development,
Zonal Improvement Program sites, and Slum Improvement and
Resettlement Program sites which have not yet been acquired;
(e) Bagong Lipunan Improvement of Sites and Services or BLISS
Sites which have not yet been acquired;
(f) Privately-owned lands.
Where on-site development is found more practicable and advantageous
to the beneficiaries, the priorities mentioned in this section shall not apply.
The local government units shall give budgetary priority to on-site
development of government lands."
Lands for socialized housing are to be acquired in the following order: (1)
government lands; (2) alienable lands of the public domain; (3) unregistered or
abandoned or idle lands; (4) lands within the declared Areas for Priority
Development (APD), Zonal Improvement Program (ZIP) sites, Slum Improvement
and Resettlement (SIR) sites which have not yet been acquired; (5) BLISS sites
which have not yet been acquired; and (6) privately-owned lands.
There is no dispute that the two lots in litigation are privately-owned and therefore
last in the order of priority acquisition. However, the law also provides that lands
within the declared APD's which have not yet been acquired by the government
are fourth in the order of priority. According to petitioner, since the subject lots lie
within the declared APD, this fact mandates that the lots be given priority in
acquisition.14
Section 9, however, is not a single provision that can be read separate from the
other provisions of the law. It must be read together with Section 10 of R.A. 7279
which also provides:
"Section 10. Modes of Land Acquisition. The modes of acquiring lands
for purposes of this Act shall include, among others, community mortgage,
land swapping, land assembly or consolidation, land banking, donation to
the Government, joint-venture agreement, negotiated purchase, and
expropriation: Provided, however, That expropriation shall be resorted to
only when other modes of acquisition have been exhausted: Provided,
further, That where expropriation is resorted to, parcels of land owned by
small property owners shall be exempted for purposes of this Act: Provided,
finally, That abandoned property, as herein defined, shall be reverted and
escheated to the State in a proceeding analogous to the procedure laid
down in Rule 91 of the Rules of Court.15
For the purposes of socialized housing, government-owned and
foreclosed properties shall be acquired by the local government units, or
by the National Housing Authority primarily through negotiated
 purchase: Provided, That qualified beneficiaries who are actual
occupants of the land shall be given the right of first refusal."
Lands for socialized housing under R.A. 7279 are to be acquired in several modes.
Among these modes are the following: (1) community mortgage; (2) land
swapping, (3) land assembly or consolidation; (4) land banking; (5) donation to the
government; (6) joint venture agreement; (7) negotiated purchase; and (8)
expropriation. The mode of expropriation is subject to two conditions: (a) it shall be
resorted to only when the other modes of acquisition have been exhausted; (b)
parcels of land owned by small property owners are exempt from such acquisition.
Section 9 of R.A. 7279 speaks of priorities in the acquisition of lands. It enumerates
the type of lands to be acquired and the heirarchy in their acquisition. Section 10
deals with the modes of land acquisition or the process of acquiring lands for
socialized housing. These are two different things. They mean that the type of lands
that may be acquired in the order of priority in Section 9 are to be acquired only in
the modes authorized under Section 10. The acquisition of the lands in the priority
list must be made subject to the modes and conditions set forth in the next
provision. In other words, land that lies within the APD, such as in the instant case,
may be acquired only in the modes under, and subject to the conditions of,
Section 10.
Petitioner claims that it had faithfully observed the different modes of land
acquisition for socialized housing under R.A. 7279 and adhered to the priorities in
the acquisition for socialized housing under said law.16 It, however, did not state
with particularity whether it exhausted the other modes of acquisition in Section 9
of the law before it decided to expropriate the subject lots. The law states
"expropriation shall be resorted to when other modes of acquisition have been
exhausted." Petitioner alleged only one mode of acquisition, i.e., by negotiated
purchase. Petitioner, through the City Mayor, tried to purchase the lots from
respondents but the latter refused to sell.17 As to the other modes of acquisition, no
mention has been made. Not even Resolution No. 516, Series of 1996 of the
Sangguniang Panlungsod authorizing the Mayor of Mandaluyong to effect the
expropriation of the subject property states whether the city government tried to
acquire the same by community mortgage, land swapping, land assembly or
consolidation, land banking, donation to the government, or joint venture
agreement under Section 9 of the law.
Section 9 also exempts from expropriation parcels of land owned by small property
owners.18 Petitioner argues that the exercise of the power of eminent domain is not
anymore conditioned on the size of the land sought to be expropriated.19 By the
expanded notion of public use, present jurisprudence has established the concept
that expropriation is not anymore confined to the vast tracts of land and landed
estates, but also covers small parcels of land.20 That only a few could actually
benefit from the expropriation of the property does not diminish its public use
character.21 It simply is not possible to provide, in one instance, land and shelter for
all who need them.22
While we adhere to the expanded notion of public use, the passage of R.A. No.
7279, the "Urban Development and Housing Act of 1992" introduced a limitation on
the size of the land sought to be expropriated for socialized housing. The law
expressly exempted "small property owners" from expropriation of their land for
urban land reform. R.A. No. 7279 originated as Senate Bill No. 234 authored by
Senator Joey Lina23 and House Bill No. 34310. Senate Bill No. 234 then provided that
one of those lands not covered by the urban land reform and housing program
was "land actually used by small property owners within the just and equitable
retention limit as provided under this Act."24 "Small property owners" were defined
in Senate Bill No. 234 as:
"4. Small Property Owners are those whose rights are protected under
Section 9, Article XIII of the Constitution of the Philippines, who own small
parcels of land within the fair and just retention limit provided under this
Act and which are adequate to meet the reasonable needs of the small
property owner's family and their means of livelihood.25
The exemption from expropriation of lands of small-property owners was never
questioned on the Senate floor.26This exemption, although with a modified
definition, was actually retained in the consolidation of Senate Bill No. 234 and
House Bill No. 34310 which became R.A. No. 7279.27
The question now is whether respondents qualify as "small property owners" as
defined in Section 3 (q) of R.A. 7279. Section 3 (q) provides:
"Section 3 x x x (q). "Small property owners" refers to those whose only real
property consists of residential lands not exceeding three hundred square
meters (300 sq.m.) in highly urbanized cities and eight hundred square
meters (800 sq.m.) in other urban areas."
"Small-property owners" are defined by two elements: (1) those owners of real
property whose property consists of residential lands with an area of not more than
300 square meters in highly urbanized cities and 800 square meters in other urban
areas; and (2) that they do not own real property other than the same.
The case at bar involves two (2) residential lots in Mandaluyong City, a highly
urbanized city. The lot under TCT No. 63766 is 687 square meters in area and the
second under TCT No. 63767 is 949 square meters, both totalling 1,636 square
meters in area. TCT No. 63766 was issued in the names of herein five (5)
respondents, viz:
"FRANCISCO N. AGUILAR, widower; THELMA N. AGUILAR, single; EUSEBIO N.
AGUILAR, JR., widower; RODOLFO N. AGUILAR, single and ANTONIO N.
AGUILAR, married to Teresita Puig; all of legal age, Filipinos."28
TCT No. 63767 was issued in the names of the five (5) respondents plus Virginia
Aguilar, thus:
"FRANCISCO N. AGUILAR, widower; THELMA N. AGUILAR, single; EUSEBIO N.
AGUILAR, JR., widower; RODOLFO N. AGUILAR, single and ANTONIO N.
 AGUILAR, married to Teresita Puig; and VIRGINIA N. AGUILAR, single, all of
legal age, Filipinos."29
Respondent Antonio Aguilar testified that he and the other registered owners are
all siblings who inherited the subject property by intestate succession from their
parents.30 Their father died in 1945 and their mother in 1976.31 Both TCT's were
issued in the siblings' names on September 2, 1987.31 In 1986, however, the siblings
agreed to extrajudicially partition the lots among themselves, but no action was
taken by them to this end. It was only eleven (11) years later, on November 28,
1997 that a survey of the two lots was made33 and on February 10, 1998, a
consolidation subdivision plan was approved by the Lands Management Service
of the Department of Environment and Natural Resources.34 The co-owners signed
a Partition Agreement on February 24, 199835 and on May 21, 1998, TCT Nos. 63766
and 63767 were cancelled and new titles issued in the names of the individual
owners pursuant to the Partition Agreement.
Petitioner argues that the consolidation of the subject lots and their partition was
made more than six (6) months after the complaint for expropriation was filed on
August 4, 1997, hence, the partition was made in bad faith, for the purpose of
circumventing the provisions of R.A. 7279.36
At the time of filing of the complaint for expropriation, the lots subject of this case
were owned in common by respondents; Under a co-ownership, the ownership of
an undivided thing or right belongs to different persons.37During the existence of
the co-ownership, no individual can claim title to any definite portion of the
community property until the partition thereof; and prior to the partition, all that
the co-owner has is an ideal or abstract quota or proportionate share in the entire
land or thing.38 Article 493 of the Civil Code however provides that:
"Art. 493. Each co-owner shall have the full ownership of his part and of the
fruits and benefits pertaining thereto, and he may therefore alienate,
assign or mortgage it, and even substitute another person in its enjoyment,
except when personal rights are involved. But the effect of the alienation
or the mortgage, with respect to the co-owners shall be limited to the
portion which may be allotted to him in the division upon termination of
the co-ownership.39
Before partition in a co-ownership, every co-owner has the absolute ownership of
his undivided interest in the common property. The co-owner is free to alienate,
assign or mortgage his interest, except as to purely personal rights.40 He may also
validly lease his undivided interest to a third party independently of the other co-
owners.41The effect of any such transfer is limited to the portion which may be
awarded to him upon the partition of the property.42
Article 493 therefore gives the owner of an undivided interest in the property the
right to freely sell and dispose of his undivided interest.43 The co-owner, however,
has no right to sell or alienate a concrete specific or determinate part of the thing
owned in common, because his right over the thing is represented by a quota or
ideal portion without any physical adjudication.44 If the co-owner sells a concrete
portion, this, nonetheless, does not render the sale void. Such a sale affects only his
own share, subject to the results of the partition but not those of the other co-
owners who did not consent to the sale.45
In the instant case, the titles to the subject lots were issued in respondents' names
as co-owners in 1987ten (10) years before the expropriation case was filed in
1997. As co-owners, all that the respondents had was an ideal or abstract quota or
proportionate share in the lots. This, however, did not mean that they could not
separately exercise any rights over the lots. Each respondent had the full
ownership of his undivided interest in the property. He could freely sell or dispose of
his interest independently of the other co-owners. And this interest could have
even been attached by his creditors.46 The partition in 1998, six (6) months after the
filing of the expropriation case, terminated the co-ownership by converting into
certain and definite parts the respective undivided shares of the co-owners.47 The
subject property is not a thing essentially indivisible. The rights of the co-owners to
have the property partitioned and their share in the same delivered to them
cannot be questioned for "[n]o co-owner shall be obliged to remain in the co-
ownership."48 The partition was merely a necessary incident of the co-
ownership;49 and absent any evidence to the contrary, this partition is presumed to
have been done in good faith.
Upon partition, four (4) co-owners, namely, Francisco, Thelma, Rodolfo and
Antonio Aguilar each had a share of 300 square meters under TCT Nos. 13849,
13852, 13850, 13851.50 Eusebio Aguilar's share was 347 square meters under TCT No.
1385351 while Virginia Aguilar's was 89 square meters under TCT No. 13854.52
It is noted that Virginia Aguilar, although granted 89 square meters only of the
subject lots, is, at the same time, the sole registered owner of TCT No. 59780, one of
the three (3) titles initially sought to be expropriated in the original complaint. TCT
No. 59780, with a land area of 211 square meters, was dropped in the amended
complaint. Eusebio Aguilar was granted 347 square meters, which is 47 square
meters more than the maximum of 300 square meters set by R.A. 7279 for small
property owners. In TCT No. 13853, Eusebio's title, however, appears the following
annotation:
"... subject to x x x, and to the prov. of Sec. 4 Rule 74 of the Rules of Court
with respect to the inheritance left by the deceased Eusebio N. Aguilar."53
Eusebio died on March 23, 1995,54 and, according to Antonio's testimony, the
former was survived by five (5) children.55 Where there are several co-owners, and
some of them die, the heirs of those who die, with respect to that part belonging
to the deceased, become also co-owners of the property together with those who
survive.56After Eusebio died, his five heirs became co-owners of his 347 square-
meter portion. Dividing the 347 square meters among the five entitled each heir to
69.4 square meters of the land subject of litigation.
Consequently, the share of each co-owner did not exceed the 300 square meter
limit set in R.A. 7279. The second question, however, is whether the subject
property is the only real property of respondents for them to comply with the
second requisite for small property owners.

Antonio Aguilar testified that he and most of the original co-owners do not reside
on the subject property but in their ancestral home in Paco, Manila.57 Respondents
therefore appear to own real property other than the lots in litigation. Nonetheless,
the records do not show that the ancestral home in Paco, Manila and the land on
which it stands are owned by respondents or anyone of them. Petitioner did not
present any title or proof of this fact despite Antonio Aguilar's testimony.

On the other hand, respondents claim that the subject lots are their only real
property58 and that they, particularly two of the five heirs of Eusebio Aguilar, are
merely renting their houses and therefore do not own any other real property in
Metro Manila.59 To prove this, they submitted certifications from the offices of the
City and Municipal Assessors in Metro Manila attesting to the fact that they have
no registered real property declared for taxation purposes in the respective cities.
Respondents were certified by the City Assessor of Manila;60 Quezon City;61Makati
City;62 Pasay City;63 Paranaque;64 Caloocan City;65 Pasig
City;66 Muntinlupa;67 Marikina;68 and the then municipality of Las Pias69 and the
municipality of San Juan del Monte70 as having no real property registered for
taxation in their individual names.1wphi1.nt

Finally, this court notes that the subject lots are now in the possession of
respondents. Antonio Aguilar testified that he and the other co-owners filed
ejectment cases against the occupants of the land before the Metropolitan Trial
Court, Mandaluyong, Branches 59 and 60. Orders of eviction were issued and
executed on September 17, 1997 which resulted in the eviction of the tenants and
other occupants from the land in question.71

IN VIEW WHEREOF, the petition is DENIED and the orders dated September 17. 1998
and December 29, 1998 of the Regional Trial Court, Branch 168, Pasig City in SCA
No. 1427 are AFFIRMED.

SO ORDERED.
CONSTI2- EMINENT DOMAIN
G.R. No. 155746 October 13, 2004
DIOSDADO LAGCAO, DOROTEO LAGCAO and URSULA LAGCAO, petitioners,
vs.
JUDGE GENEROSA G. LABRA, Branch 23, Regional Trial Court, Cebu, and the CITY
OF CEBU, respondent.
DECISION
CORONA, J.:
Before us is a petition for review of the decision dated July 1, 2002 of the Regional
Trial Court, Branch 23, Cebu City1 upholding the validity of the City of Cebus
Ordinance No. 1843, as well as the lower courts order dated August 26, 2002
denying petitioners motion for reconsideration.
In 1964, the Province of Cebu donated 210 lots to the City of Cebu. One of these
lots was Lot 1029, situated in Capitol Hills, Cebu City, with an area of 4,048 square
meters. In 1965, petitioners purchased Lot 1029 on installment basis. But then, in
late 1965, the 210 lots, including Lot 1029, reverted to the Province of
Cebu.2Consequently, the province tried to annul the sale of Lot 1029 by the City of
Cebu to the petitioners. This prompted the latter to sue the province for specific
performance and damages in the then Court of First Instance.
On July 9, 1986, the court a quo ruled in favor of petitioners and ordered the
Province of Cebu to execute the final deed of sale in favor of petitioners. On June
11, 1992, the Court of Appeals affirmed the decision of the trial court. Pursuant to
the ruling of the appellate court, the Province of Cebu executed on June 17, 1994
a deed of absolute sale over Lot 1029 in favor of petitioners. Thereafter, Transfer
Certificate of Title (TCT) No. 129306 was issued in the name of petitioners and
Crispina Lagcao.3
After acquiring title, petitioners tried to take possession of the lot only to discover
that it was already occupied by squatters. Thus, on June 15, 1997, petitioners
instituted ejectment proceedings against the squatters. The Municipal Trial Court in
Cities (MTCC), Branch 1, Cebu City, rendered a decision on April 1, 1998, ordering
the squatters to vacate the lot. On appeal, the RTC affirmed the MTCCs decision
and issued a writ of execution and order of demolition.1avvphi1
However, when the demolition order was about to be implemented, Cebu City
Mayor Alvin Garcia wrote two letters4 to the MTCC, requesting the deferment of
the demolition on the ground that the City was still looking for a relocation site for
the squatters. Acting on the mayors request, the MTCC issued two orders
suspending the demolition for a period of 120 days from February 22, 1999.
Unfortunately for petitioners, during the suspension period, the Sangguniang
Panlungsod (SP) of Cebu City passed a resolution which identified Lot 1029 as a
socialized housing site pursuant to RA 7279.5 Then, on June 30, 1999, the SP of Cebu
City passed Ordinance No. 17726 which included Lot 1029 among the identified
sites for socialized housing. On July, 19, 2000, Ordinance No. 18437 was enacted by
the SP of Cebu City authorizing the mayor of Cebu City to initiate expropriation
proceedings for the acquisition of Lot 1029 which was registered in the name of
petitioners. The intended acquisition was to be used for the benefit of the
homeless after its subdivision and sale to the actual occupants thereof. For this
purpose, the ordinance appropriated the amount of P6,881,600 for the payment
of the subject lot. This ordinance was approved by Mayor Garcia on August 2,
2000.
On August 29, 2000, petitioners filed with the RTC an action for declaration of nullity
of Ordinance No. 1843 for being unconstitutional. The trial court rendered its
decision on July 1, 2002 dismissing the complaint filed by petitioners whose
subsequent motion for reconsideration was likewise denied on August 26, 2002.
In this appeal, petitioners argue that Ordinance No. 1843 is unconstitutional as it
sanctions the expropriation of their property for the purpose of selling it to the
squatters, an endeavor contrary to the concept of "public use" contemplated in
the Constitution.8 They allege that it will benefit only a handful of people. The
ordinance, according to petitioners, was obviously passed for politicking, the
squatters undeniably being a big source of votes.1avvphi1
In sum, this Court is being asked to resolve whether or not the intended
expropriation by the City of Cebu of a 4,048-square-meter parcel of land owned
by petitioners contravenes the Constitution and applicable laws.
Under Section 48 of RA 7160,9 otherwise known as the Local Government Code of
1991,10 local legislative power shall be exercised by the Sangguniang
Panlungsod of the city. The legislative acts of the Sangguniang Panlungsod in the
exercise of its lawmaking authority are denominated ordinances.
Local government units have no inherent power of eminent domain and can
exercise it only when expressly authorized by the legislature.11 By virtue of RA 7160,
Congress conferred upon local government units the power to expropriate.
Ordinance No. 1843 was enacted pursuant to Section 19 of RA 7160:
SEC. 19. Eminent Domain. A local government unit may, through its chief
executive and acting pursuant to an ordinance, exercise the power of
eminent domain for public use, or purpose, or welfare for the benefit of
the poor and the landless, upon payment of just compensation, pursuant
to the provisions of the Constitution and pertinent laws xxx. (italics
supplied).
Ordinance No. 1843 which authorized the expropriation of petitioners lot was
enacted by the SP of Cebu City to provide socialized housing for the homeless
and low-income residents of the City.
However, while we recognize that housing is one of the most serious social
problems of the country, local government units do not possess unbridled authority
to exercise their power of eminent domain in seeking solutions to this problem.
There are two legal provisions which limit the exercise of this power: (1) no person
shall be deprived of life, liberty, or property without due process of law, nor shall
any person be denied the equal protection of the laws;12 and (2) private property
shall not be taken for public use without just compensation.13 Thus, the exercise by
local government units of the power of eminent domain is not absolute. In fact,
Section 19 of RA 7160 itself explicitly states that such exercise must comply with the
provisions of the Constitution and pertinent laws.
The exercise of the power of eminent domain drastically affects a landowners
right to private property, which is as much a constitutionally-protected right
necessary for the preservation and enhancement of personal dignity and
intimately connected with the rights to life and liberty.14 Whether directly exercised
by the State or by its authorized agents, the exercise of eminent domain is
necessarily in derogation of private rights.15 For this reason, the need for a
painstaking scrutiny cannot be overemphasized.
The due process clause cannot be trampled upon each time an ordinance orders
the expropriation of a private individuals property. The courts cannot even adopt
a hands-off policy simply because public use or public purpose is invoked by an
ordinance, or just compensation has been fixed and determined. In De Knecht vs.
Bautista,16 we said:
It is obvious then that a land-owner is covered by the mantle of protection
due process affords. It is a mandate of reason. It frowns on arbitrariness, it
is the antithesis of any governmental act that smacks of whim or caprice.
It negates state power to act in an oppressive manner. It is, as had been
stressed so often, the embodiment of the sporting idea of fair play. In that
sense, it stands as a guaranty of justice. That is the standard that must be
met by any governmental agency in the exercise of whatever
competence is entrusted to it. As was so emphatically stressed by the
present Chief Justice, "Acts of Congress, as well as those of the Executive,
can deny due process only under pain of nullity. xxx.
The foundation of the right to exercise eminent domain is genuine necessity and
that necessity must be of public character.17 Government may not capriciously or
arbitrarily choose which private property should be expropriated. In this case,
there was no showing at all why petitioners property was singled out for
expropriation by the city ordinance or what necessity impelled the particular
choice or selection. Ordinance No. 1843 stated no reason for the choice of
petitioners property as the site of a socialized housing project.
Condemnation of private lands in an irrational or piecemeal fashion or the
random expropriation of small lots to accommodate no more than a few tenants
or squatters is certainly not the condemnation for public use contemplated by the
Constitution. This is depriving a citizen of his property for the convenience of a few
without perceptible benefit to the public.18
RA 7279 is the law that governs the local expropriation of property for purposes of
urban land reform and housing. Sections 9 and 10 thereof provide:
SEC 9. Priorities in the Acquisition of Land. Lands for socialized housing
shall be acquired in the following order:
(a) Those owned by the Government or any of its subdivisions,
instrumentalities, or agencies, including government-owned or
controlled corporations and their subsidiaries;
(b) Alienable lands of the public domain;
(c) Unregistered or abandoned and idle lands;
(d) Those within the declared Areas or Priority Development, Zonal
Improvement Program sites, and Slum Improvement and
Resettlement Program sites which have not yet been acquired;
(e) Bagong Lipunan Improvement of Sites and Services or BLISS
which have not yet been acquired; and
(f) Privately-owned lands.
Where on-site development is found more practicable and advantageous
to the beneficiaries, the priorities mentioned in this section shall not apply.
The local government units shall give budgetary priority to on-site
development of government lands. (Emphasis supplied).
SEC. 10. Modes of Land Acquisition. The modes of acquiring lands for
purposes of this Act shall include, among others, community mortgage,
land swapping, land assembly or consolidation, land banking, donation to
the Government, joint venture agreement, negotiated purchase, and
expropriation: Provided, however, That expropriation shall be resorted to
only when other modes of acquisition have been exhausted: Provided
further, That where expropriation is resorted to, parcels of land owned by
small property owners shall be exempted for purposes of this Act: xxx.
(Emphasis supplied).
In the recent case of Estate or Heirs of the Late Ex-Justice Jose B.L. Reyes et al. vs.
City of Manila,19 we ruled that the above-quoted provisions are strict limitations on
the exercise of the power of eminent domain by local government units,
especially with respect to (1) the order of priority in acquiring land for socialized
housing and (2) the resort to expropriation proceedings as a means to acquiring it.
Private lands rank last in the order of priority for purposes of socialized housing. In
the same vein, expropriation proceedings may be resorted to only after the other
modes of acquisition are exhausted. Compliance with these conditions
is mandatory because these are the only safeguards of oftentimes helpless owners
of private property against what may be a tyrannical violation of due process
when their property is forcibly taken from them allegedly for public use.
We have found nothing in the records indicating that the City of Cebu complied
strictly with Sections 9 and 10 of RA 7279. Ordinance No. 1843 sought to
expropriate petitioners property without any attempt to first acquire the lands
listed in (a) to (e) of Section 9 of RA 7279. Likewise, Cebu City failed to establish
that the other modes of acquisition in Section 10 of RA 7279 were first exhausted.
Moreover, prior to the passage of Ordinance No. 1843, there was no evidence of
a valid and definite offer to buy petitioners property as required by Section 19 of
RA 7160.20 We therefore find Ordinance No. 1843 to be constitutionally infirm for
being violative of the petitioners right to due process.
It should also be noted that, as early as 1998, petitioners had already obtained a
favorable judgment of eviction against the illegal occupants of their property. The
judgment in this ejectment case had, in fact, already attained finality, with a writ
of execution and an order of demolition. But Mayor Garcia requested the trial
court to suspend the demolition on the pretext that the City was still searching for
a relocation site for the squatters. However, instead of looking for a relocation site
during the suspension period, the city council suddenly enacted Ordinance No.
1843 for the expropriation of petitioners lot. It was trickery and bad faith, pure and
simple. The unconscionable manner in which the questioned ordinance was
passed clearly indicated that respondent City transgressed the Constitution, RA
7160 and RA 7279.
third, the fact that petitioners small property was singled out for
expropriation for the purpose of awarding it to no more than a few
squatters indicated manifest partiality against petitioners, and
fourth, the ordinance failed to show that there was a reasonable relation
between the end sought and the means adopted. While the objective of
the City of Cebu was to provide adequate housing to slum dwellers, the
means it employed in pursuit of such objective fell short of what was legal,
sensible and called for by the circumstances.
Indeed, experience has shown that the disregard of basic liberties and the use of
short-sighted methods in expropriation proceedings have not achieved the
desired results. Over the years, the government has tried to remedy the worsening
squatter problem. Far from solving it, however, governments kid-glove approach
has only resulted in the multiplication and proliferation of squatter colonies and
blighted areas. A pro-poor program that is well-studied, adequately funded,
genuinely sincere and truly respectful of everyones basic rights is what this
problem calls for, not the improvident enactment of politics-based ordinances
targeting small private lots in no rational fashion.
WHEREFORE, the petition is hereby GRANTED. The July 1, 2002 decision of Branch 23
of the Regional Trial Court of Cebu City is REVERSED and SET ASIDE.
SO ORDERED.

For an ordinance to be valid, it must not only be within the corporate powers of
the city or municipality to enact but must also be passed according to the
procedure prescribed by law. It must be in accordance with certain well-
established basic principles of a substantive nature. These principles require that
an ordinance (1) must not contravene the Constitution or any statute (2) must not
be unfair or oppressive (3) must not be partial or discriminatory (4) must not prohibit
but may regulate trade (5) must be general and consistent with public policy, and
(6) must not be unreasonable.21

Ordinance No. 1843 failed to comply with the foregoing substantive requirements.
A clear case of constitutional infirmity having been thus established, this Court is
constrained to nullify the subject ordinance. We recapitulate:

first, as earlier discussed, the questioned ordinance is repugnant to the

pertinent provisions of the Constitution, RA 7279 and RA 7160;

second, the precipitate manner in which it was enacted was plain

oppression masquerading as a pro-poor ordinance;
CONSTI2 TAXATION
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO
VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget,
FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA,
Minister of Finance, respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition
proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends
upon a showing of its constitutional infirmity. The assailed provision further amends
Section 21 of the National Internal Revenue Code of 1977, which provides for rates
of tax on citizens or residents on (a) taxable compensation income, (b) taxable
net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits
and yield or any other monetary benefit from deposit substitutes and from trust
fund and similar arrangements, (e) dividends and share of individual partner in the
net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3as
taxpayer alleges that by virtue thereof, "he would be unduly discriminated against
by the imposition of higher rates of tax upon his income arising from the exercise of
his profession vis-a-vis those which are imposed upon fixed income or salaried
individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to
class legislation, oppressive and capricious in character 5 For petitioner, therefore,
there is a transgression of both the equal protection and due process clauses 6 of
the Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an
answer within 10 days from notice. Such an answer, after two extensions were
granted the Office of the Solicitor General, was filed on May 28, 1982. 8 The facts
as alleged were admitted but not the allegations which to their mind are "mere
arguments, opinions or conclusions on the part of the petitioner, the truth [for them]
being those stated [in their] Special and Affirmative Defenses." 9 The answer then
affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax.
The authorities and cases cited while correctly quoted or paraghraph do not
support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack
of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope,
The reason was so clearly set forth by retired Chief Justice Makalintal thus: "The
areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or
group of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign
capacity if it is to meet the increasing social challenges of the times." 11 Hence the
need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the
bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of
the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of
sovereignty. It is the strongest of all the powers of of government." 13 It is, of course,
to be admitted that for all its plenitude 'the power to tax is not unconfined. There
are restrictions. The Constitution sets forth such limits . Adversely affecting as it does
properly rights, both the due process and equal protection clauses inay properly
be invoked, all petitioner does, to invalidate in appropriate cases a revenue
measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief
Justice Marshall that "the power to tax involves the power to destroy." 14 In a
separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it
as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable
to] the intellectual fashion of the times following] a free use of absolutes." 16 This is
merely to emphasize that it is riot and there cannot be such a constitutional
mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun
from Marshall's famous dictum was brushed away by one stroke of Mr. Justice
Holmess pen: 'The power to tax is not the power to destroy while this Court
sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law
overrides any legislative or executive, act that runs counter to it. In any case
therefore where it can be demonstrated that the challenged statutory provision
as petitioner here alleges fails to abide by its command, then this Court must so
declare and adjudge it null. The injury thus is centered on the question of whether
the imposition of a higher tax rate on taxable net income derived from business or
profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A
mere allegation, as here. does not suffice. There must be a factual foundation of
such unconstitutional taint. Considering that petitioner here would condemn such
a provision as void or its face, he has not made out a case. This is merely to adhere
to the authoritative doctrine that were the due process and equal protection
clauses are invoked, considering that they arc not fixed rules but rather broad
standards, there is a need for of such persuasive character as would lead to such
a conclusion. Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing
statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the confiscation of property. That
would be a clear abuse of power. It then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an authority not conferred.
That properly calls for the application of the Holmes dictum. It has also been held
that where the assailed tax measure is beyond the jurisdiction of the state, or is not
for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that
there is a denial of this constitutional mandate whether the assailed act is in the
exercise of the lice power or the power of eminent domain is to demonstrated that
the governmental act assailed, far from being inspired by the attainment of the
common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not being different, both in
the privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection and
security shall be given to every person under circumtances which if not Identical
are analogous. If law be looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever restrictions cast on
some in the group equally binding on the rest." 20 That same formulation applies as
well to taxation measures. The equal protection clause is, of course, inspired by the
noble concept of approximating the Ideal of the laws benefits being available to
all and the affairs of men being governed by that serene and impartial uniformity,
which is of the very essence of the Idea of law. There is, however, wisdom, as well
as realism in these words of Justice Frankfurter: "The equality at which the 'equal
protection' clause aims is not a disembodied equality. The Fourteenth Amendment
enjoins 'the equal protection of the laws,' and laws are not abstract propositions.
They do not relate to abstract units A, B and C, but are expressions of policy arising
out of specific difficulties, address to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in
fact or opinion to be treated in law as though they were the same." 21 Hence the
constant reiteration of the view that classification if rational in character is
allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court,
through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the
power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling out of one particular
class for taxation, or exemption infringe no constitutional limitation.'" 23
8. Further on this point. Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by eliminating all deductible
items and at the same time reducing the applicable tax rate. Taxpayers may be
classified into different categories. To repeat, it. is enough that the classification
must rest upon substantial distinctions that make real differences. In the case of
the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible
basis of classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the class
and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who
are recipients of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are e not entitled to make
deductions for income tax purposes because they are in the same situation more
or less. On the other hand, in the case of professionals in the practice of their
calling and businessmen, there is no uniformity in the costs or expenses necessary
to produce their income. It would not be just then to disregard the disparities by
giving all of them zero deduction and indiscriminately impose on all alike the same
tax rates on the basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation as
regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit,
considering the (1) lack of factual foundation to show the arbitrary character of
the assailed provision; 31 (2) the force of controlling doctrines on due process,
equal protection, and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of professionals and
businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.

7. Petitioner likewise invoked the kindred concept of uniformity. According to the

Constitution: "The rule of taxation shag be uniform and equitable." 24 This
requirement is met according to Justice Laurel in Philippine Trust Company v.
Yatco, 25 decided in 1940, when the tax "operates with the same force and effect
in every place where the subject may be found. " 26 He likewise added: "The rule of
uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable." 27 The problem of classification did not present itself in that case.
It did not arise until nine years later, when the Supreme Court held: "Equality and
uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation, ... . 28 As
clarified by Justice Tuason, where "the differentiation" complained of "conforms to
the practical dictates of justice and equity" it "is not discriminatory within the
meaning of this clause and is therefore uniform." 29 There is quite a similarity then to
the standard of equal protection for all that is required is that the tax "applies
equally to all persons, firms and corporations placed in similar situation." 30
CONSTI2 TAXATION income derived from their properties. They argued that the income approach
should have been used in determining the land values instead of the comparable
sales approach which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of
G.R. Nos. L-49839-46 April 26, 1991
Tax Assessment Appeals, however, considered the assessments valid, holding thus:

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

WHEREFORE, and considering that the appellants have failed to submit
vs.
concrete evidence which could overcome the presumptive regularity of
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as
the classification and assessments appear to be in accordance with the
appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS;
base schedule of market values and of the base schedule of building unit
TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their
values, as approved by the Secretary of Finance, the cases should be, as
capacities as appointed and Acting Members of the BOARD OF ASSESSMENT
APPEALS of Manila; and NICOLAS CATIIL in his capacity as City Assessor of they are hereby, upheld.
Manila,respondents.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p.
22).
PARAS, J.:

The Reyeses appealed to the Central Board of Assessment Appeals.1wphi1 They

This is a petition for review on certiorari to reverse the June 10, 1977 decision of the
submitted, among others, the summary of the yearly rentals to show the income
Central Board of Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L.
derived from the properties. Respondent City Assessor, on the other hand,
Reyes, Edmundo Reyes, et al. v. Board of Assessment Appeals of Manila and City
submitted three (3) deeds of sale showing the different market values of the real
Assessor of Manila" which affirmed the March 29, 1976 decision of the Board of Tax
property situated in the same vicinity where the subject properties of petitioners
Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes,
are located. To better appreciate the locational and physical features of the land,
et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City
the Board of Hearing Commissioners conducted an ocular inspection with the
Assessor of Manila" upholding the classification and assessments made by the City
presence of two representatives of the City Assessor prior to the healing of the
Assessor of Manila.
case. Neither the owners nor their authorized representatives were present during
the said ocular inspection despite proper notices served them. It was found that
The facts of the case are as follows: certain parcels of land were below street level and were affected by the tides
(Rollo, pp. 24-25).
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land
situated in Tondo and Sta. Cruz Districts, City of Manila, which are leased and On June 10, 1977, the Central Board of Assessment Appeals rendered its decision,
entirely occupied as dwelling sites by tenants. Said tenants were paying monthly the dispositive portion of which reads:
rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14, 1971,
the National Legislature enacted Republic Act No. 6359 prohibiting for one year
WHEREFORE, the appealed decision insofar as the valuation and
from its effectivity, an increase in monthly rentals of dwelling units or of lands on
assessment of the lots covered by Tax Declaration Nos. (5835) PD-5847,
which another's dwelling is located, where such rentals do not exceed three
hundred pesos (P300.00) a month but allowing an increase in rent by not more (5839), (5831) PD-5844 and PD-3824 is affirmed.
than 10% thereafter. The said Act also suspended paragraph (1) of Article 1673 of
the Civil Code for two years from its effectivity thereby disallowing the ejectment For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146
of lessees upon the expiration of the usual legal period of lease. On October 12, and (1) PD-266, the appealed Decision is modified by allowing a 20%
1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the reduction in their respective market values and applying therein the
prohibition to increase monthly rentals below P300.00 and by indefinitely assessment level of 30% to arrive at the corresponding assessed value.
suspending the aforementioned provision of the Civil Code, excepting leases with
a definite period. Consequently, the Reyeses, petitioners herein, were precluded SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo,
from raising the rentals and from ejecting the tenants. In 1973, respondent City p. 27)
Assessor of Manila re-classified and reassessed the value of the subject properties
based on the schedule of market values duly reviewed by the Secretary of
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
Finance. The revision, as expected, entailed an increase in the corresponding tax
rates prompting petitioners to file a Memorandum of Disagreement with the Board
of Tax Assessment Appeals. They averred that the reassessments made were The Reyeses assigned the following error:
"excessive, unwarranted, inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual
 THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES
APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the
properties in question. Petitioners maintain that the "Income Approach" method
would have been more realistic for in disregarding the effect of the restrictions
imposed by P.D. 20 on the market value of the properties affected, respondent
Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real
estate taxes would admittedly exceed the sum total of the yearly rentals paid or
payable by the dweller tenants under P.D. 20. Hence, petitioners protested against
the levels of the values assigned to their properties as revised and increased on
the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its
decision that the income approach is used in determining land values in some
vicinities, it maintains that when income is affected by some sort of price control,
the same is rejected in the consideration and study of land values as in the case of
properties affected by the Rent Control Law for they do not project the true
market value in the open market (Rollo, p. 21). Thus, respondents opted instead for
the "Comparable Sales Approach" on the ground that the value estimate of the
properties predicated upon prices paid in actual, market transactions would be a
uniform and a more credible standards to use especially in case of mass appraisal
of properties (Ibid.). Otherwise stated, public respondents would have this Court
completely ignore the effects of the restrictions of P.D. No. 20 on the market value
of properties within its coverage. In any event, it is unquestionable that both the
"Comparable Sales Approach" and the "Income Approach" are generally
acceptable methods of appraisal for taxation purposes (The Law on Transfer and
Business Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded that
the propriety of one as against the other would of course depend on several
factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v.
Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the
assessors, in finding the value of the property, have to consider all the
circumstances and elements of value and must exercise a prudent discretion in
reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of
taxation must not only be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds
of property of the same class shall be taxed at the same rate (Churchill v.
Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or
progressive aspects of taxation required in the 1973 Charter (Fernando "The
Constitution of the Philippines", p. 221, Second Edition). Thus, the need to examine
closely and determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay.
Taxation is progressive when its rate goes up depending on the resources of the
person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the
powers of government. But for all its plenitude the power to tax is not unconfined
as there are restrictions. Adversely effecting as it does property rights, both the due
process and equal protection clauses of the Constitution may properly be invoked
to invalidate in appropriate cases a revenue measure. If it were otherwise, there
would be truth to the 1903 dictum of Chief Justice Marshall that "the power to tax
involves the power to destroy." The web or unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The
power to tax is not the power to destroy while this Court sits. So it is in the Philippines
" (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal
Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is
so arbitrary that it finds no support in the Constitution. An obvious example is where
it can be shown to amount to confiscation of property. That would be a clear
abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not be
prompted by a spirit of hostility, or at the very least discrimination that finds no
support in reason. It suffices then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different both in the privileges conferred and the
liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that
the first Fundamental Principle to guide the appraisal and assessment of real
property for taxation purposes is that the property must be "appraised at its current
and fair market value."
By no strength of the imagination can the market value of properties covered by
P.D. No. 20 be equated with the market value of properties not so covered. The
former has naturally a much lesser market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed
value of subject properties under the "comparable sales approach" were
presented by the public respondents, namely: (1) that the sale must represent
a bonafide arm's length transaction between a willing seller and a willing buyer
and (2) the property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for properties covered by
P.D. 20 especially during the time in question, there were hardly any willing buyers.
As a general rule, there were no takers so that there can be no reasonable basis
for the conclusion that these properties were comparable with other residential
properties not burdened by P.D. 20. Neither can the given circumstances be
nonchalantly dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely temporary in character. At
this point in time, the falsity of such premises cannot be more convincingly
demonstrated by the fact that the law has existed for around twenty (20) years
with no end to it in sight.

Verily, taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxations,
which is the promotion of the common good, may be achieved (Commissioner of
Internal Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to
reason that petitioners who are burdened by the government by its Rental
Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice
should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the forfeiture of
their properties.

By the public respondents' own computation the assessment by income approach

would amount to only P10.00 per sq. meter at the time in question.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of
public respondents are REVERSED and SET ASIDE; and (e) the respondent Board of
Assessment Appeals of Manila and the City Assessor of Manila are ordered to
make a new assessment by the income approach method to guarantee a fairer
and more realistic basis of computation (Rollo, p. 71).

SO ORDERED.
CONSTI2 TAXATION The Facts

G.R. No. 148191 November 25, 2003 Quoting petitioner, the CA6 summarized the facts of this case as follows:

COMMISSIONER OF INTERNAL REVENUE, petitioner, "For the calendar year 1995, [respondent] seasonably filed its Quarterly
vs. Percentage Tax Returns reflecting gross receipts (pertaining to 5% [Gross Receipts
SOLIDBANK CORPORATION, respondent. Tax] rate) in the total amount of P1,474,691,693.44 with corresponding gross
receipts tax payments in the sum of P73,734,584.60, broken down as follows:
DECISION
Period Covered Gross Receipts Gross Receipts Tax
January to March 1994 P 188,406,061.95 P 9,420,303.10
PANGANIBAN, J.:
April to June 1994 370,913,832.70 18,545,691.63
July to September 1994 481,501,838.98 24,075,091.95
Under the Tax Code, the earnings of banks from "passive" income are subject to a October to December 1994 433,869,959.81 21,693,497.98
twenty percent final withholding tax (20% FWT). This tax is withheld at source and is Total P 1,474,691,693.44 P 73,734,584.60
thus not actually and physically received by the banks, because it is paid directly
to the government by the entities from which the banks derived the income. Apart
from the 20% FWT, banks are also subject to a five percent gross receipts tax (5% "[Respondent] alleges that the total gross receipts in the amount
of P1,474,691,693.44 included the sum of P350,807,875.15 representing gross
GRT) which is imposed by the Tax Code on their gross receipts, including the
receipts from passive income which was already subjected to 20% final
"passive" income.
withholding tax.

Since the 20% FWT is constructively received by the banks and forms part of their
"On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case
gross receipts or earnings, it follows that it is subject to the 5% GRT. After all, the
No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue[,]
amount withheld is paid to the government on their behalf, in satisfaction of their
wherein it was held that the 20% final withholding tax on [a] banks interest income
withholding taxes. That they do not actually receive the amount does not alter the
should not form part of its taxable gross receipts for purposes of computing the
fact that it is remitted for their benefit in satisfaction of their tax obligations.
gross receipts tax.

Stated otherwise, the fact is that if there were no withholding tax system in place in
"On June 19, 1997, on the strength of the aforementioned decision, [respondent]
this country, this 20 percent portion of the "passive" income of banks would
filed with the Bureau of Internal Revenue [BIR] a letter-request for the refund or
actually be paid to the banks and then remitted by them to the government in
issuance of [a] tax credit certificate in the aggregate amount of P3,508,078.75,
payment of their income tax. The institution of the withholding tax system does not
representing allegedly overpaid gross receipts tax for the year 1995, computed as
alter the fact that the 20 percent portion of their "passive" income constitutes part
follows:
of their actual earnings, except that it is paid directly to the government on their
behalf in satisfaction of the 20 percent final income tax due on their "passive"
incomes. Gross Receipts Subjected to the Final Tax
Derived from Passive [Income] P 350,807,875.15
Multiply by Final Tax rate 20%
The Case
20% Final Tax Withheld at Source P 70,161,575.03
Multiply by [Gross Receipts Tax] rate 5%
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to Overpaid [Gross Receipts Tax] P 3,508,078.75
annul the July 18, 2000 Decision2 and the May 8, 2001 Resolution3 of the Court of
Appeals4 (CA) in CA-GR SP No. 54599. The decretal portion of the assailed Decision
"Without waiting for an action from the [petitioner], [respondent] on the same day
reads as follows:
filed [a] petition for review [with the Court of Tax Appeals] in order to toll the
running of the two-year prescriptive period to judicially claim for the refund of [any]
"WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court of overpaid internal revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code
Tax Appeals."5 [also National Internal Revenue Code] x x x.

The challenged Resolution denied petitioners Motion for Reconsideration. xxx xxx xxx
"After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its The FWT and the GRT:
decision ordering x x x petitioner to refund in favor of x x x respondent the reduced
amount of P1,555,749.65 as overpaid [gross receipts tax] for the year 1995. The Two Different Taxes
legal issue x x x was resolved by the [Court of Tax Appeals], with Hon. Amancio Q.
Saga dissenting, on the strength of its earlier pronouncement in x x x Asian Bank
The 5% GRT is imposed by Section 11912 of the Tax Code,13 which provides:
Corporation vs. Commissioner of Internal Revenue x x x, wherein it was held that
the 20% [final withholding tax] on [a] banks interest income should not form part
of its taxable gross receipts for purposes of computing the [gross receipts tax]."7 "SEC. 119. Tax on banks and non-bank financial intermediaries. There shall be
collected a tax on gross receipts derived from sources within the Philippines by all
banks and non-bank financial intermediaries in accordance with the following
Ruling of the CA
schedule:

The CA held that the 20% FWT on a banks interest income did not form part of the
"(a) On interest, commissions and discounts from lending activities as well as
taxable gross receipts in computing the 5% GRT, because the FWT was not actually
income from financial leasing, on the basis of remaining maturities of instruments
received by the bank but was directly remitted to the government. The appellate
from which such receipts are derived.
court curtly said that while the Tax Code "does not specifically state any
exemption, x x x the statute must receive a sensible construction such as will give
effect to the legislative intention, and so as to avoid an unjust or absurd Short-term maturity not in excess of two (2) years5%
conclusion."8
Medium-term maturity over two (2) years
Hence, this appeal.9
but not exceeding four (4) years....3%
Issue
Long-term maturity:
Petitioner raises this lone issue for our consideration:
(i) Over four (4) years but not exceeding
"Whether or not the 20% final withholding tax on [a] banks interest income forms
part of the taxable gross receipts in computing the 5% gross receipts tax."10 seven (7) years1%

The Courts Ruling (ii) Over seven (7) years..0%

The Petition is meritorious. "(b) On dividends...0%

Sole Issue: "(c) On royalties, rentals of property, real or personal, profits from
exchange and all other items treated as gross income under Section
Whether the 20% FWT Forms Part 2814 of this Code....................................................................5%
of the Taxable Gross Receipts
Provided, however, That in case the maturity period referred to in paragraph (a) is
Petitioner claims that although the 20% FWT on respondents interest income was shortened thru pretermination, then the maturity period shall be reckoned to end
not actually received by respondent because it was remitted directly to the as of the date of pretermination for purposes of classifying the transaction as short,
government, the fact that the amount redounded to the banks benefit makes it medium or long term and the correct rate of tax shall be applied accordingly.
part of the taxable gross receipts in computing the 5% GRT. Respondent, on the
other hand, maintains that the CA correctly ruled otherwise. "Nothing in this Code shall preclude the Commissioner from imposing the same tax
herein provided on persons performing similar banking activities."
We agree with petitioner. In fact, the same issue has been raised recently in China
Banking Corporation v. CA,11where this Court held that the amount of interest The 5% GRT15 is included under "Title V. Other Percentage Taxes" of the Tax Code
income withheld in payment of the 20% FWT forms part of gross receipts in and is not subject to withholding. The banks and non-bank financial intermediaries
computing for the GRT on banks. liable therefor shall, under Section 125(a)(1),16 file quarterly returns on the amount
of gross receipts and pay the taxes due thereon within twenty (20)17 days after the
end of each taxable quarter.
The 20% FWT,18 on the other hand, falls under Section 24(e)(1)19 of "Title II. Tax on
Income." It is a tax on passive income, deducted and withheld at source by the
payor-corporation and/or person as withholding agent pursuant to Section
50,20 and paid in the same manner and subject to the same conditions as
provided for in Section 51.21
A perusal of these provisions clearly shows that two types of taxes are involved in
the present controversy: (1) the GRT, which is a percentage tax; and (2) the FWT,
which is an income tax. As a bank, petitioner is covered by both taxes.
A percentage tax is a national 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.22 It is not subject to withholding.
An income tax, on the other hand, is a national tax imposed on the net or the
gross income realized in a taxable year.23 It is subject to withholding.
In a withholding tax system, the payee is the taxpayer, the person on whom the
tax is imposed; the payor, a separate entity, acts as no more than an agent of the
government for the collection of the tax in order to ensure its payment. Obviously,
this amount that is used to settle the tax liability is deemed sourced from the
proceeds constitutive of the tax base.24 These proceeds are either actual or
constructive. Both parties herein agree that there is no actual receipt by the bank
of the amount withheld. What needs to be determined is if there is constructive
receipt thereof. Since the payee -- not the payor -- is the real taxpayer, the rule on
constructive receipt can be easily rationalized, if not made clearly manifest.25
Constructive Receipt
Versus Actual Receipt
Applying Section 7 of Revenue Regulations (RR) No. 17-84,26 petitioner contends
that there is constructive receipt of the interest on deposits and yield on deposit
substitutes.27 Respondent, however, claims that even if there is, it is Section 4(e) of
RR 12-8028 that nevertheless governs the situation.
Section 7 of RR 17-84 states:
"SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit
Substitutes.
(a) The interest earned on Philippine Currency bank deposits and yield
from deposit substitutes subjected to the withholding taxes in accordance
with these regulations need not be included in the gross income in
computing the depositors/investors income tax liability in accordance
with the provision of Section 29(b),29(c)30 and (d) of the National Internal
Revenue Code, as amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit
substitutes declared for purposes of imposing the withholding taxes in
accordance with these regulations shall be allowed as interest expense
deductible for purposes of computing taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are financial
institutions, the same shall be included as part of the tax base upon which
the gross receipt[s] tax is imposed."
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed
on the gross receipts of banks, non-bank financial intermediaries, financing
companies, and other non-bank financial intermediaries not performing quasi-
banking activities shall be based on all items of income actually received. This
provision reads:
"SEC. 4. x x x x x x x x x
"(e) Gross receipts tax on banks, non-bank financial intermediaries, financing
companies, and other non-bank financial intermediaries not performing quasi-
banking activities. The rates of tax to be imposed on the gross receipts of such
financial institutions shall be based on all items of income actually received. Mere
accrual shall not be considered, but once payment is received on such accrual or
in cases of prepayment, then the amount actually received shall be included in
the tax base of such financial institutions, as provided hereunder x x x."
Respondent argues that the above-quoted provision is plain and clear: since there
is no actual receipt, the FWT is not to be included in the tax base for computing
the GRT. There is supposedly no pecuniary benefit or advantage accruing to the
bank from the FWT, because the income is subjected to a tax burden immediately
upon receipt through the withholding process. Moreover, the earlier RR 12-80
covered matters not falling under the later RR 17-84.31
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and
constructive possession provided in Articles 531 and 532 of our Civil Code.
Under Article 531:32
"Possession is acquired by the material occupation of a thing or the exercise of a
right, or by the fact that it is subject to the action of our will, or by the proper acts
and legal formalities established for acquiring such right."
Article 532 states:
"Possession may be acquired by the same person who is to enjoy it, by his legal
representative, by his agent, or by any person without any power whatever; but in
the last case, the possession shall not be considered as acquired until the person in
whose name the act of possession was executed has ratified the same, without
prejudice to the juridical consequences of negotiorum gestio in a proper case."33
The last means of acquiring possession under Article 531 refers to juridical acts --
the acquisition of possession by sufficient title to which the law gives the force of
acts of possession.34 Respondent argues that only items of income actually
received should be included in its gross receipts. It claims that since the amount
had already been withheld at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the
right of possession is through the proper acts and legal formalities established
therefor. The withholding process is one such act. There may not be actual receipt
of the income withheld; however, as provided for in Article 532, possession by any
person without any power whatsoever shall be considered as acquired when
ratified by the person in whose name the act of possession is executed.
In our withholding tax system, possession is acquired by the payor as the
withholding agent of the government, because the taxpayer ratifies the very act
of possession for the government. There is thus constructive receipt. The processes
of bookkeeping and accounting for interest on deposits and yield on deposit
substitutes that are subjected to FWT are indeed -- for legal purposes --
tantamount to delivery, receipt or remittance.35 Besides, respondent itself admits
that its income is subjected to a tax burden immediately upon "receipt," although
it claims that it derives no pecuniary benefit or advantage through the withholding
process. There being constructive receipt of such income -- part of which is
withheld -- RR 17-84 applies, and that income is included as part of the tax base
upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income
constructively received.
In general, rules and regulations issued by administrative or executive officers
pursuant to the procedure or authority conferred by law upon the administrative
agency have the force and effect, or partake of the nature, of a statute.36 The
reason is that statutes express the policies, purposes, objectives, remedies and
sanctions intended by the legislature in general terms. The details and manner of
carrying them out are oftentimes left to the administrative agency entrusted with
their enforcement.
In the present case, it is the finance secretary who promulgates the revenue
regulations, upon recommendation of the BIR commissioner. These regulations are
the consequences of a delegated power to issue legal provisions that have the
effect of law.37
A revenue regulation is binding on the courts as long as the procedure fixed for its
promulgation is followed. Even if the courts may not be in agreement with its
stated policy or innate wisdom, it is nonetheless valid, provided that its scope is
within the statutory authority or standard granted by the legislature.38 Specifically,
the regulation must (1) be germane to the object and purpose of the law;39 (2) not
contradict, but conform to, the standards the law prescribes;40 and (3) be issued
for the sole purpose of carrying into effect the general provisions of our tax laws.41
In the present case, there is no question about the regularity in the performance of
official duty. What needs to be determined is whether RR 12-80 has been repealed
by RR 17-84.
A repeal may be express or implied. It is express when there is a declaration in a
regulation -- usually in its repealing clause -- that another regulation, identified by
its number or title, is repealed. All others are implied repeals.42 An example of the
latter is a general provision that predicates the intended repeal on a substantial
conflict between the existing and the prior regulations.43
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof
that are inconsistent with the provisions of the said RR are thereby repealed. This
declaration proceeds on the premise that RR 17-84 clearly reveals such an
intention on the part of the Department of Finance. Otherwise, later RRs are to be
construed as a continuation of, and not a substitute for, earlier RRs; and will
continue to speak, so far as the subject matter is the same, from the time of the
first promulgation.44
There are two well-settled categories of implied repeals: (1) in case the provisions
are in irreconcilable conflict, the later regulation, to the extent of the conflict,
constitutes an implied repeal of an earlier one; and (2) if the later regulation
covers the whole subject of an earlier one and is clearly intended as a substitute, it
will similarly operate as a repeal of the earlier one.45 There is no implied repeal of
an earlier RR by the mere fact that its subject matter is related to a later RR, which
may simply be a cumulation or continuation of the earlier one.46
Where a part of an earlier regulation embracing the same subject as a later one
may not be enforced without nullifying the pertinent provision of the latter, the
earlier regulation is deemed impliedly amended or modified to the extent of the
repugnancy.47 The unaffected provisions or portions of the earlier regulation
remain in force, while its omitted portions are deemed repealed.48 An exception
therein that is amended by its subsequent elimination shall now cease to be so
and instead be included within the scope of the general rule.49
Section 4(e) of the earlier RR 12-80 provides that only items of income actually
received shall be included in the tax base for computing the GRT, but Section 7(c)
of the later RR 17-84 makes no such distinction and provides that all interests
earned shall be included. The exception having been eliminated, the clear intent
is that the later RR 17-84 includes the exception within the scope of the general
rule.
Repeals by implication are not favored and will not be indulged, unless it is
manifest that the administrative agency intended them. As a regulation is
presumed to have been made with deliberation and full knowledge of all existing
rules on the subject, it may reasonably be concluded that its promulgation was
not intended to interfere with or abrogate any earlier rule relating to the same
subject, unless it is either repugnant to or fully inclusive of the subject matter of an
earlier one, or unless the reason for the earlier one is "beyond peradventure
removed."50Every effort must be exerted to make all regulations stand -- and a
later rule will not operate as a repeal of an earlier one, if by any reasonable
construction, the two can be reconciled.51
RR 12-80 imposes the GRT only on all items of income actually received, as
opposed to their mere accrual, while RR 17-84 includes all interest income in
computing the GRT. RR 12-80 is superseded by the later rule, because Section 4(e)
thereof is not restated in RR 17-84. Clearly therefore, as petitioner correctly states,
this particular provision was impliedly repealed when the later regulations took
effect.52
Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondents reliance on
Section 4(e) of RR 12-80 is misplaced and deceptive. The "accrual" referred to
therein should not be equated with the determination of the amount to be used
as tax base in computing the GRT. Such accrual merely refers to an accounting
method that recognizes income as earned although not received, and expenses
as incurred although not yet paid.
Accrual should not be confused with the concept of constructive possession or
receipt as earlier discussed. Petitioner correctly points out that income that is
merely accrued -- earned, but not yet received -- does not form part of the
taxable gross receipts; income that has been received, albeit constructively,
does.53
The word "actually," used confusingly in Section 4(e), will be clearer if removed
entirely. Besides, if actually is that important, accrual should have been eliminated
for being a mere surplusage. The inclusion of accrual stresses the fact that Section
4(e) does not distinguish between actual and constructive receipt. It merely
focuses on the method of accounting known as the accrual system.
Under this system, income is accrued or earned in the year in which the taxpayers
right thereto becomes fixed and definite, even though it may not be actually
received until a later year; while a deduction for a liability is to be accrued or
incurred and taken when the liability becomes fixed and certain, even though it
may not be actually paid until later.54
Under any system of accounting, no duty or liability to pay an income tax upon a
transaction arises until the taxable year in which the event constituting the
condition precedent occurs.55 The liability to pay a tax may thus arise at a certain
time and the tax paid within another given time.56
In reconciling these two regulations, the earlier one includes in the tax base for
GRT all income, whether actually or constructively received, while the later one
includes specifically interest income. In computing the income tax liability, the only
exception cited in the later regulations is the exclusion from gross income of
interest income, which is already subjected to withholding. This exception,
however, refers to a different tax altogether. To extend mischievously such
exception to the GRT will certainly lead to results not contemplated by the
legislators and the administrative body promulgating the regulations.
Manila Jockey Club
Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club,57 we held that the
term "gross receipts" shall not include money which, although delivered, has been
especially earmarked by law or regulation for some person other than the
taxpayer.58
To begin, we have to nuance the definition of gross receipts59 to determine what it
is exactly. In this regard, we note that US cases have persuasive effect in our
jurisdiction, because Philippine income tax law is patterned after its US
counterpart.60
"[G]ross receipts with respect to any period means the sum of: (a) The total
amount received or accrued during such period from the sale, exchange, or other
disposition of x x x other property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year, or property
held by the taxpayer primarily for sale to customers in the ordinary course of its
trade or business, and (b) The gross income, attributable to a trade or business,
regularly carried on by the taxpayer, received or accrued during such period x x
x."61
"x x x [B]y gross earnings from operations x x x was intended all operations xxx
including incidental, subordinate, and subsidiary operations, as well as principal
operations."62
"When we speak of the gross earnings of a person or corporation, we mean the
entire earnings or receipts of such person or corporation from the business or
operations to which we refer."63
From these cases, "gross receipts"64 refer to the total, as opposed to the net,
income.65 These are therefore the total receipts before any deduction66 for the
expenses of management.67 Websters New International Dictionary, in fact,
defines gross as "whole or entire."
Statutes taxing the gross "receipts," "earnings," or "income" of particular
corporations are found in many jurisdictions.68 Tax thereon is generally held to be
within the power of a state to impose; or constitutional, unless it interferes with
interstate commerce or violates the requirement as to uniformity of taxation.69
Moreover, we have emphasized that the BIR has consistently ruled that "gross
receipts" does not admit of any deduction.70 Following the principle of legislative
approval by reenactment,71 this interpretation has been adopted by the
legislature throughout the various reenactments of then Section 119 of the Tax
Code.72
Given that a tax is imposed upon total receipts and not upon net earnings,73 shall
the income withheld be included in the tax base upon which such tax is imposed?
In other words, shall interest income constructively received still be included in the
tax base for computing the GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this case. Earmarking is not the same as
withholding. Amounts earmarked do not form part of gross receipts, because,
although delivered or received, these are by law or regulation reserved for some
person other than the taxpayer. On the contrary, amounts withheld form part of
gross receipts, because these are in constructive possession and not subject to
any reservation, the withholding agent being merely a conduit in the collection
process.
The Manila Jockey Club had to deliver to the Board on Races, horse owners and
jockeys amounts that never became the property of the race track.74 Unlike these
amounts, the interest income that had been withheld for the government became
property of the financial institutions upon constructive possession thereof.
Possession was indeed acquired, since it was ratified by the financial institutions in
whose name the act of possession had been executed. The money indeed
belonged to the taxpayers; merely holding it in trust was not enough.75
The government subsequently becomes the owner of the money when the
financial institutions pay the FWT to extinguish their obligation to the government.
As this Court has held before, this is the consideration for the transfer of ownership
of the FWT from these institutions to the government.76 It is ownership that
determines whether interest income forms part of taxable gross receipts.77 Being
originally owned by these financial institutions as part of their interest income, the
FWT should form part of their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax liability, which is
different from a percentage tax liability. Commissioner of Internal Revenue v. Tours
Specialists, Inc. aptly held thus:78
"x x x [G]ross receipts subject to tax under the Tax Code do not include monies or
receipts entrusted to the taxpayer which do not belong to them and do not
redound to the taxpayers benefit; and it is not necessary that there must be a law
or regulation which would exempt such monies and receipts within the meaning of
gross receipts under the Tax Code."79
In the construction and interpretation of tax statutes and of statutes in general, the
primary consideration is to ascertain and give effect to the intention of the
legislature.80 We ought to impute to the lawmaking body the intent to obey the
constitutional mandate, as long as its enactments fairly admit of such
construction.81 In fact, "x x x no tax can be levied without express authority of law,
but the statutes are to receive a reasonable construction with a view to carrying
out their purpose and intent."82
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first
imposes an income tax; the second, a percentage tax. The legislature clearly
intended two different taxes. The FWT is a tax on passive income, while the GRT is
on business.83 The withholding of one is not equivalent to the payment of the other.
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd
Taxing the people and their property is essential to the very existence of
government. Certainly, one of the highest attributes of sovereignty is the power of
taxation,84 which may legitimately be exercised on the objects to which it is
applicable to the utmost extent as the government may choose.85 Being an
incident of sovereignty, such power is coextensive with that to which it is an
incident.86 The interest on deposits and yield on deposit substitutes of financial
institutions, on the one hand, and their business as such, on the other, are the two
objects over which the State has chosen to extend its sovereign power. Those not
so chosen are, upon the soundest principles, exempt from taxation.87
While courts will not enlarge by construction the governments power of
taxation,88 neither will they place upon tax laws so loose a construction as to
permit evasions, merely on the basis of fanciful and insubstantial
distinctions.89 When the legislature imposes a tax on income and another on
business, the imposition must be respected. The Tax Code should be so construed,
if need be, as to avoid empty declarations or possibilities of crafty tax evasion
schemes. We have consistently ruled thus:
"x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means
to carry on its operations, and it is of the utmost importance that the modes
adopted to enforce the collection of the taxes levied should be summary and
interfered with as little as possible. x x x."90
"Any delay in the proceedings of the officers, upon whom the duty is devolved of
collecting the taxes, may derange the operations of government, and thereby
cause serious detriment to the public."91
"No government could exist if all litigants were permitted to delay the collection of
its taxes."92
A taxing act will be construed, and the intent and meaning of the legislature
ascertained, from its language.93 Its clarity and implied intent must exist to uphold
the taxes as against a taxpayer in whose favor doubts will be resolved.94 No such
doubts exist with respect to the Tax Code, because the income and percentage
taxes we have cited earlier have been imposed in clear and express language for
that purpose.95
This Court has steadfastly adhered to the doctrine that its first and fundamental
duty is the application of the law according to its express terms -- construction and
interpretation being called for only when such literal application is impossible or
inadequate without them.96 In Quijano v. Development Bank of the
Philippines,97 we stressed as follows:
"No process of interpretation or construction need be resorted to where a provision
of law peremptorily calls for application." 98
A literal application of any part of a statute is to be rejected if it will operate
unjustly, lead to absurd results, or contradict the evident meaning of the statute
taken as a whole.99 Unlike the CA, we find that the literal application of the
aforesaid sections of the Tax Code and its implementing regulations does not
operate unjustly or contradict the evident meaning of the statute taken as a
whole. Neither does it lead to absurd results. Indeed, our courts are not to give
words meanings that would lead to absurd or unreasonable consequences.100 We
have repeatedly held thus:
"x x x [S]tatutes should receive a sensible construction, such as will give effect to
the legislative intention and so as to avoid an unjust or an absurd conclusion."101
"While it is true that the contemporaneous construction placed upon a statute by
executive officers whose duty is to enforce it should be given great weight by the
courts, still if such construction is so erroneous, x x x the same must be declared as
null and void."102
It does not even matter that the CTA, like in China Banking Corporation,103 relied
erroneously on Manila Jockey Club. Under our tax system, the CTA acts as a highly
specialized body specifically created for the purpose of reviewing tax
cases.104 Because of its recognized expertise, its findings of fact will ordinarily not
be reviewed, absent any showing of gross error or abuse on its part.105 Such
findings are binding on the Court and, absent strong reasons for us to delve into
facts, only questions of law are open for determination.106
Respondent claims that it is entitled to a refund on the basis of excess GRT
payments. We disagree.
Tax refunds are in the nature of tax exemptions.107 Such exemptions are strictly
construed against the taxpayer, being highly disfavored108 and almost said "to be
odious to the law." Hence, those who claim to be exempt from the payment of a
particular tax must do so under clear and unmistakable terms found in the statute.
They must be able to point to some positive provision, not merely a vague
implication,109 of the law creating that right.110
The right of taxation will not be surrendered, except in words too plain to be
mistaken.1wphi1 The reason is that the State cannot strip itself of this highest
attribute of sovereignty -- its most essential power of taxation -- by vague or
ambiguous language. Since tax refunds are in the nature of tax exemptions, these
are deemed to be "in derogation of sovereign authority and to be construed
strictissimi juris against the person or entity claiming the exemption."111
No less than our 1987 Constitution provides for the mechanism for granting tax
exemptions.112 They certainly cannot be granted by implication or mere
administrative regulation. Thus, when an exemption is claimed, it must indubitably
be shown to exist, for every presumption is against it,113 and a well-founded doubt
is fatal to the claim.114 In the instant case, respondent has not been able to
satisfactorily show that its FWT on interest income is exempt from the GRT. Like
China Banking Corporation, its argument creates a tax exemption where none
exists.115
No exemptions are normally allowed when a GRT is imposed. It is precisely
designed to maintain simplicity in the tax collection effort of the government and
to assure its steady source of revenue even during an economic slump.116
No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation, are different
from each other. The basis of their imposition may be the same, but their natures
are different, thus leading us to a final point. Is there double taxation?
The Court finds none.
Double taxation means taxing the same property twice when it should be taxed
only once; that is, "x x x taxing the same person twice by the same jurisdiction for
the same thing."117 It is obnoxious when the taxpayer is taxed twice, when it should
be but once.118 Otherwise described as "direct duplicate taxation,"119 the two
taxes must be imposed on the same subject matter, for the same purpose, by the
same taxing authority, within the same jurisdiction, during the same taxing period;
and they must be of the same kind or character.120
First, the taxes herein are imposed on two different subject matters. The subject
matter of the FWT is the passive income generated in the form of interest on
deposits and yield on deposit substitutes, while the subject matter of the GRT is the
privilege of engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is
an excise121 rather than a property tax.122 It is not an income tax, unlike the FWT. In
fact, we have already held that one can be taxed for engaging in business and
further taxed differently for the income derived therefrom.123 Akin to our ruling in
Velilla v. Posadas,124 these two taxes are entirely distinct and are assessed under
different provisions.
Second, although both taxes are national in scope because they are imposed by
the same taxing authority -- the national government under the Tax Code -- and
operate within the same Philippine jurisdiction for the same purpose of raising
revenues, the taxing periods they affect are different. The FWT is deducted and
withheld as soon as the income is earned, and is paid after every calendar quarter
in which it is earned. On the other hand, the GRT is neither deducted nor withheld,
but is paid only after every taxable quarter in which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income tax
subject to withholding, while the GRT is a percentage tax not subject to
withholding.

In short, there is no double taxation, because there is no taxing twice, by the same
taxing authority, within the same jurisdiction, for the same purpose, in different
taxing periods, some of the property in the territory.125Subjecting interest income to
a 20% FWT and including it in the computation of the 5% GRT is clearly not double
taxation.

WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the
Court of Appeals are hereby REVERSED and SET ASIDE. No costs.

SO ORDERED.
CONSTI2 TAXATION
G.R. No. 144104 June 29, 2004
LUNG CENTER OF THE PHILIPPINES, petitioner,
vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of
Quezon City,respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as
amended, of the Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R.
SP No. 57014 which affirmed the decision of the Central Board of Assessment
Appeals holding that the lot owned by the petitioner and its hospital building
constructed thereon are subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity
established on January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the
registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-
B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central
District, Quezon City. The lot has an area of 121,463 square meters and is covered
by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon
City. Erected in the middle of the aforesaid lot is a hospital known as the Lung
Center of the Philippines. A big space at the ground floor is being leased to private
parties, for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients whom they
charge for their professional services. Almost one-half of the entire area on the left
side of the building along Quezon Avenue is vacant and idle, while a big portion
on the right side, at the corner of Quezon Avenue and Elliptical Road, is being
leased for commercial purposes to a private enterprise known as the Elliptical
Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical
services to out-patients, both paying and non-paying. Aside from its income from
paying patients, the petitioner receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were
assessed for real property taxes in the amount of P4,554,860 by the City Assessor of
Quezon City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-
01231 (15-2518-A) were issued for the land and the hospital building,
respectively.4 On August 25, 1993, the petitioner filed a Claim for Exemption5 from
real property taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioners request was denied, and a petition was,
thereafter, filed before the Local Board of Assessment Appeals of Quezon City
(QC-LBAA, for brevity) for the reversal of the resolution of the City Assessor. The
petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the
property is exempt from real property taxes. It averred that a minimum of 60% of its
hospital beds are exclusively used for charity patients and that the major thrust of
its hospital operation is to serve charity patients. The petitioner contends that it is a
charitable institution and, as such, is exempt from real property taxes. The QC-
LBAA rendered judgment dismissing the petition and holding the petitioner liable
for real property taxes.6
The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of
Assessment Appeals of Quezon City (CBAA, for brevity)7 which ruled that the
petitioner was not a charitable institution and that its real properties were not
actually, directly and exclusively used for charitable purposes; hence, it was not
entitled to real property tax exemption under the constitution and the law. The
petitioner sought relief from the Court of Appeals, which rendered judgment
affirming the decision of the CBAA.8
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO
REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND
IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY
AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT
UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE
EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section
28(3), Article VI of the 1987 Constitution. It asserts that its character as a charitable
institution is not altered by the fact that it admits paying patients and renders
medical services to them, leases portions of the land to private parties, and rents
out portions of the hospital to private medical practitioners from which it derives
income to be used for operational expenses. The petitioner points out that for the
years 1995 to 1999, 100% of its out-patients were charity patients and of the
hospitals 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients.
It asserts that the fact that it receives subsidies from the government attests to its
character as a charitable institution. It contends that the "exclusivity" required in
the Constitution does not necessarily mean "solely." Hence, even if a portion of its
real estate is leased out to private individuals from whom it derives income, it does
not lose its character as a charitable institution, and its exemption from the
payment of real estate taxes on its real property. The petitioner cited our ruling
in Herrera v. QC-BAA9 to bolster its pose. The petitioner further contends that even
if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not
precluded from seeking tax exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a
charitable entity. The petitioners real property is not exempt from the payment of
real estate taxes under P.D. No. 1823 and even under the 1987 Constitution
because it failed to prove that it is a charitable institution and that the said
property is actually, directly and exclusively used for charitable purposes. The
respondents noted that in a newspaper report, it appears that graft charges were
filed with the Sandiganbayan against the director of the petitioner, its
administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids
and Garden Center, for entering into a lease contract over 7,663.13 square meters
of the property in 1990 for only P20,000 a month, when the monthly rental should
be P357,000 a month as determined by the Commission on Audit; and that instead
of complying with the directive of the COA for the cancellation of the contract for
being grossly prejudicial to the government, the petitioner renewed the same on
March 13, 1995 for a monthly rental of only P24,000. They assert that the petitioner
uses the subsidies granted by the government for charity patients and uses the rest
of its income from the property for the benefit of paying patients, among other
purposes. They aver that the petitioner failed to adduce substantial evidence that
100% of its out-patients and 170 beds in the hospital are reserved for indigent
patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its
record of service. That before a patient is admitted for treatment in the
Center, first impression is that it is pay-patient and required to pay a
certain amount as deposit. That even if a patient is living below the
poverty line, he is charged with high hospital bills. And, without these bills
being first settled, the poor patient cannot be allowed to leave the
hospital or be discharged without first paying the hospital bills or issue a
promissory note guaranteed and indorsed by an influential agency or
person known only to the Center; that even the remains of deceased
poor patients suffered the same fate. Moreover, before a patient is
admitted for treatment as free or charity patient, one must undergo a
series of interviews and must submit all the requirements needed by the
Center, usually accompanied by endorsement by an influential agency or
person known only to the Center. These facts were heard and admitted
by the Petitioner LCP during the hearings before the Honorable QC-BAA
and Honorable CBAA. These are the reasons of indigent patients, instead
of seeking treatment with the Center, they prefer to be treated at the
Quezon Institute. Can such practice by the Center be called charitable?10
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable
institution within the context of Presidential Decree No. 1823 and the 1973 and
1987 Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether
the real properties of the petitioner are exempt from real property taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the
context of the 1973 and 1987 Constitutions. To determine whether an enterprise is
a charitable institution/entity or not, the elements which should be considered
include the statute creating the enterprise, its corporate purposes, its constitution
and by-laws, the methods of administration, the nature of the actual work
performed, the character of the services rendered, the indefiniteness of the
beneficiaries, and the use and occupation of the properties.11
In the legal sense, a charity may be fully defined as a gift, to be applied
consistently with existing laws, for the benefit of an indefinite number of persons,
either by bringing their minds and hearts under the influence of education or
religion, by assisting them to establish themselves in life or otherwise lessening the
burden of government.12 It may be applied to almost anything that tend to
promote the well-doing and well-being of social man. It embraces the
improvement and promotion of the happiness of man.13 The word "charitable" is
not restricted to relief of the poor or sick.14 The test of a charity and a charitable
organization are in law the same. The test whether an enterprise is charitable or
not is whether it exists to carry out a purpose reorganized in law as charitable or
whether it is maintained for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which,
subject to the provisions of the decree, is to be administered by the Office of the
President of the Philippines with the Ministry of Health and the Ministry of Human
Settlements. It was organized for the welfare and benefit of the Filipino people
principally to help combat the high incidence of lung and pulmonary diseases in
the Philippines. The raison detre for the creation of the petitioner is stated in the
decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern,
having been the leading cause of illness and death in the Philippines,
comprising more than 45% of the total annual deaths from all causes, thus,
exacting a tremendous toll on human resources, which ailments are likely
to increase and degenerate into serious lung diseases on account of
unabated pollution, industrialization and unchecked cigarette smoking in
the country;lavvph!l.net
Whereas, the more common lung diseases are, to a great extent,
preventable, and curable with early and adequate medical care,
immunization and through prompt and intensive prevention and health
education programs;
Whereas, there is an urgent need to consolidate and reinforce existing
programs, strategies and efforts at preventing, treating and rehabilitating
people affected by lung diseases, and to undertake research and training
on the cure and prevention of lung diseases, through a Lung Center which
 will house and nurture the above and related activities and provide
tertiary-level care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide
material and financial support towards the establishment and
maintenance of a Lung Center for the welfare and benefit of the Filipino
people.15
The purposes for which the petitioner was created are spelled out in its Articles of
Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an
integrated medical institution which shall specialize in the treatment,
care, rehabilitation and/or relief of lung and allied diseases in line with
the concern of the government to assist and provide material and
financial support in the establishment and maintenance of a lung
center primarily to benefit the people of the Philippines and in
pursuance of the policy of the State to secure the well-being of the
people by providing them specialized health and medical services and
by minimizing the incidence of lung diseases in the country and
elsewhere.
2. To promote the noble undertaking of scientific research related to the
prevention of lung or pulmonary ailments and the care of lung patients,
including the holding of a series of relevant congresses, conventions,
seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific researches
on the biological, demographic, social, economic, eugenic and
physiological aspects of lung or pulmonary diseases and their control;
and to collect and publish the findings of such research for public
consumption;
4. To facilitate the dissemination of ideas and public acceptance of
information on lung consciousness or awareness, and the development
of fact-finding, information and reporting facilities for and in aid of the
general purposes or objects aforesaid, especially in human lung
requirements, general health and physical fitness, and other relevant or
related fields;
5. To encourage the training of physicians, nurses, health officers, social
workers and medical and technical personnel in the practical and
scientific implementation of services to lung patients;
6. To assist universities and research institutions in their studies about lung
diseases, to encourage advanced training in matters of the lung and
related fields and to support educational programs of value to general
health;
7. To encourage the formation of other organizations on the national,
provincial and/or city and local levels; and to coordinate their various
efforts and activities for the purpose of achieving a more effective
programmatic approach on the common problems relative to the
objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and
local foundations and organizations; and to administer grants and funds
that may be given to the organization;
9. To extend, whenever possible and expedient, medical services to the
public and, in general, to promote and protect the health of the masses
of our people, which has long been recognized as an economic asset
and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary
afflictions and maladies of the people in any and all walks of life,
including those who are poor and needy, all without regard to or
discrimination, because of race, creed, color or political belief of the
persons helped; and to enable them to obtain treatment when such
disorders occur;
11. To participate, as circumstances may warrant, in any activity
designed and carried on to promote the general health of the
community;
12. To acquire and/or borrow funds and to own all funds or equipment,
educational materials and supplies by purchase, donation, or otherwise
and to dispose of and distribute the same in such manner, and, on such
basis as the Center shall, from time to time, deem proper and best,
under the particular circumstances, to serve its general and non-profit
purposes and objectives;lavvphil.net
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer
and dispose of properties, whether real or personal, for purposes herein
mentioned; and
14. To do everything necessary, proper, advisable or convenient for the
accomplishment of any of the powers herein set forth and to do every
other act and thing incidental thereto or connected therewith.16
Hence, the medical services of the petitioner are to be rendered to the public in
general in any and all walks of life including those who are poor and the needy
without discrimination. After all, any person, the rich as well as the poor, may fall
sick or be injured or wounded and become a subject of charity.17
As a general principle, a charitable institution does not lose its character as such
and its exemption from taxes simply because it derives income from paying
patients, whether out-patient, or confined in the hospital, or receives subsidies from
the government, so long as the money received is devoted or used altogether to
the charitable object which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the
institution.18 In Congregational Sunday School, etc. v. Board of Review,19 the State
Supreme Court of Illinois held, thus:
[A]n institution does not lose its charitable character, and consequent
exemption from taxation, by reason of the fact that those recipients of its
benefits who are able to pay are required to do so, where no profit is
made by the institution and the amounts so received are applied in
furthering its charitable purposes, and those benefits are refused to none
on account of inability to pay therefor. The fundamental ground upon
which all exemptions in favor of charitable institutions are based is the
benefit conferred upon the public by them, and a consequent relief, to
some extent, of the burden upon the state to care for and advance the
interests of its citizens.20
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital
Association of South Dakota v. Baker:21
[T]he fact that paying patients are taken, the profits derived from
attendance upon these patients being exclusively devoted to the
maintenance of the charity, seems rather to enhance the usefulness of
the institution to the poor; for it is a matter of common observation
amongst those who have gone about at all amongst the suffering classes,
that the deserving poor can with difficulty be persuaded to enter an
asylum of any kind confined to the reception of objects of charity; and
that their honest pride is much less wounded by being placed in an
institution in which paying patients are also received. The fact of receiving
money from some of the patients does not, we think, at all impair the
character of the charity, so long as the money thus received is devoted
altogether to the charitable object which the institution is intended to
further.22
The money received by the petitioner becomes a part of the trust fund and must
be devoted to public trust purposes and cannot be diverted to private profit or
benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner
does not lose its character as a charitable institution simply because the gift or
donation is in the form of subsidies granted by the government. As held by the
State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt
Lake County:24
Second, the government subsidy payments are provided to the project.
Thus, those payments are like a gift or donation of any other kind except
they come from the government. In both Intermountain Health Care and
the present case, the crux is the presence or absence of material
reciprocity. It is entirely irrelevant to this analysis that the government,
rather than a private benefactor, chose to make up the deficit resulting
from the exchange between St. Marks Tower and the tenants by making
a contribution to the landlord, just as it would have been irrelevant
in Intermountain Health Care if the patients income supplements had
come from private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such
housing is by the government rather than private charitable contributions
does not dictate the denial of a charitable exemption if the facts
otherwise support such an exemption, as they do here.25
In this case, the petitioner adduced substantial evidence that it spent its income,
including the subsidies from the government for 1991 and 1992 for its patients and
for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from
its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the
second issue, that those portions of its real property that are leased to private
entities are not exempt from real property taxes as these are not actually, directly
and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The effect of an
exemption is equivalent to an appropriation. Hence, a claim for exemption from
tax payments must be clearly shown and based on language in the law too plain
to be mistaken.26 As held in Salvation Army v. Hoehn:27
An intention on the part of the legislature to grant an exemption from the
taxing power of the state will never be implied from language which will
admit of any other reasonable construction. Such an intention must be
expressed in clear and unmistakable terms, or must appear by necessary
implication from the language used, for it is a well settled principle that,
when a special privilege or exemption is claimed under a statute, charter
or act of incorporation, it is to be construed strictly against the property
owner and in favor of the public. This principle applies with peculiar force
to a claim of exemption from taxation . 28
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically
provides that the petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock
corporation organized primarily to help combat the high incidence of
lung and pulmonary diseases in the Philippines, all donations, contributions,
endowments and equipment and supplies to be imported by authorized
entities or persons and by the Board of Trustees of the Lung Center of the
 Philippines, Inc., for the actual use and benefit of the Lung Center, shall be
exempt from income and gift taxes, the same further deductible in full for
the purpose of determining the maximum deductible amount under
Section 30, paragraph (h), of the National Internal Revenue Code, as
amended.
The Lung Center of the Philippines shall be exempt from the payment of
taxes, charges and fees imposed by the Government or any political
subdivision or instrumentality thereof with respect to equipment purchases
made by, or for the Lung Center.29
It is plain as day that under the decree, the petitioner does not enjoy any property
tax exemption privileges for its real properties as well as the building constructed
thereon. If the intentions were otherwise, the same should have been among the
enumeration of tax exempt privileges under Section 2:
It is a settled rule of statutory construction that the express mention of one
person, thing, or consequence implies the exclusion of all others. The rule is
expressed in the familiar maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of
ways. One variation of the rule is the principle that what is expressed puts
an end to that which is implied. Expressium facit cessare tacitum. Thus,
where a statute, by its terms, is expressly limited to certain matters, it may
not, by interpretation or construction, be extended to other matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons
of restrictive interpretation. They are based on the rules of logic and the
natural workings of the human mind. They are predicated upon ones own
voluntary act and not upon that of others. They proceed from the premise
that the legislature would not have made specified enumeration in a
statute had the intention been not to restrict its meaning and confine its
terms to those expressly mentioned.30
The exemption must not be so enlarged by construction since the reasonable
presumption is that the State has granted in express terms all it intended to grant
at all, and that unless the privilege is limited to the very terms of the statute the
favor would be intended beyond what was meant.31
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly and exclusively used for
religious, charitable or educational purposes shall be exempt from
taxation.32
The tax exemption under this constitutional provision covers property taxes
only.33 As Chief Justice Hilario G. Davide, Jr., then a member of the 1986
Constitutional Commission, explained: ". . . what is exempted is not the institution
itself . . .; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or
educational purposes."34
Consequently, the constitutional provision is implemented by Section 234(b) of
Republic Act No. 7160 (otherwise known as the Local Government Code of 1991)
as follows:
SECTION 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries
and all lands, buildings, and improvements actually, directly,
and exclusively used for religious, charitable or educational
purposes.35
We note that under the 1935 Constitution, "... all lands, buildings, and
improvements used exclusively for charitable purposes shall be exempt from
taxation."36 However, under the 1973 and the present Constitutions, for "lands,
buildings, and improvements" of the charitable institution to be considered exempt,
the same should not only be "exclusively" used for charitable purposes; it is required
that such property be used "actually" and "directly" for such purposes.37
In light of the foregoing substantial changes in the Constitution, the petitioner
cannot rely on our ruling in Herrera v. Quezon City Board of Assessment
Appeals which was promulgated on September 30, 1961 before the 1973 and 1987
Constitutions took effect.38 As this Court held in Province of Abra v. Hernando:39
Under the 1935 Constitution: "Cemeteries, churches, and parsonages or
convents appurtenant thereto, and all lands, buildings, and improvements
used exclusively for religious, charitable, or educational purposes shall be
exempt from taxation." The present Constitution added "charitable
institutions, mosques, and non-profit cemeteries" and required that for the
exemption of "lands, buildings, and improvements," they should not only
be "exclusively" but also "actually" and "directly" used for religious or
charitable purposes. The Constitution is worded differently. The change
should not be ignored. It must be duly taken into consideration. Reliance
on past decisions would have sufficed were the words "actually" as well as
"directly" not added. There must be proof therefore of
the actual and direct use of the lands, buildings, and improvements for
religious or charitable purposes to be exempt from taxation.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be
entitled to the exemption, the petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. "Exclusive"
is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is defined, "in a manner to exclude;
as enjoying a privilege exclusively."40 If real property is used for one or more
commercial purposes, it is not exclusively used for the exempted purposes but is
subject to taxation.41 The words "dominant use" or "principal use" cannot be
substituted for the words "used exclusively" without doing violence to the
Constitutions and the law.42 Solely is synonymous with exclusively.43

What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself
to the purposes for which the charitable institution is organized. It is not the use of
the income from the real property that is determinative of whether the property is
used for tax-exempt purposes.44

The petitioner failed to discharge its burden to prove that the entirety of its real
property is actually, directly and exclusively used for charitable purposes. While
portions of the hospital are used for the treatment of patients and the dispensation
of medical services to them, whether paying or non-paying, other portions thereof
are being leased to private individuals for their clinics and a canteen. Further, a
portion of the land is being leased to a private individual for her business enterprise
under the business name "Elliptical Orchids and Garden Center." Indeed, the
petitioners evidence shows that it collected P1,136,483.45 as rentals in 1991
and P1,679,999.28 for 1992 from the said lessees.

Accordingly, we hold that the portions of the land leased to private entities as well
as those parts of the hospital leased to private individuals are not exempt from
such taxes.45 On the other hand, the portions of the land occupied by the hospital
and portions of the hospital used for its patients, whether paying or non-paying,
are exempt from real property taxes.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The

respondent Quezon City Assessor is hereby DIRECTED to determine, after due
hearing, the precise portions of the land and the area thereof which are leased to
private persons, and to compute the real property taxes due thereon as provided
for by law.

SO ORDERED.
CONSTI2 TAXATION a party, restrictions and duties to the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and
instrumentalities;
G.R. No. 149110 April 9, 2003

(b) From all income taxes, franchise taxes and realty taxes to be paid to
NATIONAL POWER CORPORATION, petitioner,
the National Government, its provinces, cities, municipalities and other
vs.
government agencies and instrumentalities;
CITY OF CABANATUAN, respondent.

(c) From all import duties, compensating taxes and advanced sales tax,
PUNO, J.:
and wharfage fees on import of foreign goods required for its operations
and projects; and
This is a petition for review1 of the Decision2 and the Resolution3 of the Court of
Appeals dated March 12, 2001 and July 10, 2001, respectively, finding petitioner
(d) From all taxes, duties, fees, imposts, and all other charges imposed by
National Power Corporation (NPC) liable to pay franchise tax to respondent City of
the Republic of the Philippines, its provinces, cities, municipalities and
Cabanatuan.
other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission,
Petitioner is a government-owned and controlled corporation created under utilization, and sale of electric power."12
Commonwealth Act No. 120, as amended.4 It is tasked to undertake the
"development of hydroelectric generations of power and the production of
The respondent filed a collection suit in the Regional Trial Court of Cabanatuan
electricity from nuclear, geothermal and other sources, as well as, the transmission
City, demanding that petitioner pay the assessed tax due, plus a surcharge
of electric power on a nationwide basis."5 Concomitant to its mandated duty,
equivalent to 25% of the amount of tax, and 2% monthly interest.13Respondent
petitioner has, among others, the power to construct, operate and maintain
alleged that petitioner's exemption from local taxes has been repealed by section
power plants, auxiliary plants, power stations and substations for the purpose of
193 of Rep. Act No. 7160,14 which reads as follows:
developing hydraulic power and supplying such power to the inhabitants.6

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise

For many years now, petitioner sells electric power to the residents of Cabanatuan
provided in this Code, tax exemptions or incentives granted to, or
City, posting a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of
presently enjoyed by all persons, whether natural or juridical, including
Ordinance No. 165-92,8 the respondent assessed the petitioner a franchise tax
government owned or controlled corporations, except local water districts,
amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
the preceding year.9
hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code."
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent
On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled
has no authority to impose tax on government entities. Petitioner also contended
that the tax exemption privileges granted to petitioner subsist despite the passage
that as a non-profit organization, it is exempted from the payment of all forms of
of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular
taxes, charges, duties or fees11 in accordance with sec. 13 of Rep. Act No. 6395, as
law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2)
amended, viz:
section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not
favored; and (3) local governments have no power to tax instrumentalities of the
"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, national government. Pertinent portion of the Order reads:
Duties, Fees, Imposts and Other Charges by Government and
Governmental Instrumentalities.- The Corporation shall be non-profit and
"The question of whether a particular law has been repealed or not by a
shall devote all its return from its capital investment, as well as excess
subsequent law is a matter of legislative intent. The lawmakers may
revenues from its operation, for expansion. To enable the Corporation to
expressly repeal a law by incorporating therein repealing provisions which
pay its indebtedness and obligations and in furtherance and effective
expressly and specifically cite(s) the particular law or laws, and portions
implementation of the policy enunciated in Section one of this Act, the
thereof, that are intended to be repealed. A declaration in a statute,
Corporation is hereby exempt:
usually in its repealing clause, that a particular and specific law, identified
by its number or title is repealed is an express repeal; all others are implied
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because it
service fees in any court or administrative proceedings in which it may be fails to identify the act or acts that are intended to be repealed. It is a
 well-settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against inconsistency and
repugnancy for the legislative is presumed to know the existing laws on
the subject and not to have enacted inconsistent or conflicting statutes. It
is also a well-settled rule that, generally, general law does not repeal a
special law unless it clearly appears that the legislative has intended by
the latter general act to modify or repeal the earlier special law. Thus,
despite the passage of R.A. No. 7160 from which the questioned
Ordinance No. 165-92 was based, the tax exemption privileges of
defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the
Supreme Court in the case of Basco vs. Philippine Amusement and
Gaming Corporation, 197 SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities of the
National Government. PAGCOR is a government owned or
controlled corporation with an original charter, PD 1869. All of its
shares of stocks are owned by the National Government. xxx
Being an instrumentality of the government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation
might be burdened, impeded or subjected to control by mere
local government.'
Like PAGCOR, NPC, being a government owned and controlled
corporation with an original charter and its shares of stocks owned by the
National Government, is beyond the taxing power of the Local
Government. Corollary to this, it should be noted here that in the NPC
Charter's declaration of Policy, Congress declared that: 'xxx (2) the total
electrification of the Philippines through the development of power from
all services to meet the needs of industrial development and dispersal and
needs of rural electrification are primary objectives of the nations which
shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.'
(underscoring supplied). To allow plaintiff to subject defendant to its tax-
ordinance would be to impede the avowed goal of this government
instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation.
Its taxing power is limited to that which is provided for in its charter or other
statute. Any grant of taxing power is to be construed strictly, with doubts
resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very
clear that the plaintiff could not impose the subject tax on the
defendant."16
On appeal, the Court of Appeals reversed the trial court's Order17 on the ground
that section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew
the exemptions granted to the petitioner.18 It ordered the petitioner to pay the
respondent city government the following: (a) the sum of P808,606.41 representing
the franchise tax due based on gross receipts for the year 1992, (b) the tax due
every year thereafter based in the gross receipts earned by NPC, (c) in all cases,
to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P
10,000.00 as litigation expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of
Appeal's Decision. This was denied by the appellate court, viz:
"The Court finds no merit in NPC's motion for reconsideration. Its arguments
reiterated therein that the taxing power of the province under Art. 137 (sic)
of the Local Government Code refers merely to private persons or
corporations in which category it (NPC) does not belong, and that the
LGC (RA 7160) which is a general law may not impliedly repeal the NPC
Charter which is a special lawfinds the answer in Section 193 of the LGC
to the effect that 'tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations except local water districts xxx are
hereby withdrawn.' The repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A
PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS
IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT
CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR
CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S
EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE
PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A
LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED
TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN
EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL
OVER THE LOCAL GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the authority to issue
Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a
franchise," pursuant to section 151 in relation to section 137 of the LGC, viz:
 "Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any
law or other special law, the province may impose a tax on businesses
enjoying a franchise, at a rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross receipts for the preceding
calendar year, or any fraction thereof, as provided herein." (emphasis
supplied)
x x x Otherwise, its operation might be burdened, impeded or subjected to
Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this
Code, the city, may levy the taxes, fees, and charges which the province
or municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in accordance
with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than fifty percent
(50%) except the rates of professional and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to
the respondent city government. It contends that sections 137 and 151 of the LGC
in relation to section 131, limit the taxing power of the respondent city government
to private entities that are engaged in trade or occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected
with public interest which is conferred upon private persons or corporations, under
such terms and conditions as the government and its political subdivisions may
impose in the interest of the public welfare, security and safety." From the
phraseology of this provision, the petitioner claims that the word "private" modifies
the terms "persons" and "corporations." Hence, when the LGC uses the term
"franchise," petitioner submits that it should refer specifically to franchises granted
to private natural persons and to private corporations.23 Ergo, its charter should not
be considered a "franchise" for the purpose of imposing the franchise tax in
question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade or
commercial activity regularly engaged in as means of livelihood or with a view to
profit." Petitioner claims that it is not engaged in an activity for profit, in as much as
its charter specifically provides that it is a "non-profit organization." In any case,
petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion and
improvement of its facilities and services.24
Petitioner also alleges that it is an instrumentality of the National
Government,25 and as such, may not be taxed by the respondent city
government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation26 where this Court held that local governments have no power to tax
instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the National
Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The
latter role is governmental, which places it in the category of an agency
or instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
control by a mere local government.
'The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National Government
over local governments.
'Justice Holmes, speaking for the Supreme Court, made reference
to the entire absence of power on the part of the States to touch,
in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed
that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even seriously burden it from
accomplishment of them.' (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as ' a tool regulation' (U.S. v.
Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the 'power to
destroy' (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power
to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax
privileges of government-owned or controlled corporations, is in the nature of an
implied repeal. A special law, its charter cannot be amended or modified
impliedly by the local government code which is a general law. Consequently,
petitioner claims that its exemption from all taxes, fees or charges under its charter
subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored and as much as possible, effect must be given
to all enactments of the legislature. Moreover, it has to be conceded that
the charter of the NPC constitutes a special law. Republic Act No. 7160, is
a general law. It is a basic rule in statutory construction that the
enactment of a later legislation which is a general law cannot be
construed to have repealed a special law. Where there is a conflict
between a general law and a special statute, the special statute should
prevail since it evinces the legislative intent more clearly than the general
statute."28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of
police power, should prevail over the LGC. It alleges that the power of the local
government to impose franchise tax is subordinate to petitioner's exemption from
taxation; "police power being the most pervasive, the least limitable and most
demanding of all powers, including the power of taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the government
can neither exist nor endure. A principal attribute of sovereignty,31 the exercise of
taxing power derives its source from the very existence of the state whose social
contract with its citizens obliges it to promote public interest and common good.
The theory behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.
In recent years, the increasing social challenges of the times expanded the scope
of state activity, and taxation has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and the protection of local
industries as well as public welfare and similar objectives.33 Taxation assumes even
greater significance with the ratification of the 1987 Constitution. Thenceforth, the
power to tax is no longer vested exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees and other charges34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to create its
own sources of revenue, to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments."
This paradigm shift results from the realization that genuine development can be
achieved only by strengthening local autonomy and promoting decentralization
of governance. For a long time, the country's highly centralized government
structure has bred a culture of dependence among local government leaders
upon the national leadership. It has also "dampened the spirit of initiative,
innovation and imaginative resilience in matters of local development on the part
of local government leaders."35 The only way to shatter this culture of dependence
is to give the LGUs a wider role in the delivery of basic services, and confer them
sufficient powers to generate their own sources for the purpose. To achieve this
goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a
local government code that will, consistent with the basic policy of local
autonomy, set the guidelines and limitations to this grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code which shall
provide for a more responsive and accountable local government
structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the
different local government units their powers, responsibilities, and
resources, and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions and duties of local officials,
and all other matters relating to the organization and operation of the
local units."
To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the
Local Government Code of 1991 (LGC), various measures have been enacted to
promote local autonomy. These include the Barrio Charter of 1959,37 the Local
Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local
Government Code of 1983.40 Despite these initiatives, however, the shackles of
dependence on the national government remained. Local government units were
faced with the same problems that hamper their capabilities to participate
effectively in the national development efforts, among which are: (a) inadequate
tax base, (b) lack of fiscal control over external sources of income, (c) limited
authority to prioritize and approve development projects, (d) heavy dependence
on external sources of income, and (e) limited supervisory control over personnel
of national line agencies.41
Considered as the most revolutionary piece of legislation on local autonomy,42 the
LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax
base of LGUs to include taxes which were prohibited by previous laws such as the
imposition of taxes on forest products, forest concessionaires, mineral products,
mining operations, and the like. The LGC likewise provides enough flexibility to
impose tax rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and maximum
tax rates and leaves the determination of the actual rates to the
respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the national government from the
coverage of local taxation. Although as a general rule, LGUs cannot impose taxes,
fees or charges of any kind on the National Government, its agencies and
instrumentalities, this rule now admits an exception, i.e., when specific provisions of
the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:
 "Section 133. Common Limitations on the Taxing Powers of the Local
Government Units.- Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
x x x
(o) Taxes, fees, or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units." (emphasis
supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs.
Philippine Amusement and Gaming Corporation44 relied upon by the petitioner to
support its claim no longer applies. To emphasize, the Basco case was decided
prior to the effectivity of the LGC, when no law empowering the local government
units to tax instrumentalities of the National Government was in effect. However, as
this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA)
vs. Marcos,45 nothing prevents Congress from decreeing that even instrumentalities
or agencies of the government performing governmental functions may be
subject to tax.46 In enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit. Thus, after reviewing the
specific provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we
conclude that as a general rule, as laid down in section 133, the taxing
power of local governments cannot extend to the levy of inter alia, 'taxes,
fees and charges of any kind on the national government, its agencies
and instrumentalities, and local government units'; however, pursuant to
section 232, provinces, cities and municipalities in the Metropolitan Manila
Area may impose the real property tax except on, inter alia, 'real property
owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted for
consideration or otherwise, to a taxable person as provided in the item (a)
of the first paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC clearly
authorizes the respondent city government to impose on the petitioner the
franchise tax in question.
In its general signification, a franchise is a privilege conferred by government
authority, which does not belong to citizens of the country generally as a matter of
common right.48 In its specific sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The former relates to the right to
exist as a corporation, by virtue of duly approved articles of incorporation, or a
charter pursuant to a special law creating the corporation.49 The right under a
primary or general franchise is vested in the individuals who compose the
corporation and not in the corporation itself.50 On the other hand, the latter refers
to the right or privileges conferred upon an existing corporation such as the right to
use the streets of a municipality to lay pipes of tracks, erect poles or string
wires.51 The rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a general
power granted to a corporation to dispose of its property, except such special or
secondary franchises as are charged with a public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the
sense of a secondary or special franchise. This is to avoid any confusion when the
word franchise is used in the context of taxation. As commonly used, a franchise
tax is "a tax on the privilege of transacting business in the state and exercising
corporate franchises granted by the state."53 It is not levied on the corporation
simply for existing as a corporation, upon its property54 or its income,55 but on its
exercise of the rights or privileges granted to it by the government. Hence, a
corporation need not pay franchise tax from the time it ceased to do business and
exercise its franchise.56 It is within this context that the phrase "tax on businesses
enjoying a franchise" in section 137 of the LGC should be interpreted and
understood. Verily, to determine whether the petitioner is covered by the franchise
tax in question, the following requisites should concur: (1) that petitioner has a
"franchise" in the sense of a secondary or special franchise; and (2) that it is
exercising its rights or privileges under this franchise within the territory of the
respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep.
Act No. 7395, constitutes petitioner's primary and secondary franchises. It serves as
the petitioner's charter, defining its composition, capitalization, the appointment
and the specific duties of its corporate officers, and its corporate life span.57 As its
secondary franchise, Commonwealth Act No. 120, as amended, vests the
petitioner the following powers which are not available to ordinary
corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of water power in
any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in
the Philippines, for the purposes specified in this Act; to intercept and divert the
flow of waters from lands of riparian owners and from persons owning or
interested in waters which are or may be necessary for said purposes, upon
payment of just compensation therefor; to alter, straighten, obstruct or increase
the flow of water in streams or water channels intersecting or connecting
therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly
or indirectly, adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams,
reservoirs, pipes, mains, transmission lines, power stations and substations, and
other works for the purpose of developing hydraulic power from any river, creek,
lake, spring and waterfall in the Philippines and supplying such power to the
 inhabitants thereof; to acquire, construct, install, maintain, operate, and
improve gas, oil, or steam engines, and/or other prime movers, generators and
machinery in plants and/or auxiliary plants for the production of electric power;
to establish, develop, operate, maintain and administer power and lighting
systems for the transmission and utilization of its power generation; to sell electric
power in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems
and other government institutions, (3) electric cooperatives, (4) franchise holders,
and (5) real estate subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber
and otherwise dispose of property incident to, or necessary, convenient or
proper to carry out the purposes for which the Corporation was created:
Provided, That in case a right of way is necessary for its transmission lines,
easement of right of way shall only be sought: Provided, however, That in case
the property itself shall be acquired by purchase, the cost thereof shall be the
fair market value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch,
flume, street, avenue, highway or railway of private and public ownership, as the
location of said works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the
manner provided by law for instituting condemnation proceedings by the
national, provincial and municipal governments;
x x x
(m) To cooperate with, and to coordinate its operations with those of the
National Electrification Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding
the reservoirs of plants and/or projects constructed or proposed to be
constructed by the Corporation. Upon determination by the Corporation of the
areas required for watersheds for a specific project, the Bureau of Forestry, the
Reforestation Administration and the Bureau of Lands shall, upon written advice
by the Corporation, forthwith surrender jurisdiction to the Corporation of all areas
embraced within the watersheds, subject to existing private rights, the needs of
waterworks systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall
adopt measures to prevent environmental pollution and promote the
conservation, development and maximum utilization of natural resources xxx "58
With these powers, petitioner eventually had the monopoly in the generation and
distribution of electricity. This monopoly was strengthened with the issuance of Pres.
Decree No. 40,59 nationalizing the electric power industry. Although Exec. Order No.
21560 thereafter allowed private sector participation in the generation of electricity,
the transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city
government's territorial jurisdiction pursuant to the powers granted to it by
Commonwealth Act No. 120, as amended. From its operations in the City of
Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992.
Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax
in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise
tax simply because its stocks are wholly owned by the National Government, and
its charter characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the
exercise by the corporation of a privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and distinct entity from
the National Government. It can sue and be sued under its own name,61 and can
exercise all the powers of a corporation under the Corporation Code.62
To be sure, the ownership by the National Government of its entire capital stock
does not necessarily imply that petitioner is not engaged in business. Section 2 of
Pres. Decree No. 202963 classifies government-owned or controlled corporations
(GOCCs) into those performing governmental functions and those performing
proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock
corporation, whether performing governmental or proprietary
functions, which is directly chartered by special law or if organized under
the general corporation law is owned or controlled by the government
directly, or indirectly through a parent corporation or subsidiary
corporation, to the extent of at least a majority of its outstanding voting
capital stock x x x." (emphases supplied)
Governmental functions are those pertaining to the administration of government,
and as such, are treated as absolute obligation on the part of the state to perform
while proprietary functions are those that are undertaken only by way of
advancing the general interest of society, and are merely optional on the
government.64 Included in the class of GOCCs performing proprietary functions
are "business-like" entities such as the National Steel Corporation (NSC), the
National Development Corporation (NDC), the Social Security System (SSS), the
Government Service Insurance System (GSIS), and the National Water Sewerage
Authority (NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric
generation of power and the production of electricity from nuclear, geothermal
and other sources, as well as the transmission of electric power on a nationwide
basis."66 Pursuant to this mandate, petitioner generates power and sells electricity
in bulk. Certainly, these activities do not partake of the sovereign functions of the
government. They are purely private and commercial undertakings, albeit imbued
with public interest. The public interest involved in its activities, however, does not
distract from the true nature of the petitioner as a commercial enterprise, in the
same league with similar public utilities like telephone and telegraph companies,
railroad companies, water supply and irrigation companies, gas, coal or light
companies, power plants, ice plant among others; all of which are declared by
this Court as ministrant or proprietary functions of government aimed at advancing
the general interest of society.67
A closer reading of its charter reveals that even the legislature treats the character
of the petitioner's enterprise as a "business," although it limits petitioner's profits to
twelve percent (12%), viz:68
"(n) When essential to the proper administration of its corporate affairs or
necessary for the proper transaction of its business or to carry out the
purposes for which it was organized, to contract indebtedness and issue
bonds subject to approval of the President upon recommendation of the
Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably
necessary to carry out the business and purposes for which it was
organized, or which, from time to time, may be declared by the Board to
be necessary, useful, incidental or auxiliary to accomplish the said
purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty
percent (60%) of its electricity requirement from the petitioner are likewise imposed
the cap of twelve percent (12%) on profits.69 The main difference is that the
petitioner is mandated to devote "all its returns from its capital investment, as well
as excess revenues from its operation, for expansion"70 while other franchise
holders have the option to distribute their profits to its stockholders by declaring
dividends. We do not see why this fact can be a source of difference in tax
treatment. In both instances, the taxable entity is the corporation, which exercises
the franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions
under its charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions
must be shown to exist clearly and categorically, and supported by clear legal
provisions.71 In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act
No. 6395 exempting from, among others, "all income taxes, franchise taxes and
realty taxes to be paid to the National Government, its provinces, cities,
municipalities and other government agencies and instrumentalities." However,
section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax
privileges previously enjoyed by private and public corporations. Contrary to the
contention of petitioner, section 193 of the LGC is an express, albeit general,
repeal of all statutes granting tax exemptions from local taxes.72 It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius.73 Not being a local water district, a
cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital
or educational institution, petitioner clearly does not belong to the exception. It is
therefore incumbent upon the petitioner to point to some provisions of the LGC
that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that
the LGUs can impose franchise tax "notwithstanding any exemption granted by
any law or other special law." This particular provision of the LGC does not admit
any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's
exemption from the payment of franchise taxes was brought as an issue before
this Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both
instances, we ruled that the franchise tax in question is imposable despite any
exemption enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of Sections 137 and 193
of the LGC to support their position that MERALCO's tax exemption has been
withdrawn. The explicit language of section 137 which authorizes the province to
impose franchise tax 'notwithstanding any exemption granted by any law or
other special law' is all-encompassing and clear. The franchise tax is imposable
despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By
stating that unless otherwise provided in this Code, tax exemptions or incentives
granted to or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations except (1) local water
districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-
profit hospitals and educational institutions, are withdrawn upon the effectivity of
this code, the obvious import is to limit the exemptions to the three enumerated
entities. It is a basic precept of statutory construction that the express mention of
one person, thing, act, or consequence excludes all others as expressed in the
familiar maxim expressio unius est exclusio alterius. In the absence of any
provision of the Code to the contrary, and we find no other provision in point,
any existing tax exemption or incentive enjoyed by MERALCO under existing law
was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the
LGC the local government unit may now impose a local tax at a rate not
exceeding 50% of 1% of the gross annual receipts for the preceding calendar
 based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or
charter is clearly manifested by the language used on (sic) Sections 137 and 193
categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have been
used."76 (emphases supplied).

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

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

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001,
respectively, are hereby AFFIRMED.

SO ORDERED.