G.R. No.

L-9596 February 11, 1916

MARCOS MENDOZA, plaintiff-appellee,

vs.
FRANCISCO DE LEON, ET AL., defendants-appellants.

Luis Morales for appellant.

Hugo Sansano for appellee.

TRENT, J.:

This is an action for damages against the individual members of the municipal council of the
municipality of Villasis, Pangasinan, for the revocation of the lease of an exclusive ferry
privilege duly awarded to the plaintiff under the provisions of Act No. 1643 of the Philippine
Commission. After use of a little more than one year, the plaintiff was forcibly ejected under and
pursuance of a resolution adopted by the herein defendants, awarding a franchise for the same
ferry to another person.

Municipalities of the Philippine Islands organized under the Municipal Code have both
governmental and corporate or business functions. Of the first class are the adoption of
regulation against fire and disease, preservation of the public peace, maintenance of municipal
prisons, establishment of primary schools and post-offices, etc. Of the latter class are the
establishment of municipal waterworks for the use of the inhabitants, the construction and
maintenance of municipal slaughterhouses, markets, stables, bathing establishments, wharves,
ferries, and fisheries. Act No. 1643 provides that the use of each fishery, fish-breeding ground,
ferry, stable, market, and slaughterhouse belonging to any municipality or township shall be let
to the highest bidder annually or for such longer period not exceeding five years as may have
been previously approved by the provincial board of the province in which the municipality or
township is located.

The two fold character of the powers of a municipality under our Municipal Code (Act No. 82) is
so apparent and its private or corporate powers so numerous and important that we find no
difficulty in reaching the conclusion that the general principles governing the liability of such
entities to applicable to it. The distinction between governmental powers on the one hand, and
corporate or proprietary or business powers on the other, as the latter class is variously described
in the reported cases, has been long recognized in the United States and there is no dissent from
the doctrine.

In Wilcox vs. City of Rochester (190 N. Y., 137), it was said:

The broad general doctrine of the Maxmilian case (Maxmilian vs. Mayor, etc., New
York, 62 N. Y. 160), which is certainly not now open to question in the courts of this
State, is that "two kinds of duties are imposed on municipal corporations, the one
governmental and a branch of the general administration of the state, the other quasi
private or corporate;" and "that in the exercise of the latter duties the municipality is
 liable for the acts of its officers and agents, while in the former it is not." (Cullen, J., in
Lefrois vs. Co. of Monroe, 162 N. Y., 563, 567.)

The Maxmilian case is quoted with approval in Bond vs. Royston (130 Ga., 646).

In Co. Comm's of Anne Arundel Co. vs. Duckett (20 Md., 468, 476; 83 Am. Dec., 557), it was
said:

With regard to the liability of a public municipal corporation for the acts of its officers,
the distinction is between an exercise of those legislative powers which it holds for public
purposes, and as part of the government of the country, and those private franchise which
belong to it, as a creation of the law; within the sphere of the former, it enjoys, the
exemption of the government, from responsibility for its own acts, and for the acts of
those who are independent corporate officers, deriving their rights and duties from the
sovereign power. But in regard to the latter, it is responsible for the acts of those who are
in law its agents, though they may not be appointed by itself.

This case was quoted with approval in Trammell vs. Russellville (34 Ark., 105; 36 Am. Rep., 1);
and in McIlhenney vs. Wilmington (127 N. C., 146; 50 L. R. A. 470).

In Cummings vs. Lobsitz (42 Okla., 704; L. R. A., N. S., 1915 B, p. 415), it was said:

A distinction is made between the liability of a municipal corporation for the acts of its
officers in the exercise of powers which it possesses for public purpose and which it
holds as agent of the state, and those powers which embrace private or corporate duties
and are exercised for the advantage of the municipality and its inhabitants. When the acts
of its officers come within the powers which it has as agent of the state, it is exempt from
liability for its own acts and the acts of its officers; if the acts of the officer or agent of the
city are for the special benefits of the corporation in its private or corporate interest, such
officer is deemed the agent or servant of the city, but where the act is not in relation to a
private or corporate interest of the municipality, but for the benefit of the public at large,
such acts by the agents and servants are deemed to be acts by public or state officers, and
for the public benefit.

The distinction is also recognized by Dillon in his work on Municipal Corporations (5th ed.)
section 38 and 39.

As is indicated in some of the above quoted cases, the municipality is not liable for the acts of its
officers or agents in the performance of its governmental functions. Governmental affairs do not
lose their governmental character by being delegated to the municipal governments. Nor of the
municipality which, for convenience the state allows the municipality to select, change their
character. To preserve the peace, protect the morals and health of the community and so on to
administer government, whether it be done by the central government itself or is shifted to a
local organization. And the state being immune for injuries suffered by private individuals in the
administration of strictly governmental functions, like immunity is enjoyed by the municipality
in the performance of the same duties, unless it is expressly made liable by statute.
 The state cannot, without its consent expressed through legislation, be sued for injuries
resulting from an act done in the exercise of its lawful governmental powers and
pertaining to the administration of government. ... Municipal corporations are agents of
the state in the exercise of certain governmental powers. The preservation of the health
and peace of its inhabitants and fire protection afforded the property owner, are
governmental functions. (Burke vs. City of South Omaha, 79 Neb., 793.)

In Nicholson vs. Detroit (129 Mich., 246; 56 L. R. A., 601), it was said:

It is the well-settled rule that the state is not liable to private persons who suffer injuries
through the negligence of its officers and the rule extends to township and cities
while in the performance of state functions, imposed upon them by law. This subject is
fully discussed in Detroit vs. Blackeby (21 Mich., 84; 4 Am. Rep., 450). It was there held
that cities are governmental agencies, and that their "officers are in no such sense
municipal agents; that their negligence is the neglect of the municipality; nor will their
misconduct be chargeable against them, unless act complained of the either authorized or
ratified." And in a large number of cases it has been held that there is no such liability on
the part of such governmental agency unless it has been imposed by statute, and in such
case it is necessarily limited by the statute.

In Claussen vs. City of Luverne (103 Minn., 491; 15 L. R. A., N. S., 698), it was said:

It is elementary that neither the state nor any of the subdivisions, like a municipality,
through which it operates, is liable for torts committed by public officers, save in
definitely excepted classes of cases. The exemption is based upon the sovereign character
of the state and its agencies, and upon the absence of obligation, and not on the ground
that no means for remedy have been provided. "The government," said Mr. Justice Story,
"does not undertake to guarantee to any person the fidelity of the officers or agents whom
it employs, since that would involve in all its operations in endless embarrassments,
difficulties and losses, which would be subversive of the public interest." (U.S. vs.
Kirkpatrick, 9 Wheat., 720; 6 L. ed., 199; Beers vs. Arkansas, 20 How., 527; 15 L. ed.,
991.) This general exemption has been applied to municipal corporations in so far as the
acts complained of were, in the language of the memorandum of the trial court, "done in
exercising powers for the public at large as a governing agency." While so acting, the city
cannot be held liable for misfeasance; and ... the rule of respondeat superior has no
application.

Nor are officers or agents of the Government charged with the performance of governmental
duties which are in their nature legislative, or quasi judicial, liable for the consequences of their
official acts, unless it be shown that they act willfully and maliciously, and with the express
purpose of inflicting injury upon the plaintiff. If they exercise their honest judgment in the
performance of their duties, their errors cannot be charged against them. (People vs. May, 251
Ill., 54; Salt Lake County vs. Clinton [Utah, 1911], 117 Pac., 1075; Comanche County vs. Burks
(Tex. Civ. App., 1914), 166 S. W., 470; Monnier vs. Godbold, 116 La., 165; 5 L. R. A., N. S.,
463; Ray vs. Dodd, 132 Mo. App., 444; Johnson vs. Marsh, 82 N. J. L.M, 4; Gregory vs. Brooks,
37 Conn., 3645; Lecourt vs. Gaster, 50 La. Ann., 521.) So it may be said that in so far as its
governmental functions are concerned, a municipality is not liable at all, unless expressly made
so by statute; nor are its officers, so long as they perform their duties honestly and in good faith.
The most common illustration of both phrases of this rule is the action for false imprisonment so
often brought either against a municipality or a municipal police officer. (Bartlett vs. City of
Columbus, 101 Ga., 300; 44 L. R. A., 795; Peter vs. City of Lindborg, 40 Kan., 654.) So, in Field
vs. City of Des Moines (39 Iowa, 575), it was held that a municipality, acting under authority
given it by the central government to destroy houses in the path of a conflagration, was not liable
in damages in the absence of a statute expressly making it so.

From what has already been said, it should be clear that a municipality is not exempt from
liability for the negligent performance of its corporate or proprietary or business functions. In the
administration of its patrimonial property, it is to be regarded as a private corporation or
individual so far as its liability to third persons on contract or in tort is concerned. Its contracts,
validly entered into, may be enforced and damages may be collected from it for the torts of its
officers or agents within the scope of their employment in precisely the same manner and to the
same extent as those of private corporations or individuals. As to such matters the principles of
respondeat superior applies. It is for these purposes that the municipality is made liable to suits
in the courts.

Municipal corporations are subject to be sued upon contracts and in tort. In a previous
chapter we have considered at length the authority of such corporations to make
contracts, the mode of exercising, and the effect of transcending the power. This leaves
but little to add in this place respecting their liability in actions ex contractu. Upon an
authorized contract that is, upon a contract within the scope of the charter or
legislative powers of the corporation and duly made by the proper officers or agents
they are liable in the same manner and to the same extent as private corporations or
natural persons. (Dillon on Municipal Corporations, 5th ed., sec. 1610.)

The same author says in section 1647:

The rule of law is a general one, that the superior or employer must answer civilly of the
negligence or want of skill of his agent or servant in the course or line of his employment,
by which another, who is free from contributory fault, is injured. Municipal corporations,
under the conditions herein stated, fall within the operation of this rule of law, and are
liable, accordingly, to civil actions for damages when the requisite elements of liability
coexist. To create such liability, it is fundamentally necessary that the act done which is
injurious to others must be within the scope of the corporate powers as prescribed by
charter or positive enactment (the extent of which powers all persons are bound, at their
peril, know); in other words, it must not be ultra vires in the sense that it is not within the
power or authority of the corporation to act in reference to it under any circumstances. If
the act complained of necessarily lies wholly outside of the general or special powers of
the corporation as conferred in its charter or by statute, the corporation can in no event be
liable to an action for damages, whether it directly commanded the performance of the
act whether it be done by its officers without its express command; for a corporation
cannot of course be impliedly liable to a greater extent than it could make itself by
express corporate vote or action.
It often happens that the same agent or agency has both a governmental and a corporate
character. Such, for instance, are a municipal water system designed both for protection against
fire (a governmental function) and to supply water to the inhabitants for profit (a corporate
function) (Omaha Water Co. vs. Omaha, 12 L.R.A., N. S., 736l 77 C.C.A., 267; 147 Fed., 1;
Judson vs. Borough of Winsted, 80 Conn., 3841 15 L. R. A., N. S., 91); a municipal light plant
both for lighting the streets (a governmental function) and for furnishing light to the inhabitants
at a profit (a corporate function) (Fisher vs. NewBern, 140 N. C., 506; 111 Am. St. Rep., 857);
an agent who is at the same time a police officer and a caretaker of a municipal toll bridge
(Woodhull vs. Mayor, etc., of New York, 150 N. Y., 450). It is, also, sometimes the case that
considerable difficulty is experienced in determining whether a particular municipal duty is
governmental or corporate.

But questions such as these do not arise in the case at bar. Here is it clear that the leasing of a
municipal ferry to the highest bidder for a specified period of time is not a governmental but a
corporate function. Such a lease, when validly entered into, constitutes a contract with the lessee
which the municipality is bound to respect. The matter is thus summed up by Dillon on
Municipal Corporations (5th ed., sec. 1306):

Ordinances made by municipalities under charter or legislative authority, containing

grants to water and light companies and other public service corporations of the right to
use the streets for pipes, mains, etc., upon the condition of the performance of service by
the grantee, are, after acceptance and performance by the grantee, contracts protected by
the prohibition of the Federal Constitution against the enactment of any State law
impairing the obligation of contracts.

Again, this author, adopting the language of the court in In re Fay (15 Pick. [Mass.], 243), says,
in section 277:

If a municipal corporation, seized of a ferry, lease the same, through the agency of the
mayor and aldermen, with a covenant of quiet enjoyment, this covenant will not restrain
in them by statute, to license another ferry over the same waters, if in their judgment
(which cannot be reviewed by the courts) the public necessity and convenience require it.
On such a covenant the city may be liable to the covenantees; but the powers vested in
the city officers as trustees for the public cannot be thus abrogated. If, however, city in its
corporate capacity is the legal owner of an exclusive franchise, its grantees or lessees
would hold it, notwithstanding any license to others, whether granted by the mayor and
aldermen or any other tribunal.

It seems clear, therefore, that under the provisions of Municipal Code and Act No. 1634, above
referred to, the plaintiff had a vested right to the exclusive operation of the ferry in question for
the period of his lease. Were the municipality a party to this action, it would be patent that a
judgment for damages against it for the rescission of the contract would be proper. This, be it
said, is the usual method of exacting damages, either ex contractu or ex delicto arising from the
exercise of corporate powers of municipalities. But the present action is against the members of
the municipal council personally, and the question arises: Are they liable? In administering the
patrimonial property of municipalities, the municipal council occupies, for most purposes, the
position of a board of directors of a private corporation. In disposing of the local public utilities,
if the term may be used, such as the fishing and ferry rights, etc., they must exercise considerable
judgment. It required some considerable amount of business acumen to compel performance on
the part of lessees of these privileges in accordance with the terms of their leases and in a manner
which will not cause the property to deteriorate. Questions must continually arise which are not
expressly provided for in contracts and which must be settled, if possible, in a manner that will
preserve the just claims of the municipality. Indeed, it is not at all improbable that on occasion
the councilors may have reason to believe that a particular contract has been rescinded by the
other party or has never been legally entered into, in both of which cases, decisive steps must be
taken to safeguard the interest of the municipality. Thus, in Municipality of Moncada vs.
Cajuigan (21 Phil. Rep., 184), the lessee of a municipal fishery was evicted for failing to pay his
quarterly rents. The municipal authorities rightly held that the contract was rescinded but forcibly
evicted the lessee instead of resorting to the courts. Hence, in an action by the municipality
against the lessee and his bondsmen to recover rent arrears, damages were allowed the lessee on
his counterclaim for the loss caused by the forcible eviction. Nevertheless, we do not think the
councilors could have been held personally liable for their error in resorting to forcible eviction
of the lessee. Theirs was an error of judgment, and honest mistake on their part as to the rights of
the municipality in the premises. We think the rule of personal liability should be with municipal
councilors in such matters as it is with the directors or managers of an ordinary private
corporation.

Under the rule that directors are not liable for mistakes of judgment, it follows naturally
that they are not liable for the mismanagement of the corporate affairs where such
mismanagement is a mistake of judgment. The wisdom of this rule is not only approved
by common experience but by law writers and all courts. A rule so rigid as to hold
directors personally liable for honest mistakes in corporate management would deter all
prudent business men from accepting such positions. The remedy of stockholders in all
such cases is by a change in the directory. ... The rule is that courts will not interfere even
in the doubtful cases. But directors and managing officers may be liable for
mismanagement to warrant the interposition of a court either as against the contemplated
action of the directors, or a majority of the stockholders, or to give relief by way of
damages after the action as been taken; a case must be made out which plainly shows that
such action is so far opposed to the true interests of the corporation itself as to lead to
clear inference that no one thus acting could have been influenced by any honest desire to
secure such interests, but that he must have acted with an intent to subserve some outside
purpose, regardless of the consequences to the corporation, and in a manner inconsistent
with its interests. (Thompson on Corporations, sec. 1298.)

In the case at bar, there is not a scintilla of evidence that there was any justifiable reason for
forcibly evicting the plaintiff from the ferry which he had leased. On the contrary, the defendant
councilors attempted to justify their action on the ground that the ferry which he was operating
was not the one leased to him; this, in spite of the fact that the vice-president had personally
placed him in possession of it more than a year before, and the fact that he had operated this ferry
for over year, evidently with the knowledge of the defendants. The evidence is so clear that the
ferry of which the plaintiff was dispossessed was the one which he leased that no reasonable man
would entertain any doubt whatever upon the question. Hence, we cannot say that in rescinding
the contract with the plaintiff, thereby making the municipality liable to an action for damages
for no valid reason at all, the defendant councilors were honestly acting for the interests of the
municipality. We are, therefore, of the opinion that the defendants are liable jointly and severally
for the damages sustained by the plaintiff from the rescission of his contract of lease of the ferry
privilege in question. In reaching this conclusion, we have not failed to take into consideration
the rule enunciated in Dennison vs. The Moro Province (R.G. No. 8173, March 28, 1914; not
reported), nor the distinction made by the courts in the United States between the liability of a
municipal corporation, made such acceptance of a village or city charter, and the involuntary
quasi corporations known as counties, towns, school districts, and especially the townships of
New England. Upon the question of the amount of damages sustained, we accept the findings of
the lower court.

For the foregoing reasons, the judgment appealed from is affirmed, with cost. So ordered.

Arellano, C.J., Torres, Johnson and Araullo, JJ., concur.

Moreland, J., concurs in the result.
G.R. No. 92087 May 8, 1992

SOFIA FERNANDO, in her behalf and as the legal guardian of her minor children, namely: ALBERTO & ROBERTO, all surnamed
FERNANDO, ANITA GARCIA, NICOLAS LIAGOSO, ROSALIA BERTULANO, in her behalf and as the legal guardian of her minor
children, namely: EDUARDO, ROLANDO, DANIEL, AND JOCELYN, all surnamed BERTULANO, PRIMITIVA FAJARDO in her behalf
and as legal guardian of her minor children, namely: GILBERT, GLEN, JOCELYN AND JOSELITO, all surnamed FAJARDO, and
EMETERIA LIAGOSO, in her behalf and as guardian ad litem, of her minor grandchildren, namely: NOEL, WILLIAM, GENEVIEVE
and GERRY, all surnamed LIAGOSO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND CITY OF DAVAO, respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari praying that the amended decision of the Court of Appeals dated January 11, 1990 in CA-G.R. No.
C.V. 04846, entitled "Sofia Fernando, etc., et al. v. The City of Davao," be reversed and that its original decision dated January 31, 1986 be
reinstated subject to the modification sought by the petitioners in their motion for partial reconsideration dated March 6, 1986.

The antecedent facts are briefly narrated by the trial court, as follows:

From the evidence presented we see the following facts: On November 7, 1975, Bibiano Morta, market master of the
Agdao Public Market filed a requisition request with the Chief of Property of the City Treasurer's Office for the re-
emptying of the septic tank in Agdao. An invitation to bid was issued to Aurelio Bertulano, Lito Catarsa, Feliciano
Bascon, Federico Bolo and Antonio Suer, Jr. Bascon won the bid. On November 26, 1975 Bascon was notified and he
signed the purchase order. However, before such date, specifically on November 22, 1975, bidder Bertulano with four
other companions namely Joselito Garcia, William Liagoso, Alberto Fernando and Jose Fajardo, Jr. were found dead
inside the septic tank. The bodies were removed by a fireman. One body, that of Joselito Garcia, was taken out by his
uncle, Danilo Garcia and taken to the Regional Hospital but he expired there. The City Engineer's office investigated
the case and learned that the five victims entered the septic tank without clearance from it nor with the knowledge and
consent of the market master. In fact, the septic tank was found to be almost empty and the victims were presumed to
be the ones who did the re-emptying. Dr. Juan Abear of the City Health Office autopsied the bodies and in his reports,
put the cause of death of all five victims as "asphyxia" caused by the diminution of oxygen supply in the body working
below normal conditions. The lungs of the five victims burst, swelled in hemmorrhagic areas and this was due to their
intake of toxic gas, which, in this case, was sulfide gas produced from the waste matter inside the septic tank. (p. 177,
Records)

On August 28, 1984, the trial court rendered a decision, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, this case is hereby DISMISSED without pronouncement as to costs.

SO ORDERED. (Records, p. 181)

From the said decision, the petitioners appealed to the then Intermediate Appellate Court (now Court of Appeals). On January 3, 1986, the
appellate court issued a decision, the dispositive portion of which reads:

WHEREFORE, in view of the facts fully established and in the liberal interpretation of what the Constitution and the law
intended to protect the plight of the poor and the needy, the ignorant and the
indigent more entitled to social justice for having, in the unforgettable words of Magsaysay, "less in life," We hereby
reverse and set aside the appealed judgment and render another one:

1. Ordering the defendant to pay to the plaintiffs Dionisio Fernando, Sofia Fernando and her minor children the
following sums of money:

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

2. Ordering the defendant to pay to the plaintiffs David Garcia and Anita Garcia the following sums of money:

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

3. Ordering the defendant to pay to the plaintiff Rosalia Bertulano (sic) and her minor children the following sums of
money

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

4. Ordering the defendant to pay to the plaintiff Primitiva Fajardo and her minor children the following sums of money:

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

5. Ordering the defendant to pay to the plaintiffs Norma Liagoso, Nicolas Liagoso and Emeteria Liagoso and her minor
grandchildren the following sums of money:

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

The death compensation is fixed at P30,000.00 in accordance with the rulings of the Supreme Court starting with
People vs. De la Fuente, Nos. L-63251-52, December 29, 1983, 126 SCRA 518 reiterated in the recent case of People
vs. Nepomuceno, No. L-41412, May 27, 1985. Attorney's fees in the amount of P10,000.00 for the handling of the case
for the 5 victims is also awarded.

No pronouncement as to costs.

SO ORDERED. (Rollo, pp. 33-34)

Both parties filed their separate motions for reconsideration. On January 11, 1990, the Court of Appeals rendered an Amended Decision, the
dispositive portion of which reads:

WHEREFORE, finding merit in the motion for reconsideration of the defendant-appellee Davao City, the same is
hereby GRANTED. The decision of this Court dated January 31, 1986 is reversed and set aside and another one is
hereby rendered dismissing the case. No pronouncement as to costs.

SO ORDERED. (Rollo, p. 25)

Hence, this petition raising the following issues for resolution:

 1. Is the respondent Davao City guilty of negligence in the case at bar?

2. If so, is such negligence the immediate and proximate cause of deaths of the victims hereof? (p. 72, Rollo)

Negligence has been defined as the failure to observe for the protection of the interests of another person that degree of care, precaution,
and vigilance which the circumstances justly demand, whereby such other person suffers injury (Corliss v. Manila Railroad Company, L-
21291, March 28, 1969, 27 SCRA 674, 680). Under the law, a person who by his omission causes damage to another, there being
negligence, is obliged to pay for the damage done (Article 2176, New Civil Code). As to what would constitute a negligent act in a given
situation, the case of Picart v. Smith (37 Phil. 809, 813) provides Us the answer, to wit:

The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the
defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of the discreet pater familias of the Roman law. The
existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the
situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of course be always
determined in the light of human experience and in view of the facts involved in the particular case. Abstract
speculation cannot here be of much value but this much can be profitably said: Reasonable men govern their conduct
by the circumstances which are before them or known to them. They are not, and are not supposed to be, omniscient
of the future. Hence they can be expected to take care only when there is something before them to suggest or warn of
danger. Could a prudent man, in the case under consideration, foresee harm as a result of the course actually
pursued? If so, it was the duty of the actor to take precautions to guard against that harm. Reasonable foresight of
harm, followed by the ignoring of the suggestion born of this provision, is always necessary before negligence can be
held to exist. Stated in these terms, the proper criterion for determining the existence of negligence in a given case is
this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an
effect harmful to another was sufficiently probable warrant his foregoing the conduct or guarding against its
consequences. (emphasis supplied)

To be entitled to damages for an injury resulting from the negligence of another, a claimant must establish the relation between the omission
and the damage. He must prove under Article 2179 of the New Civil Code that the defendant's negligence was the immediate and proximate
cause of his injury. Proximate cause has been defined as that cause, which, in natural and continuous sequence unbroken by any efficient
intervening cause, produces the injury, and without which the result would not have occurred (Vda. de Bataclan, et al. v. Medina, 102 Phil.
181, 186). Proof of such relation of cause and effect is not an arduous one if the claimant did not in any way contribute to the negligence of
the defendant. However, where the resulting injury was the product of the negligence of both parties, there exists a difficulty to discern which
acts shall be considered the proximate cause of the accident. In Taylor v. Manila Electric Railroad and Light Co. (16 Phil. 8, 29-30), this Court
set a guideline for a judicious assessment of the situation:

Difficulty seems to be apprehended in deciding which acts of the injured party shall be considered immediate causes of
the accident. The test is simple. Distinction must be made between the accident and the injury, between the event
itself, without which there could have been no accident, and those acts of the victim not entering into it, independent of
it, but contributing to his own proper hurt. For instance, the cause of the accident under review was the displacement of
the crosspiece or the failure to replace it. This produced the event giving occasion for damages that is, the sinking of
the track and the sliding of the iron rails. To this event, the act of the plaintiff in walking by the side of the car did not
contribute, although it was an element of the damage which came to himself. Had the crosspiece been out of place
wholly or partly through his act or omission of duty, that would have been one of the determining causes of the event or
accident, for which he would have been responsible. Where he contributes to the principal occurrence, as one of its
determining factors, he can not recover. Where, in conjunction with the occurrence, he contributes only to his own
injury, he may recover the amount that the defendant responsible for the event should pay for such injury, less a sum
deemed a suitable equivalent for his own imprudence. (emphasis Ours)

Applying all these established doctrines in the case at bar and after a careful scrutiny of the records, We find no compelling reason to grant
the petition. We affirm.

Petitioners fault the city government of Davao for failing to clean a septic tank for the period of 19 years resulting in an accumulation of
hydrogen sulfide gas which killed the laborers. They contend that such failure was compounded by the fact that there was no warning sign of
the existing danger and no efforts exerted by the public respondent to neutralize or render harmless the effects of the toxic gas. They submit
that the public respondent's gross negligence was the proximate cause of the fatal incident.

We do not subscribe to this view. While it may be true that the public respondent has been remiss in its duty to re-empty the septic tank
annually, such negligence was not a continuing one. Upon learning from the report of the market master about the need to clean the septic
tank of the public toilet in Agdao Public Market, the public respondent immediately responded by issuing invitations to bid for such service.
Thereafter, it awarded the bid to the lowest bidder, Mr. Feliciano Bascon (TSN, May 24, 1983, pp. 22-25). The public respondent, therefore,
lost no time in taking up remedial measures to meet the situation. It is likewise an undisputed fact that despite the public respondent's failure
to re-empty the septic tank since 1956, people in the market have been using the public toilet for their personal necessities but have
remained unscathed. The testimonies of Messrs. Danilo Garcia and David Secoja (plaintiffs'-petitioners' witnesses) on this point are relevant,
to wit:
Atty. Mojica, counsel for defendant Davao City:

xxx xxx xxx

The place where you live is right along the Agdao creek, is that correct?

DANILO GARCIA:

A Yes, sir.

Q And to be able to go to the market place, where you claim you have a stall,, you have to pass
on the septic tank?

A Yes, sir.

Q Day in and day out, you pass on top of the septic tank?

A Yes, sir.

Q Is it not a fact that everybody living along the creek passes on top of this septic tank as they go
out from the place and return to their place of residence, is that correct?

And this septic tank, rather the whole of the septic tank, is covered by lead . . .?

A Yes, sir. there is cover.

Q And there were three (3) of these lead covering the septic tank?

A Yes, sir.

Q And this has always been closed?

A Yes, sir. (TSN, November 26, 1979, pp. 21-23, emphasis supplied)

ATTY. JOVER, counsel for the plaintiffs:

Q You said you are residing at Davao City, is it not?

DAVID SEJOYA:

A Yes, sir.

Q How long have you been a resident of Agdao?

A Since 1953.

Q Where specifically in Agdao are you residing?

A At the Public Market.

Q Which part of the Agdao Public Market is your house located?

A Inside the market in front of the fish section.

Q Do you know where the Agdao septic tank is located?

A Yes, sir.
 Q How far is that septic tank located from your house?

A Around thirty (30) meters.

Q Have you ever had a chance to use that septic tank (public toilet)?

A Yes, sir.

Q How many times, if you could remember?

A Many times, maybe more than 1,000 times.

Q Prior to November 22, 1975, have you ever used that septic tank (public toilet)?

A Yes, sir.

Q How many times have you gone to that septic tank (public toilet) prior to that date, November
22, 1975?

A Almost 1,000 times. (TSN, February 9, 1983, pp. 1-2)

The absence of any accident was due to the public respondent's compliance with the sanitary and plumbing specifications in
constructing the toilet and the septic tank (TSN, November 4, 1983, p. 51). Hence, the toxic gas from the waste matter could not
have leaked out because the septic tank was air-tight (TSN, ibid, p. 49). The only indication that the septic tank in the case at bar
was full and needed emptying was when water came out from it (TSN, September 13, 1983, p. 41). Yet, even when the septic
tank was full, there was no report of any casualty of gas poisoning despite the presence of people living near it or passing on top
of it or using the public toilet for their personal necessities.

Petitioners made a lot of fuss over the lack of any ventilation pipe in the toilet to emphasize the negligence of the city government and
presented witnesses to attest on this lack. However, this strategy backfired on their faces. Their witnesses were not expert witnesses. On the
other hand, Engineer Demetrio Alindada of the city government testified and demonstrated by drawings how the safety requirements like
emission of gases in the construction of both toilet and septic tank have been complied with. He stated that the ventilation pipe need not be
constructed outside the building as it could also be embodied in the hollow blocks as is usually done in residential buildings (TSN, November
4, 1983, pp. 50-51). The petitioners submitted no competent evidence to corroborate their oral testimonies or rebut the testimony given by
Engr. Alindada.

We also do not agree with the petitioner's submission that warning signs of noxious gas should have been put up in the toilet in addition to
the signs of "MEN" and "WOMEN" already in place in that area. Toilets and septic tanks are not nuisances per se as defined in Article 694 of
the New Civil Code which would necessitate warning signs for the protection of the public. While the construction of these public facilities
demands utmost compliance with safety and sanitary requirements, the putting up of warning signs is not one of those requirements. The
testimony of Engr. Alindada on this matter is elucidative:

ATTY. ALBAY:

Q Mr. Witness, you mentioned the several aspects of the approval of the building permit which
include the plans of an architect, senitary engineer and electrical plans. All of these still pass your
approval as building official, is that correct?

DEMETRIO ALINDADA:

A Yes.

Q So there is the sanitary plan submitted to and will not be approved by you unless the same is in
conformance with the provisions of the building code or sanitary requirements?

A Yes, for private building constructions.

Q How about public buildings?

A For public buildings, they are exempted for payment of building permits but still they have to
have a building permit.
 Q But just the same, including the sanitary plans, it require your approval?

A Yes, it requires also.

Q Therefore, under the National Building Code, you are empowered not to approve sanitary plans
if they are not in conformity with the sanitary requirements?

A Yes.

Q Now, in private or public buildings, do you see any warning signs in the vicinity of septic tanks?

A There is no warning sign.

Q In residential buildings do you see any warning sign?

A There is none.

ATTY. AMPIG:

We submit that the matter is irrelevant and immaterial, Your Honor.

ATTY. ALBAY:

But that is in consonance with their cross-examination, your Honor.

COURT:

Anyway it is already answered.

ATTY. ALBAY:

Q These warning signs, are these required under the preparation of the plans?

A It is not required.

Q I will just reiterate, Mr. Witness. In residences, for example like the residence of Atty. Ampig or
the residence of the honorable Judge, would you say that the same principle of the septic tank,
from the water closet to the vault, is being followed?

A Yes.

ATTY. ALBAY:

That will be all, Your Honor. (TSN, December 6, 1983, pp. 62-63)

In view of this factual milieu, it would appear that an accident such as toxic gas leakage from the septic tank is unlikely to happen unless one
removes its covers. The accident in the case at bar occurred because the victims on their own and without authority from the public
respondent opened the septic tank. Considering the nature of the task of emptying a septic tank especially one which has not been cleaned
for years, an ordinarily prudent person should undoubtedly be aware of the attendant risks. The victims are no exception; more so with Mr.
Bertulano, an old hand in this kind of service, who is presumed to know the hazards of the job. His failure, therefore, and that of his men to
take precautionary measures for their safety was the proximate cause of the accident. In Culion Ice, Fish and Elect. Co., v. Phil. Motors
Corporation (55 Phil. 129, 133), We held that when a person holds himself out as being competent to do things requiring professional skill, he
will be held liable for negligence if he fails to exhibit the care and skill of one ordinarily skilled in the particular work which he attempts to do
(emphasis Ours). The fatal accident in this case would not have happened but for the victims' negligence. Thus, the appellate court was
correct to observe that:

. . . Could the victims have died if they did not open the septic tank which they were not in the first place authorized to
open? Who between the passive object (septic tank) and the active subject (the victims herein) who, having no
authority therefore, arrogated unto themselves, the task of opening the septic tank which caused their own deaths
should be responsible for such deaths. How could the septic tank which has been in existence since the 1950's be the
proximate cause of an accident that occurred only on November 22, 1975? The stubborn fact remains that since 1956
 up to occurrence of the accident in 1975 no injury nor death was caused by the septic tank. The only reasonable
conclusion that could be drawn from the above is that the victims' death was caused by their own negligence in
opening the septic tank. . . . (Rollo, p. 23)

Petitioners further contend that the failure of the market master to supervise the area where the septic tank is located is a reflection of the
negligence of the public respondent.

We do not think so. The market master knew that work on the septic tank was still forthcoming. It must be remembered that the bidding had
just been conducted. Although the winning bidder was already known, the award to him was still to be made by the Committee on Awards.
Upon the other hand, the accident which befell the victims who are not in any way connected with the winning bidder happened before the
award could be given. Considering that the case was yet no award to commence work on the septic tank, the duty of the market master or
his security guards to supervise the work could not have started (TSN, September 13, 1983, p. 40). Also, the victims could not have been
seen working in the area because the septic tank was hidden by a garbage storage which is more or less ten (10) meters away from the
comfort room itself (TSN, ibid, pp. 38-39). The surreptitious way in which the victims did their job without clearance from the market master or
any of the security guards goes against their good faith. Even their relatives or family members did not know of their plan to clean the septic
tank.

Finally, petitioners' insistence on the applicability of Article 24 of the New Civil Code cannot be sustained. Said law states:

Art. 24. In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his
moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant
for his protection.

We approve of the appellate court's ruling that "(w)hile one of the victims was invited to bid for said project, he did not win the bid,
therefore, there is a total absence of contractual relations between the victims and the City Government of Davao City that could
give rise to any contractual obligation, much less, any liability on the part of Davao City." (Rollo, p. 24) The accident was indeed
tragic and We empathize with the petitioners. However, the herein circumstances lead Us to no other conclusion than that the
proximate and immediate cause of the death of the victims was due to their own negligence. Consequently, the petitioners cannot
demand damages from the public respondent.

ACCORDINGLY, the amended decision of the Court of Appeals dated January 11, 1990 is AFFIRMED. No costs.

SO ORDERED.

Narvasa, C.J., Cruz, Grio-Aquino and Bellosillo, JJ., concur.

[G.R. No. 90107. August 21, 1992.]

DOMINGO A. TUZON and LOPE C. MAPAGU, Petitioners, v. HONORABLE COURT

OF APPEALS and SATURNINO T. JURADO, Respondents.

Alfredo J . Donato and Orlando B. Consigna, for Petitioners.

Hermenegildo G. Rapanan for Private Respondent.

SYLLABUS

1. CIVIL LAW; DONATION; ACT OF LIBERALITY AND NEVER OBLIGATORY; CASE

AT BAR. While it would appear from the wording of the resolution that the municipal
government merely intends to "solicit" the 1% contribution from the threshers, the implementing
agreement seems to make the donation obligatory and a condition precedent to the issuance of
the mayors permit. This goes against the nature of a donation, which is an act of liberality and is
never obligatory.

2. ID.; HUMAN RELATIONS; ARTICLE 27 OF THE NEW CIVIL CODE; PURPOSE; CASE
AT BAR. The private respondent anchors his claim for damages on Article 27 of the New
Civil Code, which reads: Art. 27. Any person suffering material or moral loss because a public
servant or employee refuses or neglects, without just cause, to perform his official duty may file
an action for damages and other relief against the latter, without prejudice to any disciplinary
administrative action that may be taken. It has been remarked that one purpose of this article is to
end the "bribery system, where the public official, for some flimsy excuse, delays or refuses the
performance of his duty until he gets some kind of pabagsak." Official inaction may also be due
to plain indolence or a cynical indifference to the responsibilities of public service. According to
Phil. Match Co. Ltd. v. City of Cebu, (81 SCRA 99) the provision presupposes that the refusal or
omission of a public official to perform his official duty is attributable to malice or inexcusable
negligence. In any event, the erring public functionary is justly punishable under this article for
whatever loss or damage the complainant has sustained. In the present case, it has not even been
alleged that the Mayor Tuzons refusal to act on the private respondents application was an
attempt to compel him to resort to bribery to obtain approval of his application. It cannot be said
either that the mayor and the municipal treasurer were motivated by personal spite or were
grossly negligent in refusing to issue the permit and license to Jurado. It is no less significant that
no evidence has been offered to show that the petitioners singled out the private respondent for
persecution. Neither does it appear that the petitioners stood to gain personally from refusing to
issue to Jurado the mayors permit and license he needed. The petitioners were not Jurados
business competitors nor has it been established that they intended to favor his competitors. On
the contrary, the record discloses that the resolution was uniformly applied to all the threshers in
the municipality without discrimination or preference.

3. TAXATION; ENACTMENT OF TAX ORDINANCE WHERE TAX BASE OR SUBJECT

NOT SIMILAR OR COMPARABLE TO ANY OF THOSE ENUMERATED IN LOCAL TAX
CODE; REQUIREMENTS. If, on the other hand, it is to be considered a tax ordinance, then
it must be shown in view of the challenge raised by the private respondents to have been enacted
in accordance with the requirements of the Local Tax Code. These would include the holding of
a public hearing on the measure and its subsequent approval by the Secretary of Finance, in
addition to the usual requisites for publication of ordinances in general.

4. ADMINISTRATIVE LAW; PUBLIC OFFICERS; NOT PERSONALLY LIABLE FOR

INJURIES OCCASIONED BY PERFORMANCE OF OFFICIAL DUTY WITHIN SCOPE OF
OFFICIAL AUTHORITY; ERRONEOUS INTERPRETATION OF ORDINANCE DOES NOT
CONSTITUTE BAD FAITH; CASE AT BAR. The Court is convinced that the petitioners
acted within the scope of their authority and in consonance with their honest interpretation of the
resolution in question. We agree that it was not for them to rule on its validity. In the absence of
a judicial decision declaring it invalid, its legality would have to be presumed (in fact, both the
trial court and the appellate court said there was nothing wrong with it). As executive officials of
the municipality, they had the duty to enforce it as long as it had not been repealed by the
Sangguniang Bayan or annulled by the courts. . . . As a rule, a public officer, whether judicial,
quasi-judicial or executive, is not personally liable to one injured in consequence of an act
performed within the scope of his official authority, and in line of his official duty. . . . It has
been held that an erroneous interpretation of an ordinance does not constitute nor does it amount
to bad faith that would entitle an aggrieved party to an award for damages. (Philippine Match Co.
Ltd. v. City of Cebu, 81 SCRA 99).
 DECISION

CRUZ, J.:

The petitioners are questioning the decision of the respondent court holding them liable in
damages to the private respondent for refusing to issue to him a mayors permit and license to
operate his palay-threshing business.

The case goes back to March 14, 1977, when the Sangguniang Bayan of Camalaniugan,
Cagayan, unanimously adopted Resolution No. 9, reading pertinently as follows: jgc:chanrobles.com.ph

"WHEREAS, the municipality of Camalaniugan, Cagayan has embarked in the construction of

Sports and Nutrition Center, to provide the proper center wherein the government program of
Nutrition and physical development of the people, especially the youth could be well
administered: jgc:chanrobles.com.ph

"WHEREAS, the available funds for the construction of the said project is far (sic) being
adequate to finance its completion;

"WHEREAS, the Sangguniang Bayan have (sic) thought of fund-raising scheme, to help finance
the construction of the project, by soliciting 1% donation from the thresher operators who will
apply for a permit to thresh within the jurisdiction of this municipality, of all the palay threshed
by them to help finance the continuation of the construction of the Sports and Nutrition Center
Building. chanrobles law library : red

RESOLVED, therefore, as it is hereby resolved, that the municipal treasurer is hereby authorized
to enter into an agreement to all thresher operators, that will come to apply for a permit to thresh
palay within the jurisdiction of this municipality to donate 1% of all the palay threshed by them.
virtual lawlibrary
chanrobles

To implement the above resolution, petitioner Lope C. Mapagu, then incumbent municipal
treasurer, prepared the following document for signature of all thresher/owner/operators applying
for a mayors permit: chanrob1es virtual 1aw library

AGREEMENT

That I, _____________ thresher-owner-operator hereby voluntarily agree to donate to the

municipality of Camalaniugan, Cagayan, one percent (1%) of all palay threshed by me within the
jurisdiction of Camalaniugan, Cagayan, to help finance the completion of the construction of the
sports and nutrition center building of Camalaniugan per Resolution No. 9 dated March 14, 1977
of the Sanggunian Bayan;

That I also agree to report weekly the total number of palay threshed by me to the municipal
treasurer and turn over the corresponding 1% share of the municipality for the said project
mentioned above.

Signed this day of __________, 1977.

____________________

Thresher/Owner/Operator

Soon thereafter, private respondent Saturnino T. Jurado sent his agent to the municipal
treasurers office to pay the license fee of P285.00 for thresher operators. Mapagu refused to
accept the payment and required him to first secure a mayors permit. For his part, Mayor
Domingo Tuzon, the herein other petitioner, said that Jurado should first comply with Resolution
No. 9 and sign the agreement before the permit could be issued. Jurado ignored the requirement.
Instead, he sent the P285.00 license fee by postal money order to the office of the municipal
treasurer who, however, returned the said amount. The reason given was the failure of the
respondent to comply with Resolution No. 9.

On April 4, 1977, Jurado filed with the Court of First Instance of Cagayan a special civil action
for mandamus with actual and moral damages to compel the issuance of the mayors permit and
license. On May 31, 1977, he filed another petition with the same court. this time for declaratory
judgment against the said resolution (and the implementing agreement) for being illegal either as
a donation or as a tax measure. Named defendants were the same respondents and all the
members of the Sangguniang Bayan of Camalaniugan.

In a joint decision dated March 31, 1982, the trial court 1 upheld the challenged measure.
However, it dismissed the claims for damages of both parties for lack of evidence. chanroblesv irtuallawlibrary

Jurado appealed to the Court of Appeals, which in it decision dated August 31, 1989, 2 affirmed
the validity of Resolution No. 9 and the implementing agreement. Nevertheless, it found Tuzon
and Mapagu to have acted maliciously and in bad faith when they denied Jurados application for
the mayors permit and license. Consequently, they were held liable thus: chanrob1es virtual 1aw lib rary

WHEREFORE, in view of all the foregoing, the decision appealed from is hereby MODIFIED in
that appellees Mayor and Municipal Treasurer are hereby ordered to pay jointly and severally the
appellant the following amounts: P20,000.00 as actual damages; P5,000.00 as moral damages;
and P3,000.00 as attorneys fees.

The petitioners now seek relief from this Court on the grounds that: chanrob1es virtual 1aw library

1. Respondent Court gravely abused its discretion when it concluded that the refusal on the part
of the petitioners to issue a Mayors permit and license to operate a thresher to the private
respondent is "unjustified and constitutes bad faith" on their part.
chanrobles law library : red

2. Respondent Court gravely abused its discretion when it concluded that compliance with
Resolution No. 9 and its implementing agreement is not mandatory despite its own ruling and
finding that Resolution No. 9 is valid because the same was passed in accordance with the
provisions of the 1973 Constitution and the Local Tax Code.

3. Respondent court likewise gravely abused its discretion when it awarded damages to the
private respondent, contrary to the findings of facts of the trial court to the effect that petitioners
were not guilty of bad faith and malice and because from the records, there is no proof or
evidence to support such award.

The petitioners stress that they were acting in their official capacity when they enforced the
resolution, which was duly adopted by the Sangguniang Bayan and later declared to be valid by
both the trial and the appellate courts. For so acting, they cannot be held personally liable in
damages, more so because their act was not tainted with bad faith or malice. This was the factual
finding of the trial court and the respondent court was not justified in reversing it.

Commenting on the petition, the private respondent avers that the signing of the implementing
agreement was not a condition sine qua non to the issuance of a permit and license. Hence the
petitioners unwarranted refusal to issue the permit and license despite his offer to pay the
required fee constituted bad faith on their part.

Jurado further assails Resolution No. 9 and the implementing agreement for compelling the
thresher to donate something which he does not yet own. He also claims that the measure
contravenes the limitations on the taxing powers of local government units under Section 5, of
the Local Tax Code.

His conclusion is that he is entitled to actual and moral damages from the petitioners under
Article 27 of the Civil Code, and to the payment of attorneys fees as well, for their refusal or
neglect, without just cause, to perform their official duties.

We need not concern ourselves at this time with the validity of Resolution No. 9 and the
implementing agreement because the issue has not been raised in this petition as an assigned
error of the respondent court. The measures have been sustained in the challenged decision, from
which the respondent has not appealed. The decision is final and binding as to him. It is true that
he did question the measures in his Comment, but only half-heartedly and obliquely, to support
his claim for damages. We may therefore defer examination of these measures to a more
appropriate case, where it may be discussed more fully by the proper parties. chanroblesvirtual|awlibrary

We may merely observe at this time that in sustaining Resolution No. 9, the respondent court
said no more than that: chanrob1es virtual 1aw library

It was passed by the Sangguniang Bayan of Camalaniugan in the lawful exercise of its legislative
powers in pursuance to Article XI, Section 5 of the 1973 Constitution which provided that:
"Each local government unit shall have the power to create (sic) its own source of revenue and to
levy taxes, subject to such limitation as may be provided by law." And under Article 4, Section
29 of Presidential Decree No. 231 (Enacting a Local Tax Code for Provinces, Cities,
Municipalities and Barrios), it is provided that: jgc:chanrobles.com.ph

"Section 29. Contributions. In addition to the above specified taxing and other revenue-raising
powers, the barrio council may solicit monies, materials, and other contributions from the
following sources: chanrob1es virtual 1aw library

x x x

"(c) Monies from private agencies and individuals." cralaw virtua1aw library

That is an over simplification. The respondent court has not offered any explanation for its
conclusion that the challenged measures are valid nor does it discuss its own concept of the
nature of the resolution. cralawnad

While it would appear from the wording of the resolution that the municipal government merely
intends to "solicit" the 1% contribution from the threshers, the implementing agreement seems to
make the donation obligatory and a condition precedent to the issuance of the mayors permit.
This goes against the nature of a donation, which is an act of liberality and is never obligatory. 3

If, on the other hand, it is to be considered a tax ordinance, then it must be shown in view of the
challenge raised by the private respondents to have been enacted in accordance with the
requirements of the Local Tax Code. These would include the holding of a public hearing on the
measure 4 and its subsequent approval by the Secretary of Finance, 5 in addition to the usual
requisites for publication of ordinances in general. 6

The only issue that has to be resolved in this case is whether or not the petitioners are liable in
damages to the private respondent for having withheld from him the mayors permit and license
because of his refusal to comply with Resolution No. 9. cralawnad

The private respondent anchors his claim for damages on Article 27 of the New Civil Code,
which reads: chanrob1es v irtual 1aw library

Art. 27. Any person suffering material or moral loss because a public servant or employee
refuses or neglects, without just cause, to perform his official duty may file an action for
damages and other relief against the latter, without prejudice to any disciplinary administrative
action that may be taken.

It has been remarked that one purpose of this article is to end the "bribery system, where the
public official, for some flimsy excuse, delays or refuses the performance of his duty until he
gets some kind of pabagsak." 7 Official inaction may also be due to plain indolence or a cynical
indifference to the responsibilities of public service. According to Phil. Match Co. Ltd. v. City of
Cebu, 8 the provision presupposes that the refusal or omission of a public official to perform his
official duty is attributable to malice or inexcusable negligence. In any event, the erring public
functionary is justly punishable under this article for whatever loss or damage the complainant
has sustained.

In the present case, it has not even been alleged that the Mayor Tuzons refusal to act on the
private respondents application was an attempt to compel him to resort to bribery to obtain
approval of his application. It cannot be said either that the mayor and the municipal treasurer
were motivated by personal spite or were grossly negligent in refusing to issue the permit and
license to Jurado.

It is no less significant that no evidence has been offered to show that the petitioners singled out
the private respondent for persecution. Neither does it appear that the petitioners stood to gain
personally from refusing to issue to Jurado the mayors permit and license he needed. The
petitioners were not Jurados business competitors nor has it been established that they intended
to favor his competitors. On the contrary, the record discloses that the resolution was uniformly
applied to all the threshers in the municipality without discrimination or preference. chanrobles.com:cralaw:red

The Court is convinced that the petitioners acted within the scope of their authority and in
consonance with their honest interpretation of the resolution in question. We agree that it was not
for them to rule on its validity. In the absence of a judicial decision declaring it invalid, its
legality would have to be presumed (in fact, both the trial court and the appellate court said there
was nothing wrong with it). As executive officials of the municipality, they had the duty to
enforce it as long as it had not been repealed by the Sangguniang Bayan or annulled by the
courts. 9

. . . As a rule, a public officer, whether judicial, quasi-judicial or executive, is not personally

liable to one injured in consequence of an act performed within the scope of his official
authority, and in line of his official duty.
chanrobles virtual lawlibrary

. . . It has been held that an erroneous interpretation of an ordinance does not constitute nor does
it amount to bad faith that would entitle an aggrieved party to an award for damages. (Philippine
Match Co. Ltd. v. City of Cebu, 81 SCRA 99).

The private respondent complains that as a result of the petitioners acts, he was prevented from
operating his business all this time and earning substantial profit therefrom, as he had in previous
years. But as the petitioners correctly observed, he could have taken the prudent course of
signing the agreement under protest and later challenging it in court to relieve him of the
obligation to "donate." Pendente lite, he could have continued to operate his threshing business
and thus avoided the lucro cesante that he now says was the consequence of the petitioners
wrongful act. He could have opted for the less obstinate but still dissentient action, without loss
of face, or principle, or profit.

In view of the foregoing, We find that the petitioners, having acted in good faith in the discharge
of their official functions, should be absolved from liability.

ACCORDINGLY, the appealed decision is reversed insofar as it holds the petitioners liable in
damages and attorneys fees to the private Respondent. No costs.

SO ORDERED.

Grio-Aquino and Bellosillo, JJ., concur.

G.R. No. L-23052 January 29, 1968

CITY OF MANILA, petitioner,
vs.
GENARO N. TEOTICO and COURT OF APPEALS, respondents.

City Fiscal Manuel T. Reyes for petitioner.

Sevilla, Daza and Associates for respondents.

CONCEPCION, C.J.:

Appeal by certiorari from a decision of the Court of Appeals.

On January 27, 1958, at about 8:00 p.m., Genaro N. Teotico was at the corner of the Old Luneta
and P. Burgos Avenue, Manila, within a "loading and unloading" zone, waiting for a jeepney to
take him down town. After waiting for about five minutes, he managed to hail a jeepney that
came along to a stop. As he stepped down from the curb to board the jeepney, and took a few
steps, he fell inside an uncovered and unlighted catch basin or manhole on P. Burgos Avenue.
Due to the fall, his head hit the rim of the manhole breaking his eyeglasses and causing broken
pieces thereof to pierce his left eyelid. As blood flowed therefrom, impairing his vision, several
persons came to his assistance and pulled him out of the manhole. One of them brought Teotico
to the Philippine General Hospital, where his injuries were treated, after which he was taken
home. In addition to the lacerated wound in his left upper eyelid, Teotico suffered contusions on
the left thigh, the left upper arm, the right leg and the upper lip apart from an abrasion on the
right infra-patella region. These injuries and the allergic eruption caused by anti-tetanus
injections administered to him in the hospital, required further medical treatment by a private
practitioner who charged therefor P1,400.00.

As a consequence of the foregoing occurrence, Teotico filed, with the Court of First Instance of
Manila, a complaint which was, subsequently, amended for damages against the City of
Manila, its mayor, city engineer, city health officer, city treasurer and chief of police. As stated
in the decision of the trial court, and quoted with approval by the Court of Appeals,

At the time of the incident, plaintiff was a practicing public accountant, a businessman
and a professor at the University of the East. He held responsible positions in various
business firms like the Philippine Merchandising Co., the A.U. Valencia and Co., the
Silver Swan Manufacturing Company and the Sincere Packing Corporation. He was also
associated with several civic organizations such as the Wack Wack Golf Club, the
Chamber of Commerce of the Philippines, Y's Men Club of Manila and the Knights of
Rizal. As a result of the incident, plaintiff was prevented from engaging in his customary
occupation for twenty days. Plaintiff has lost a daily income of about P50.00 during his
incapacity to work. Because of the incident, he was subjected to humiliation and ridicule
by his business associates and friends. During the period of his treatment, plaintiff was
under constant fear and anxiety for the welfare of his minor children since he was their
only support. Due to the filing of this case, plaintiff has obligated himself to pay his
counsel the sum of P2,000.00.
 On the other hand, the defense presented evidence, oral and documentary, to prove that
the Storm Drain Section, Office of the City Engineer of Manila, received a report of the
uncovered condition of a catchbasin at the corner of P. Burgos and Old Luneta Streets,
Manila, on January 24, 1958, but the same was covered on the same day (Exhibit 4); that
again the iron cover of the same catch basin was reported missing on January 30, 1958,
but the said cover was replaced the next day (Exhibit 5); that the Office of the City
Engineer never received any report to the effect that the catchbasin in question was not
covered between January 25 and 29, 1968; that it has always been a policy of the said
office, which is charged with the duty of installation, repair and care of storm drains in
the City of Manila, that whenever a report is received from whatever source of the loss of
a catchbasin cover, the matter is immediately attended to, either by immediately replacing
the missing cover or covering the catchbasin with steel matting that because of the
lucrative scrap iron business then prevailing, stealing of iron catchbasin covers was
rampant; that the Office of the City Engineer has filed complaints in court resulting from
theft of said iron covers; that in order to prevent such thefts, the city government has
changed the position and layout of catchbasins in the City by constructing them under the
sidewalks with concrete cement covers and openings on the side of the gutter; and that
these changes had been undertaken by the city from time to time whenever funds were
available.

After appropriate proceedings the Court of First Instance of Manila rendered the aforementioned
decision sustaining the theory of the defendants and dismissing the amended complaint, without
costs.

On appeal taken by plaintiff, this decision was affirmed by the Court of Appeals, except insofar
as the City of Manila is concerned, which was sentenced to pay damages in the aggregate sum of
P6,750.00. 1 Hence, this appeal by the City of Manila.

The first issue raised by the latter is whether the present case is governed by Section 4 of
Republic Act No. 409 (Charter of the City of Manila) reading:

The city shall not be liable or held for damages or injuries to persons or property arising
from the failure of the Mayor, the Municipal Board, or any other city officer, to enforce
the provisions of this chapter, or any other law or ordinance, or from negligence of said
Mayor, Municipal Board, or other officers while enforcing or attempting to enforce said
provisions.

or by Article 2189 of the Civil Code of the Philippines which provides:

Provinces, cities and municipalities shall be liable for damages for the death of, or
injuries suffered by, any person by reason of defective conditions of road, streets,
bridges, public buildings, and other public works under their control or supervision.

Manila maintains that the former provision should prevail over the latter, because Republic Act
409, is a special law, intended exclusively for the City of Manila, whereas the Civil Code is a
general law, applicable to the entire Philippines.
The Court of Appeals, however, applied the Civil Code, and, we think, correctly. It is true that,
insofar as its territorial application is concerned, Republic Act No. 409 is a special law and the
Civil Code a general legislation; but, as regards the subject-matter of the provisions above
quoted, Section 4 of Republic Act 409 establishes a general rule regulating the liability of the
City of Manila for: "damages or injury to persons or property arising from the failure of" city
officers "to enforce the provisions of" said Act "or any other law or ordinance, or from
negligence" of the city "Mayor, Municipal Board, or other officers while enforcing or attempting
to enforce said provisions." Upon the other hand, Article 2189 of the Civil Code constitutes a
particular prescription making "provinces, cities and municipalities . . . liable for damages for the
death of, or injury suffered by any person by reason" specifically "of the defective
condition of roads, streets, bridges, public buildings, and other-public works under their control
or supervision." In other words, said section 4 refers to liability arising from negligence, in
general, regardless of the object thereof, whereas Article 2189 governs liability due to "defective
streets," in particular. Since the present action is based upon the alleged defective condition of a
road, said Article 2189 is decisive thereon.

It is urged that the City of Manila cannot be held liable to Teotico for damages: 1) because the
accident involving him took place in a national highway; and 2) because the City of Manila has
not been negligent in connection therewith.

As regards the first issue, we note that it is based upon an allegation of fact not made in the
answer of the City. Moreover, Teotico alleged in his complaint, as well as in his amended
complaint, that his injuries were due to the defective condition of a street which is "under the
supervision and control" of the City. In its answer to the amended complaint, the City, in turn,
alleged that "the streets aforementioned were and have been constantly kept in good condition
and regularly inspected and the storm drains and manholes thereof covered by the defendant
City and the officers concerned" who "have been ever vigilant and zealous in the performance of
their respective functions and duties as imposed upon them by law." Thus, the City had, in effect,
admitted that P. Burgos Avenue was and is under its control and supervision.

Moreover, the assertion to the effect that said Avenue is a national highway was made, for the
first time, in its motion for reconsideration of the decision of the Court of Appeals. Such
assertion raised, therefore, a question of fact, which had not been put in issue in the trial court,
and cannot be set up, for the first time, on appeal, much less after the rendition of the decision of
the appellate court, in a motion for the reconsideration thereof.

At any rate, under Article 2189 of the Civil Code, it is not necessary for the liability therein
established to attach that the defective roads or streets belong to the province, city or
municipality from which responsibility is exacted. What said article requires is that the province,
city or municipality have either "control or supervision" over said street or road. Even if P.
Burgos Avenue were, therefore, a national highway, this circumstance would not necessarily
detract from its "control or supervision" by the City of Manila, under Republic Act 409. In fact
Section 18(x) thereof provides:

Sec. 18. Legislative powers. The Municipal Board shall have the following legislative
powers:
 xxx xxx xxx

(x) Subject to the provisions of existing law to provide for the laying out, construction
and improvement, and to regulate the use of streets, avenues, alleys, sidewalks, wharves,
piers, parks, cemeteries, and other public places; to provide for lighting, cleaning, and
sprinkling of streets and public places; . . . to provide for the inspection of, fix the license
fees for and regulate the openings in the same for the laying of gas, water, sewer and
other pipes, the building and repair of tunnels, sewers, and drains, and all structures in
and under the same and the erecting of poles and the stringing of wires therein; to provide
for and regulate cross-works, curbs, and gutters therein, . . . to regulate traffic and sales
upon the streets and other public places; to provide for the abatement of nuisances in the
same and punish the authors or owners thereof; to provide for the construction and
maintenance, and regulate the use, of bridges, viaducts and culverts; to prohibit and
regulate ball playing, kite-flying, hoop rolling, and other amusements which may annoy
persons using the streets and public places, or frighten horses or other animals; to
regulate the speed of horses and other animals, motor and other vehicles, cars, and
locomotives within the limits of the city; to regulate the lights used on all vehicles, cars,
and locomotives; . . . to provide for and change the location, grade, and crossing of
railroads, and compel any such railroad to raise or lower its tracks to conform to such
provisions or changes; and to require railroad companies to fence their property, or any
part thereof, to provide suitable protection against injury to persons or property, and to
construct and repair ditches, drains, sewers, and culverts along and under their tracks, so
that the natural drainage of the streets and adjacent property shall not be obstructed.

This authority has been neither withdrawn nor restricted by Republic Act No. 917 and Executive
Order No. 113, dated May 2, 1955, upon which the City relies. Said Act governs the disposition
or appropriation of the highway funds and the giving of aid to provinces, chartered cities and
municipalities in the construction of roads and streets within their respective boundaries, and
Executive Order No. 113 merely implements the provisions of said Republic Act No. 917,
concerning the disposition and appropriation of the highway funds. Moreover, it provides that
"the construction, maintenance and improvement of national primary, national secondary and
national aid provincial and city roads shall be accomplished by the Highway District Engineers
and Highway City Engineers under the supervision of the Commissioner of Public Highways and
shall be financed from such appropriations as may be authorized by the Republic of the
Philippines in annual or special appropriation Acts."

Then, again, the determination of whether or not P. Burgos Avenue is under the control or
supervision of the City of Manila and whether the latter is guilty of negligence, in connection
with the maintenance of said road, which were decided by the Court of Appeals in the
affirmative, is one of fact, and the findings of said Court thereon are not subject to our review.

WHEREFORE, the decision appealed from should be as it is hereby affirmed, with costs against
the City of Manila. It is so ordered.1wph1.t

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

G.R. No. L-3485 June 30, 1950

THE MUNICIPALITY OF PAOAY, ILOCOS NORTE, petitioner,

vs.
TEODORO MANAOIS and EULOGIO F. DE GUZMAN, Judge of the Court of First
Instance of Pangasinan, respondents.

First Assistant Solicitor General Roberto A. Gianzon and Solicitor Pacifico P. de Castro for
petitioner.
Primicias, Abad, Mencias and Castillo for respondents.

MONTEMAYOR, J.:

Teodoro Manaois having obtained a judgment against the municipality of Paoay, Ilocos Norte in
civil case No. 8026 of the Court of First Instance of Pangasinan, Judge De Guzman of said
province issued a writ of execution against the defendant municipality. In compliance with said
writ the Provincial Sheriff of Ilocos Norte levied upon and attached the following properties:

(1) The amount of One thousand seven hundred twelve pesos and one centavo
(P1,712.01) in the Municipal Treasury of Paoay, Ilocos Norte, representing the rental
paid by Mr. Demetrio Tabije of a fishery lot belonging to the defendant municipality;

(2) About forty fishery lots leased to thirty-five different persons by the Municipality.

On July 26, 1949, the Provincial Fiscal of Ilocos Norte in representation of the municipality of
Paoay, filed a petition in the Court of First Instance of Pangasinan asking for the dissolution of
that attachment of levy of the properties above-mentioned. Judge De Guzman in his order of
October 6, 1949, denied the petition for the dissolution of the attachment; a motion for
reconsideration was also denied. Instead of appealing from that order the municipality of Paoay
has filed the present petition for certiorari with the writ of preliminary injunction, asking that the
order of respondent Judge dated October 6, 1946, be reversed and that the attachment of the
properties of the municipality already mentioned be dissolved.

The petitioner goes on the theory that the properties attached by the sheriff for purposes of
execution are not subject to levy because they are properties for public use. It is therefore
necessary to ascertain the nature and status back a few years, specifically, to the year 1937.

It seems that the municipality of Paoay is and for many years has been operating or rather leasing
fishery lots on municipal waters. These waters have been parceled out in lots, either singly or in
groups and let out or rented after public bidding to the highest bidders, ordinarily, for a year, but
sometimes, for a longer period of time. On April 4, 1937, the municipality of Paoay entered into
a contract with one Francisco V. Duque for the lease of fishery lots 3, 4, 5, 6, 7, and 8 at a rental
of P1,218.79 per annum, for a period of four years from January 1, 1937 to December 31, 1940.
In 1938, the municipal council of Paoay approved a resolution confiscating said fishery lots on
the ground that Duque had failed to comply with the terms of the lease contract. Thereafter, the
municipality advertised the lease of its fishery lots for public bidding, including the lots above
mentioned. Teodoro Manaois being the highest bidder for said lots 3 to 8, was awarded the lease
thereof as per resolution of the municipality council of Paoay of December 1, 1938. On January
1, 1939, Manaois paid P2,025 as rental for the said lots for the year 1939. However, when
Manaois and his men tried to enter the property in order to exercise his rights as lessee and to
catch fish, particularly bagos fry, he found therein Duque and his men who claimed that he
(Duque) was still the lessee, and despite the appeal of Manaois to the Municipality of Paoay to
put him in possession and the efforts of the municipality to oust Duque, the latter succeeded in
continuing in his possession and keeping Manaois and his men out. Manaois brought an action
against the Municipality of Paoay to recover not only the sum paid by him for the lease of the
fishery lots but also damages. He obtained judgment in his favor in June, 1940 in the Court of
First Instance of Pangasinan, civil case No. 8026, which decision has long become final. The
writ of execution and the attachment and levy mentioned at the beginning of this decision were
issued and effected to enforce the judgment just mentioned.

There can be no question that properties for public use held by municipal corporation are not
subject to levy and execution. The authorities are unanimous on this point. This Court in the case
of Viuda de Tantoco vs. Municipal Council of Iloilo (49 Phil., 52) after citing Manresa, the works
of McQuillin and Dillon on Municipal Corporations, and Corpus Juris, held that properties for
public use like trucks used for sprinkling the streets, police patrol wagons, police stations, public
markets, together with the land on which they stand are exempt from execution. Even public
revenues of municipal corporations destined for the expenses of the municipality are also exempt
from the execution. The reason behind this exemption extended to properties for public use, and
public municipal revenues is that they are held in trust for the people, intended and used for the
accomplishment of the purposes for which municipal corporations are created, and that to subject
said properties and public funds to execution would materially impede, even defeat and in some
instances destroy said purpose.

Property however, which is patrimonial and which is held by municipality in its proprietary
capacity is treated by great weight of authority as the private asset of the town and may be levied
upon and sold under an ordinary execution. The same rule applies to municipal funds derived
from patrimonial properties, for instance, it has been held that shares of stocks held by municipal
corporations are subject to execution. If this is true, with more reason should income or revenue
coming from these shares of stock, in the form of interest or dividends, be subject to execution?
(McQuillin on Municipal Corporations, Vol. 3, par. 1160.)

The fishery or municipal waters of the town of Paoay, Ilocos Norte, which had been parceled out
or divided into lots and later let out to private persons for fishing purposes at an annual rental are
clearly not subject to execution. In the first place, they do not belong to the municipality. They
may well be regarded as property of State. What the municipality of Paoay hold is merely what
may be considered the usufruct or the right to use said municipal waters, granted to it by section
2321 of the Revised Administrative Code which reads as follows:
 1. SEC. 2321. Grant of fishery. A municipal council shall have authority, for purposes
of profit, to grant the exclusive privileges of fishery or right to conduct a fish-breeding
ground within any definite portion, or area, of the municipal waters.

"Municipal waters", as herein used, include not only streams, lakes, and tidal waters,
include within the municipality, not being the subject of private ownership, but also
marine waters include between two lines drawn perpendicular to the general coast line
from points where the boundary lines of the municipality touch the sea at high tide, and
third line parallel with the general coast line and distant from it three marine leagues.

Where two municipalities are so situated on opposite shores that there is less than six
marine leagues of marine waters between them the third line shall be a line equally
distant from the opposite shores of the respective municipalities.

Now, is this particular usufruct of the municipality of Paoay over its municipal waters, subject to
execution to enforce a judgment against the town? We are not prepared to answer this question in
the affirmative because there are powerful reasons against its propriety and legality. In the first
place, it is not a usufruct based on or derived from an inherent right of the town. It is based
merely on a grant, more or less temporary, made by the Legislature. Take the right of fishery
over the sea or marine waters bordering a certain municipality. These marine waters are
ordinarily for public use, open to navigation and fishing by the people. The Legislature thru
section 2321 of the Administrative Code, as already stated, saw fit to grant the usufruct of said
marine waters for fishery purpose, to the towns bordering said waters. Said towns have no visited
right over said marine waters. The Legislature, for reasons it may deem valid or as a matter of
public policy, may at any time, repeal or modify said section 2321 and revoke this grant to
coastal towns and open these marine waters to the public. Or the Legislature may grant the
usufruct or right of fishery to the provinces concerned so that said provinces may operate or
administer them by leasing them to private parties.

All this only goes to prove that the municipality of Paoay is not holding this usufruct or right of
fishery in a permanent or absolute manner so as to enable it to dispose of it or to allow it to be
taken away from it as its property through execution.

Another reason against subjecting this usufruct or right of fishery over municipal waters, to
execution, is that, if this were to be allowed and this right sold on execution, the buyer would
immediately step into the shoes of the judgment-debtor municipality. Such buyer presumably
buys only the right of the municipality. He does not buy the fishery itself nor the municipal
waters because that belongs to the State. All that the buyer might do would be to let out or rent to
private individuals the fishery rights over the lots into which the municipal waters had been
parceled out or divided, and that is, after public bidding. This, he must do because that is the only
right granted to the municipality by the Legislature, a right to be exercised in the manner
provided by law, namely, to rent said fishery lots after public bidding. (See sec. 2323 of the
Administrative Code in connection with sec. 2319 of the same Code.) Then, we shall have a
situation rather anomalous to be sure, of a private individual conducting public bidding, renting
to the highest bidders fishery lots over municipal waters which are property of the State, and
appropriating the results to his own private use. The impropriety, if not illegality, of such a
contingency is readily apparent. But that is not all. The situation imagined implies the
deprivation of the municipal corporation of a source of a substantial income, expressly provide
by law. Because of all this, we hold that the right or usufruct of the town of Paoay over its
municipal waters, particularly, the forty odd fishery lots included in the attachment by the
Sheriff, is not subject to execution.

But we hold that the revenue or income coming from the renting of these fishery lots is certainly
subject to execution. It may be profitable, if not necessary, to distinguish this kind of revenue
from that derived from taxes, municipal licenses and market fees are provided for and imposed
by the law, they are intended primarily and exclusively for the purpose of financing the
governmental activities and functions of municipal corporations. In fact, the real estate taxes
collected by a municipality do not all go to it. A portion thereof goes to the province, in the
proportion provided for by law. For the same reason, municipal markets are established not only
to provide a place where the people may sell and buy commodities but also to provide public
revenues for the municipality. To many towns, market fees constitute the bulk of their assets and
incomes. These revenues are fixed and definite, so much so that the annual appropriations for the
expenses of the municipalities are based on these revenues. Not so with the income derived form
fisheries. In the first place, the usufruct over municipal waters was granted by the Legislature
merely to help or bolster up the economy of municipal government. There are many towns in the
Philippines, specially in the interior, which do not have municipal waters for fishery purpose and
yet without much source of revenue, they can function, which goes to prove that this kind of
revenue is not indispensable for the performance of governmental functions. In the second place,
the amount of this income is far from definite or fixed. It depends upon the amounts which
prospective bidders or lessees are willing to pay. If fishing on these marine water, lakes and
rivers in the municipality is good, the bids would be high and the income would be substantial. If
the fish in these waters is depleted or, if for some reasons or another, fishing is not profitable,
then the income would be greatly reduced. In other words, to many municipalities engaged in
this business of letting out municipal waters for fishing purposes, it is a sort of sideline, so that
even for fishing purposes, it is sort of sideline, so that even without it the municipality may still
continue functioning and perform its essential duties as such municipal corporations.

We call this activity of municipalities in renting municipal waters for fishing purposes as a
business for the reasons that the law itself (Sec. 2321, Administrative Code already mentioned
and quoted) allowed said municipalities to engage in it for profit. And it is but just that a town so
engaged should pay and liquidate obligations contracted in connection with said fishing business,
with the income derived therefrom.

In conclusion, we hold that the fishery lots numbering about forty in the municipality of Paoay,
mentioned at the beginning of this decision are not subject to execution. For this reason, the levy
and attachment made by the Provincial Sheriff of Ilocos Norte of theses fishery lots is void and
the order of the Court of First Instance of Pangasinan insofar as it failed to dissolve the
attachment made on these lots is reversed. However, the amount of P1,712.01 in the municipal
treasury of Paoay representing the rental paid by Demetrio Tabije on fishery lots let out by the
municipality of Paoay is a proper subject of levy, and the attachment made thereon by the Sheriff
is valid. We may add that other amounts coming or due from lessees of the forty odd fishery lots
leased by the municipality to different persons may also be attached or garnished to satisfy the
judgement against the municipality of Paoay.

In this connection, we wish to say that had the municipality of Paoay paid the judgment rendered
against it, all this controversy and court action with all its vexation, troubles and expense would
have been avoided. It will be remembered that the decision against the municipality was
rendered as far back as 1940. Evidently, the municipality did not appeal from that decision. It has
long become final. The Court of Pangasinan that rendered the decision saw no valid defense of
the municipality to the legitimate claim of Teodoro Manaois. After the municipality had failed to
place Manaois in possession of the lots leased to him, the municipality did not even offer to
return or reimburse the rental paid by him. It is hard to understand the position taken by the
municipality of Paoay. The courts, including this tribunal cannot condone, much less encourage,
the repudiation of just obligations contracted by municipal corporations. On the contrary, the
courts and compel payments of their valid claims against municipalities with which they entered
into valid contracts. Municipal corporations are authorized by law to sue and be sued. (Sec.
2165, Rev. Adm. Code). This authority naturally carries with it all the remedies and court
processes, including writs of execution and attachment against municipal corporations. While we
are willing and ready to protect properties of municipalities held for public use, as well as public
revenues such as taxes, from execution, we believe that other properties of such municipalities
not held for public use, including funds which are not essential to the performance of their public
functions, may be levied upon and sold to satisfy valid claims against said municipalities. And
this Tribunal will help any citizen and give him every judicial facility to enforce his valid claim,
especially a court award, against municipal corporations, even to the extent of attaching and
selling on execution, municipal revenues and properties not exempt from execution.

In view of the foregoing, the order of the respondent Judge of October 6, 1949, is reversed
insofar as it failed to dissolved the attachment of the forty odd fishery lots. In all other respect,
said order is hereby affirmed.

Ozaeta, Pablo, Bengzon, Tuason, and Reyes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 125218 January 23, 1998

FILSTREAM INTERNATIONAL INCORPORATED, petitioner,

vs.
COURT OF APPEALS, JUDGE FELIPE S. TONGCO and THE CITY OF MANILA,
respondents.
G.R. No. 128077 January 23, 1998

FILSTREAM INTERNATIONAL INCORPORATED, petitioner,

vs.
COURT OF APPEALS, ORLANDO MALIT, ANTONIO CAGUIAT, ALICIA CABRERA,
ARMANDO LACHICA, JACINTO CAGUIAT, GLORIA ANTONIO, ELIZALDE
NAVARRA, DOLORES FUENTES, SUSANA ROY, ANTONIO IBANEZ, BENIGNO
BASILIO, LUCERIA DEMATULAC, FLORENCIA GOMEZ, LAZARO GOMEZ, JOSE
GOMEZ VENANCIO MANALOTO, CRISTINO UMALI, DEMETRIA GATUS,
PRISCILLA MALONG, DOMINGO AGUILA, RAMON SAN AGUSTIN, JULIAN
FERRER, JR., FRANCISCO GALANG, FLORENTINO MALIWAT, SEVERINA
VILLAR, TRINIDAD NAGUIT, JOSE NAGUIT, FORTUNATO AGUSTIN CABRERA,
GAUDENCIO INTAL, DANILO DAVID, ENRIQUE DAVID, VICENTE DE GUZMAN,
POLICARPIO LUMBA, BELEN PALMA, ELEN SOMVILLO, LEONARDO MANICAD,
OPRENG MICLAT, BENITA MATA, GREGORIO LOPEZ, MARCELINA SAPNO,
JESUS MERCADO and CALIXTO GOMEZ, respondents.

FRANCISCO, J.:

In resolving the instant petitions, the Court is tasked to strike a balance between the
contending interests when the state exercises its power of eminent domain. On one side
we have the owners of the property to be expropriated who must be duly compensated
for the loss of their property, while on the other is the State which must take the property
for public use.

Petitioner, Filstream International, Inc., is the registered owner of the properties subject
of this dispute consisting of adjacent parcels of land situated in Antonio Rivera Street,
Tondo II, Manila, with a total area of 3,571.10 square meters and covered by T.C.T.
Nos. 203937, 203936, 169198, 169199, 169200 and 169202 of the Register of Deeds of
Manila.

On January 7, 1993, petitioner filed an ejectment suit before the Metropolitan Trial Court
of Manila (Branch 15) docketed as Civil Case No. 140817-CV against the occupants of
the abovementioned parcels of land (herein private respondents in G. R. No. 128077)
on the grounds of termination of the lease contract and non-payment of rentals.
Judgment was rendered by the MTC on September 14, 1993 ordering private
respondents to vacate the premises and pay back rentals to petitioner.1

Not satisfied, private respondents appealed the decision to the Regional Trial Court of
Manila, Branch 4 (Civil Case No. 93-68130) which in turn affirmed the decision of the
MTC in its decision dated February 22, 1994. Still not content, private respondents
proceeded to the Court of Appeals via a petition for review (CA-G.R. SP No. 33714).
The result however remained the same as the CA affirmed the decision of the RTC in its
decision dated August 25, 1994.2 Thereafter, no further action was taken by the private
respondents, as a result of which the decision in the ejectment suit became final and
executory.

However, it appeared that during the pendency of the ejectment proceedings private
respondents filed on May 25, 1993, a complaint for Annulment of Deed of Exchange
against petitioner Filstream which was docketed in Civil Case No. 93-66059 before the
RTC of Manila, Branch 43. It was at this stage that respondent City of Manila came into
the picture when the city government approved Ordinance No. 78133 on November 5,
1993, authorizing Mayor Alfredo S. Lim to initiate the acquisition by negotiation,
expropriation, purchase, or other legal means certain parcels of land registered under
T.C.T. Nos. 169193, 169198, 169190, 169200, 169202 and 169192 of the Registry of
Deeds of Manila which formed part of the properties of petitioner then occupied by
private respondents. Subsequently, the City of Manila approved Ordinance No. 7855 4
declaring the expropriation of certain parcels of land situated along Antonio Rivera and
Fernando Ma. Guerrero streets in Tondo, Manila which were owned by Mr. Enrique
Quijano Gutierrez, petitioner's predecessor-in-interest. The said properties were to be
sold and distributed to qualified tenants of the area pursuant to the Land Use
Development Program of the City of Manila.

On May 23, 1994, respondent City of Manila filed a complaint for eminent domain (Civil
Case No. 94-70560) before the RTC of Manila, Branch 42,5 seeking to expropriate the
aforecited parcels of land owned by petitioner Filstream which are situated at Antonio
Rivera Street, Tondo II, Manila.6

Pursuant to the complaint filed by respondent City of Manila, the trial court issued a Writ
of Possession 7 in favor of the former which ordered the transfer of possession over the
disputed premises to the City of Manila.

At this juncture, petitioner Filstream filed a motion to dismiss the complaint for eminent
domain as well as a motion to quash the writ of possession. The motion to dismiss was
premised on the following grounds: no valid cause of action; the petition does not satisfy
the requirements of public use and a mere clandestine maneuver to circumvent the writ
of execution issued by the RTC of Manila, Branch 4 in the ejectment suit; violation of the
constitutional guarantee against non-impairment of obligations and contracts; price
offered was too low hence violative of the just compensation provision of the
constitution and the said amount is without the certification of the City Treasurer for
availability of funds.8 With respect to the motion to quash the writ of possession,
petitioner raised the following objections: failure to comply with Section 2 of Rule
67 of the Rules of Court, Ordinance No. 7813 is a void enactment for it was
approved without a public hearing and violative of the constitutional guarantee
against impairment of obligations and contracts; the price is too low and
unconscionable violating the just compensation provision of the constitution,
and the said writ is tainted with infirmity considering the absence of a
certification from the City of Manila that there is an immediately available fund for
the subject expropriation.9
Respondent City of Manila filed its opposition 10 to petitioner Filstream's two
motions and to which petitioner accordingly filed a reply. 11 On September 30,
1994, the RTC of Manila, Branch 42, issued an order denying petitioner
Filstream's motion to dismiss and the motion to quash the Writ of Possession
and declared as follows:

IN FINE, the defendant's motion to dismiss and motion to quash writ

of possession are both without merit and are hereby DENIED and the
subject parcels of lands covered by TCT Nos. 203937, 203936,
169198, 169199, 169200 and 169202 (of the Register of Deeds of
Manila) located at Antonio Rivera Street, Tondo II, Manila with a total
area of 3,571.10 square meters are hereby declared CONDEMNED in
favor of the City of Manila for distribution and resale to all poor and
landless qualified residents/tenants in the said area under the city's
"land-for-the landless" program upon payment of just compensation
which is yet to be determined by this Court.12

Petitioner filed a motion for reconsideration 13 as well as a supplemental motion

for reconsideration 14 seeking the reversal of the above-quoted order but the
same were denied. 15 Still, petitioner filed a subsequent motion to be allowed to
file a second motion for reconsideration but it was also denied.

Aggrieved, petitioner filed on March 31, 1996, a Petition for Certiorari with the
Court of Appeals (CA-G.R. SP No. 36904) seeking to set aside the September 30,
1994 order of the RTC of Manila, Branch 42. However, on March 18, 1996,
respondent CA issued a resolution dismissing the petition in this wise:

It appearing that the above-entitled petition is insufficient in form and

substance it does not comply with Section 2(a), Rule 6 of the
Revised Internal Rules of the Court of Appeals which requires that
the "petition shall be . . . accompanied by . . . other pertinent
documents and papers," aside from the fact that copies of the
pleadings attached to the petition are blurred and unreadable this
Court resolved to summarily DISMISS the same (petition).16

Petitioner filed a motion for reconsideration and attached clearer copies of the
pertinent documents and papers pursuant to Section 2(a), Rule 6 of the Revised
Internal Rules of the Court of Appeals. But on May 20, 1996, respondent CA
issued a resolution denying the motion as petitioner failed to submit clearer and
readable copies of the pleadings. 17 This prompted petitioner to proceed to this
Court giving rise to the instant petition for review on certiorari under Rule 45 and
docketed herein as G.R. No. 125218, assailing the dismissal of its petition by the
CA in its resolution dated March 18, 1996 as well as that of its motion for
reconsideration in the resolution dated May 20, 1996.
Meanwhile, owing to the finality of the decision in the ejectment suit (Civil Case
No. 140817-CV), the MTC of Manila, Branch 15, upon motion of petitioner
Filstream, issued a Writ of Execution as well as a Notice to Vacate the disputed
premises. 18 Private respondents filed a Motion to Recall/Quash the Writ of
Execution and Notice to Vacate 19 alleging the existence of a supervening event
in that the properties subject of the dispute have already been ordered
condemned in an expropriation proceeding in favor of the City of Manila for the
benefit of the qualified occupants thereof, thus execution shall be stayed.
Petitioner opposed the motion, reiterating that the decision in the ejectment case
is already final and executory and disputed private respondents' right to
interpose the expropriation proceedings as a defense because the latter were not
parties to the same.

For its part, the City of Manila filed on March 13, 1996, a motion for intervention
with prayer to stay/quash the writ of execution on the ground that it is the present
possessor of the property subject of execution.

In its order dated March 14, 1996, the MTC of Manila, Branch 14, denied private
respondents' motion as it found the allegations therein bereft of merit and upheld
the issuance of the Writ of Execution and Notice to Vacate in petitioner's favor. 20
Subsequently, the trial court also denied the motion filed by the City of Manila.

On April 22, 1996, the trial court issued an order commanding the demolition of
the structure erected on the disputed premises. To avert the demolition, private
respondents filed before the RTC of Manila, Branch 14, a Petition for Certiorari
and Prohibition with prayer for the issuance of a temporary restraining order and
preliminary injunction (docketed as Civil Case No. 96-78098). On April 29, 1996,
the RTC of Manila, Branch 33, issued a TRO enjoining the execution of the writ
issued in Civil Case No. 140817-CV by the MTC of Manila, Branch 14. 21
Subsequently, the RTC issued a writ of preliminary injunction on May 14, 1996.22

On May 15, 1996, the City of Manila filed its Petition for Certiorari and Prohibition
with prayer for the issuance of a temporary restraining order and preliminary
injunction which was raffled to Branch 23 of the RTC of Manila (docketed as Civil
Case No. 96-78382), seeking the reversal of the orders issued by the MTC of
Manila, Branch 14, which denied its motion to intervene and quash the writ of
execution in Civil Case No. 140817-CV.

Thereafter, upon motion filed by the City of Manila, an order was issued by the
RTC of Manila, Branch 10, ordering the consolidation of Civil Case No. 96-78382
with Civil Case No. 96-78098 pending before Branch 14 of the RTC of Manila. 23
On May 21, 1996, the RTC of Manila, Branch 14, issued an injunction in Civil Case
No. 96-78098 enjoining the implementation of the writ of execution until further
orders from the court. 24 Petitioner Filstream filed a Motion to Dissolve the Writ
of Preliminary Injunction and to be allowed to post a counter-bond but the trial
court denied the same. Filstream then filed a motion for reconsideration from the
order of denial but pending resolution of this motion, it filed a motion for
voluntary inhibition of the presiding judge of the RTC of Manila, Branch 14. The
motion for inhibition was granted 25 and as a result, the consolidated cases (Civil
Case No. 96-78382 and 96-78098) were re-raffled to the RTC of Manila, Branch 33.

During the proceedings before the RTC of Manila, Branch 33, petitioner Filstream
moved for the dismissal of the consolidated cases (Civil Case No. 96-78382 and
No. 96-78098) for violation of Supreme Court Circular No. 04-94 (forum shopping)
because the same parties, causes of action and subject matter involved therein
have already been disposed of in the decision in the ejectment case (Civil Case
No. 140817) which has already became final and executory prior to the filing of
these consolidated cases.

On December 9, 1996, an order was issued by the RTC of Manila, Branch 33,
ordering the dismissal of Civil Case Nos. 96-78382 and 96-78098 for violation of
Supreme Court Circular No. 04-94. 26 Immediately thereafter, petitioner Filstream
filed an Ex-parte Motion for Issuance of an Alias Writ of Demolition and Ejectment
and a supplemental motion to the same dated January 10 and 13, 1997,
respectively, 27 before the MTC of Manila, Branch 15, which promulgated the
decision in the ejectment suit (Civil Case No. 140817-CV). On January 23, 1997,
the court granted the motion and issued the corresponding writ of demolition.

As a consequence of the dismissal of the consolidated cases, herein private

respondents filed a Petition for Certiorari and Prohibition with prayer for the
issuance of a temporary restraining order and preliminary injunction before the
Court of Appeals (docketed as CA-G.R. SP No. 43101) 28 assailing the above-
mentioned order of dismissal by the RTC of Manila, Branch 33, as having been
issued with grave abuse of discretion tantamount to lack or in excess of
jurisdiction.

In a resolution dated January 28, 1997, the Court of Appeals granted herein
private respondents prayer for the issuance of a temporary restraining order and
directed the MTC of Manila, Branch 15, to desist from implementing the order of
demolition dated January 23, 1997, unless otherwise directed. 29

At the conclusion of the hearing for the issuance of a writ of preliminary

injunction, the Court of Appeals, in its resolution dated February 18, 1997, found
merit in private respondents' allegations in support of their application of the
issuance of the writ and granted the same, to wit:

Finding that the enforcement or implementation of the writ of

execution and notice to vacate issued in Civil Case No. 140817-CV,
the ejectment case before respondent Judge Jiro, during the
pendency of the instant petition, would probably be in violation of
petitioners' right, and would tend to render the judgment in the
instant case ineffectual, and probably work injustice to the
 petitioners, the application for the issuance of a writ of preliminary
injunction is hereby GRANTED.

WHEREFORE, upon the filing of a bond in the amount of

P150,000.00, let a writ of preliminary injunction be issued enjoining
respondents, their employees, agents, representatives and anyone
acting in their behalf from enforcing or executing the writ of
execution and notice to vacate issued in Civil Case No. 140817-CV of
the court of respondent Judge Jiro, or otherwise disturbing the
status quo, until further orders of this Court.30

In turn, petitioner Filstream is now before this Court via a Petition for Certiorari
under Rule 65 (G.R. No. 128077), seeking to nullify the Resolutions of the Court of
Appeals dated January 28, 1997 and February 18, 1997 which granted herein
private respondents' prayer for a TRO and Writ of Preliminary Injunction, the
same being null and void for having been issued in grave abuse of discretion.

Upon motion filed by petitioner Filstream, in order to avoid any conflicting

decisions on the legal issues raised in the petitions, the Court ordered that the
later petition, G.R. No. 128077 be consolidated with G.R. No. 128077 in the
resolution of March 5, 1997.31

The issue raised in G.R. No. 125218 is purely a procedural and technical matter.
Petitioner takes exception to the resolutions of respondent CA dated March 18,
1996 and May 20, 1996 which ordered the dismissal of its Petition for Certiorari
for non-compliance with Sec. 2(a) of Rule 6 of the Revised Internal Rules of the
Court of Appeals by failing to attach to its petition other pertinent documents and
papers and for attaching copies of pleadings which are blurred and unreadable.
Petitioner argues that respondent appellate court seriously erred in giving more
premium to form rather than substance.

We agree with the petitioner. A strict adherence to the technical and procedural
rules in this case would defeat rather than meet the ends of justice as it would
result in the violation of the substantial rights of petitioner. At stake in the appeal
filed by petitioner before the CA is the exercise of their property rights over the
disputed premises which have been expropriated and have in fact been ordered
condemned in favor of the City of Manila. In effect, the dismissal of their appeal in
the expropriation proceedings based on the aforementioned grounds is
tantamount to a deprivation of property without due process of law as it would
automatically validate the expropriation proceedings which the petitioner is still
disputing. It must be emphasized that where substantial rights are affected, as in
this case, the stringent application of procedural rules may be relaxed if only to
meet the ends of substantial justice.

In these instances, respondent CA can exercise its discretion to suspend its

internal rules and allow the parties to present and litigate their causes of action
so that the Court can make an actual and complete disposition of the issues
presented in the case. Rather than simply dismissing the petition summarily for
non-compliance with respondent court's internal rules, respondent CA should
have instead entertained petitioner Filstream's petition for review on certiorari,
and ordered petitioner to submit the corresponding pleadings which it deems
relevant and replace those which are unreadable. This leniency could not have
caused any prejudice to the rights of the other parties.

With regard to the other petition, G.R. No. 128077, petitioner Filstream objects to
the issuance by respondent CA of the restraining order and the preliminary
injunction enjoining the execution of the writ of demolition issued in the
ejectment suit (Civil Case No. 140817-CV) as an incident to private respondents'
pending petition assailing the dismissal by the RTC of Manila, Branch 33, of the
consolidated petitions for certiorari filed by private respondents and the City of
Manila on the ground of forum shopping.

The propriety of the issuance of the restraining order and the writ of preliminary
injunction is but a mere incident to the actual controversy which is rooted in the
assertion of the conflicting rights of the parties in this case over the disputed
premises. In order to determine whether private respondents are entitled to the
injunctive reliefs granted by respondent CA, we deemed it proper to extract the
source of discord.

Petitioner Filstream anchors its claim by virtue of its ownership over the
properties and the existence of a final and executory judgment against private
respondents ordering the latter's ejectment from the premises (Civil Case No.
140817-CV).

Private respondents' claim on the other hand hinges on an alleged supervening

event which has rendered the enforcement of petitioner's rights moot, that is, the
expropriation proceedings (Civil Case No. 94-70560) undertaken by the City of
Manila over the disputed premises for the benefit of herein private respondents.
For its part, the City of Manila is merely exercising its power of eminent domain
within its jurisdiction by expropriating petitioner's properties for public use.

There is no dispute as to the existence of a final and executory judgment in favor

of petitioner Filstream ordering the ejectment of private respondents from the
properties subject of this dispute. The judgment in the ejectment suit became
final and executory after private respondents failed to interpose any appeal from
the adverse decision of the Court of Appeals dated August 25, 1994 in CA-G.R. SP
No. 33714. Thus, petitioner has every right to assert the execution of this decision
as it had already become final and executory.

However, it must also be conceded that the City of Manila has an undeniable right
to exercise its power of eminent domain within its jurisdiction. The right to
expropriate private property for public use is expressly granted to it under
Section 19 of the 1991 Local Government Code, to wit:

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: Provided, however, That the power of eminent
domain may not be exercised unless a valid and definite offer has
been previously made to the owner, and such offer was not
accepted; Provided, further, That the local government unit may
immediately take possession of the property upon the filing of the
expropriation proceedings and upon making a deposit with the
proper court of at least fifteen (15%) of the fair market value of the
property based on the current tax declaration of the property to be
expropriated: Provided, finally, That, the amount to be paid for the
expropriated property shall be determined by the proper court, based
on the fair market value at the time of the taking of the property.
(Emphasis supplied).

More specifically, the City of Manila has the power to expropriate private property
in the pursuit of its urban land reform and housing program as explicitly laid out
in the Revised Charter of the City of Manila (R.A. No. 409) as follows:

General powers. The city may have a common seal and alter the
same at pleasure, and may take, purchase, receive, hold, lease,
convey, and dispose of real and personal property for the general
interest of the city, condemn private property for public use, contract
and be contracted with, sue and be sued, and prosecute and defend
to final judgment and execution, and exercise all the powers
hereinafter conferred. (R.A. 409, Sec. 3; Emphasis supplied).

xxx xxx xxx

Sec. 100. The City of Manila is authorized to acquire private lands in

the city and to subdivide the same into home lots for sale on easy
terms to city residents, giving first priority to the bona fide tenants or
occupants of said lands, and second priority to laborers and low-
salaried employees. For the purpose of this section, the city may
raise the necessary funds by appropriations of general funds, by
securing loans or by issuing bonds, and, if necessary, may acquire
the lands through expropriation proceedings in accordance with law,
with the approval of the President . . . . (Emphasis supplied).
In fact, the City of Manila's right to exercise these prerogatives notwithstanding
the existence of a final and executory judgment over the property to be
expropriated has been upheld by this Court in the case of Philippine Columbian
Association vs. Panis, G.R. No. 106528, December 21, 1993. 32 Relying on the
aforementioned provisions of the Revised Charter of the City of Manila, the Court
declared that:

The City of Manila, acting through its legislative branch, has the
express power to acquire private lands in the city and subdivide
these lands into home lots for sale to bona-fide tenants or occupants
thereof, and to laborers and low-salaried employees of the city.

That only a few could actually benefit from the expropriation of the
property does not diminish its public use character. It is simply not
possible to provide all at once land and shelter for all who need them
(Sumulong v. Guerrero, 154 SCRA 461 [1987]).

Corollary to the expanded notion of public use, expropriation is not

anymore confined to vast tracts of land and landed estates (Province
of Camarines Sur v. Court of Appeals, G. R. No. 103125, May 17,
1993; J. M. Tuason and Co., Inc. v. Land Tenure Administration, 31
SCRA 413 [1970]). It is therefore of no moment that the land sought
to be expropriated in this case is less than half a hectare only (Pulido
v. Court of Appeals, 122 SCRA 63 [1983]).

Through the years, the public use requirement in eminent domain

has evolved into a flexible concept, influenced by changing
conditions (Sumulong v. Guerrero, supra; Manotok v. National
Housing Authority, 150 SCRA 89 [1987]; Heirs of Juancho Ardona v.
Reyes, 125 SCRA 220 [1983]). Public use now includes the broader
notion of indirect public benefit or advantage, including in particular,
urban land reform and housing.33

We take judicial notice of the fact that urban land reform has become a
paramount task in view of the acute shortage of decent housing in urban areas
particularly in Metro Manila. Nevertheless, despite the existence of a serious
dilemma, local government units are not given an unbridled authority when
exercising their power of eminent domain in pursuit of solutions to these
problems. The basic rules still have to be followed, which are as follows: "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 (Art. 3, Sec. 1,
1987 Constitution); private property shall not be taken for public use without just
compensation (Art. 3, Section 9, 1987 Constitution)". Thus, the exercise by local
government units of the power of eminent domain is not without limitations. Even
Section 19 of the 1991 Local Government Code is very explicit that it must comply
with the provisions of the Constitution and pertinent laws, to wit:
 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: . . . (Emphasis supplied).

The governing law that deals with the subject of expropriation for purposes of
urban land reform and housing is Republic Act No. 7279 (Urban Development and
Housing Act of 1992) and Sections 9 and 10 of which specifically provide as
follows:

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 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; 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.

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. 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.

For the purpose 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.
(Emphasis supplied).

Very clear from the abovequoted provisions are the limitations with respect to the
order of priority in acquiring private lands and in resorting to expropriation
proceedings as a means to acquire the same. Private lands rank last in the order
of priority for purposes of socialized housing. In the same vein, expropriation
proceedings are to be resorted to only when the other modes of acquisition have
been exhausted. Compliance with these conditions must be deemed mandatory
because these are the only safeguards in securing the right of owners of private
property to due process when their property is expropriated for public use.

Proceeding from the parameters laid out in the above disquisitions, we now pose
the crucial question: Did the City of Manila comply with the abovementioned
conditions when it expropriated petitioner Filstream's properties? We have
carefully scrutinized the records of this case and found nothing that would
indicate that respondent City of Manila complied with Sec. 9 and Sec. 10 of R.A.
7279. Petitioner Filstream's properties were expropriated and ordered condemned
in favor of the City of Manila sans any showing that resort to the acquisition of
other lands listed under Sec. 9 of RA 7279 have proved futile. Evidently, there was
a violation of petitioner Filstream's right to due process which must accordingly
be rectified.

Indeed, it must be emphasized that the State has a paramount interest in

exercising its power of eminent domain for the general good considering that the
right of the State to expropriate private property as long as it is for public use
always takes precedence over the interest of private property owners. However
we must not lose sight of the fact that the individual rights affected by the
exercise of such right are also entitled to protection, bearing in mind that the
exercise of this superior right cannot override the guarantee of due process
extended by the law to owners of the property to be expropriated. In this regard,
vigilance over compliance with the due process requirements is in order.

WHEREFORE, the petitions are hereby GRANTED. In G.R. 125218, the resolutions
of the Court of Appeals in CA-G. R. SP NO. 36904 dated March 18, 1996 and May
20, 1996 are hereby REVERSED and SET ASIDE. In G.R. No. 128077, the
resolution of the Court of Appeals in CA-G.R. SP No. 43101 dated January 28,
1997 and February 18, 1997 are REVERSED and SET ASIDE.
SO ORDERED.

G.R. No. 146587 July 2, 2002

REPUBLIC OF THE PHILIPPINES, represented by the General Manager of the

PHILIPPINE INFORMATION AGENCY (PIA), petitioner,
vs.
THE HONORABLE COURT OF APPEALS and the HEIRS OF LUIS SANTOS as herein
represented by DR. SABINO SANTOS and PURIFICACION SANTOS IMPERIAL,
respondents.

DECISION

VITUG, J.:

Petitioner instituted expropriation proceedings on 19 September 1969 before the Regional Trial
Court ("RTC") of Bulacan, docketed Civil Cases No. 3839-M, No. 3840-M, No. 3841-M and
No. 3842-M, covering a total of 544,980 square meters of contiguous land situated along
MacArthur Highway, Malolos, Bulacan, to be utilized for the continued broadcast operation and
use of radio transmitter facilities for the "Voice of the Philippines" project. Petitioner, through
the Philippine Information Agency ("PIA"), took over the premises after the previous lessee, the
"Voice of America," had ceased its operations thereat. Petitioner made a deposit of P517,558.80,
the sum provisionally fixed as being the reasonable value of the property. On 26 February 1979,
or more than nine years after the institution of the expropriation proceedings, the trial court
issued this order -

"WHEREFORE, premises considered, judgment is hereby rendered:

"Condemning the properties of the defendants in Civil Cases Nos. 3839-M to 3842-M located at
KM 43, MacArthur Highway, Malolos, Bulacan and covered by several transfer certificates of
title appearing in the Commissioners Appraisal Report consisting of the total area of 544,980
square meters, as indicated in plan, Exhibit A, for plaintiff, also marked as Exhibit I for the
defendants, and as Appendix A attached to the Commissioners Appraisal Report, for the
purpose stated by the plaintiff in its complaint;

"Ordering the plaintiff to pay the defendants the just compensation for said property which is the
fair market value of the land condemned, computed at the rate of six pesos (P6.00) per square
meter, with legal rate of interest from September 19, 1969, until fully paid; and

"Ordering the plaintiff to pay the costs of suit, which includes the aforesaid fees of
commissioners, Atty. Victorino P. Evangelista and Mr. Pablo Domingo."1

The bone of contention in the instant controversy is the 76,589-square meter property previously
owned by Luis Santos, predecessor-in-interest of herein respondents, which forms part of the
expropriated area.
It would appear that the national government failed to pay to herein respondents the
compensation pursuant to the foregoing decision, such that a little over five years later, or on 09
May 1984, respondents filed a manifestation with a motion seeking payment for the expropriated
property. On 07 June 1984, the Bulacan RTC, after ascertaining that the heirs remained unpaid in
the sum of P1,058,655.05, issued a writ of execution served on the plaintiff, through the Office
of the Solicitor General, for the implementation thereof. When the order was not complied with,
respondents again filed a motion urging the trial court to direct the provincial treasurer of
Bulacan to release to them the amount of P72,683.55, a portion of the sum deposited by
petitioner at the inception of the expropriation proceedings in 1969, corresponding to their share
of the deposit. The trial court, in its order of 10 July 1984, granted the motion.

In the meantime, President Joseph Ejercito Estrada issued Proclamation No. 22,2 transferring 20
hectares of the expropriated property to the Bulacan State University for the expansion of its
facilities and another 5 hectares to be used exclusively for the propagation of the Philippine
carabao. The remaining portion was retained by the PIA. This fact notwithstanding, and despite
the 1984 court order, the Santos heirs remained unpaid, and no action was taken on their case
until 16 September 1999 when petitioner filed its manifestation and motion to permit the deposit
in court of the amount of P4,664,000.00 by way of just compensation for the expropriated
property of the late Luis Santos subject to such final computation as might be approved by the
court. This time, the Santos heirs, opposing the manifestation and motion, submitted a counter-
motion to adjust the compensation from P6.00 per square meter previously fixed in the 1979
decision to its current zonal valuation pegged at P5,000.00 per square meter or, in the alternative,
to cause the return to them of the expropriated property. On 01 March 2000, the Bulacan RTC
ruled in favor of respondents and issued the assailed order, vacating its decision of 26 February
1979 and declaring it to be unenforceable on the ground of prescription -

"WHEREFORE, premises considered, the court hereby:

"1) declares the decision rendered by this Court on February 26, 1979 no longer
enforceable, execution of the same by either a motion or an independent action having
already prescribed in accordance with Section 6, Rule 39 of both the 1964 Revised Rules
of Court and the 1997 Rules of Civil Procedure;

"2) denies the plaintiffs Manifestation and Motion to Permit Plaintiff to Deposit in Court
Payment for Expropriated Properties dated September 16, 1999 for the reason stated in
the next preceding paragraph hereof; and

"3) orders the return of the expropriated property of the late defendant Luis Santos to his
heirs conformably with the ruling of the Supreme Court in Government of Sorsogon vs.
Vda. De Villaroya, 153 SCRA 291, without prejudice to any case which the parties may
deem appropriate to institute in relation with the amount already paid to herein oppositors
and the purported transfer of a portion of the said realty to the Bulacan State University
pursuant to Proclamation No. 22 issued by President Joseph Ejercito."3

Petitioner brought the matter up to the Court of Appeals but the petition was outrightly denied. It
would appear that the denial was based on Section 4, Rule 65, of the 1997 Rules of Civil
Procedure which provided that the filing of a motion for reconsideration in due time after filing
of the judgment, order or resolution interrupted the running of the sixty-day period within which
to file a petition for certiorari; and that if a motion for reconsideration was denied, the aggrieved
party could file the petition only within the remaining period, but which should not be less than
five days in any event, reckoned from the notice of such denial. The reglementary period,
however, was later modified by A.M. No. 00-2-03 S.C., now reading thusly:

"Sec. 4. When and where petition filed. --- The petition shall be filed not later than sixty (60)
days from notice of the judgment, order or resolution. In case a motion for reconsideration or
new trial is timely filed, whether such motion is required or not, the sixty (60) day period shall be
counted from notice of the denial of said motion."

The amendatory provision, being curative in nature, should be made applicable to all cases still
pending with the courts at the time of its effectivity.

In Narzoles vs. NLRC,4 the Court has said:

"The Court has observed that Circular No. 39-98 has generated tremendous confusion resulting
in the dismissal of numerous cases for late filing. This may have been because, historically, i.e.,
even before the 1997 revision to the Rules of Civil Procedure, a party had a fresh period from
receipt of the order denying the motion for reconsideration to file a petition for certiorari. Were it
not for the amendments brought about by Circular No. 39-98, the cases so dismissed would have
been resolved on the merits. Hence, the Court deemed it wise to revert to the old rule allowing a
party a fresh 60-day period from notice of the denial of the motion for reconsideration to file a
petition for certiorari. x x x

"The latest amendments took effect on September 1, 2000, following its publication in the
Manila Bulletin on August 4, 2000 and in the Philippine Daily Inquirer on August 7, 2000, two
newspapers of general circulation.

"In view of its purpose, the Resolution further amending Section 4, Rule 65, can only be
described as curative in nature, and the principles governing curative statutes are applicable.

"Curative statutes are enacted to cure defects in a prior law or to validate legal proceedings
which would otherwise be void for want of conformity with certain legal requirements.
(Erectors, Inc. vs. National Labor Relations Commission, 256 SCRA 629 [1996].) They are
intended to supply defects, abridge superfluities and curb certain evils. They are intended to
enable persons to carry into effect that which they have designed or intended, but has failed of
expected legal consequence by reason of some statutory disability or irregularity in their own
action. They make valid that which, before the enactment of the statute was invalid. Their
purpose is to give validity to acts done that would have been invalid under existing laws, as if
existing laws have been complied with. (Batong Buhay Gold Mines, Inc. vs. Dela Serna, 312
SCRA 22 [1999].) Curative statutes, therefore, by their very essence, are retroactive.
(Municipality of San Narciso, Quezon vs. Mendez, Sr., 239 SCRA 11 [1994].)"5
At all events, petitioner has a valid point in emphasizing the "public nature" of the expropriated
property. The petition being imbued with public interest, the Court has resolved to give it due
course and to decide the case on its merits.

Assailing the finding of prescription by the trial court, petitioner here posited that a motion
which respondents had filed on 17 February 1984, followed up by other motions subsequent
thereto, was made within the reglementary period that thereby interrupted the 5-year prescriptive
period within which to enforce the 1979 judgment. Furthermore, petitioner claimed, the receipt
by respondents of partial compensation in the sum of P72,683.55 on 23 July 1984 constituted
partial compliance on the part of petitioners and effectively estopped respondents from invoking
prescription expressed in Section 6, Rule 39, of the Rules of Court.6

In opposing the petition, respondents advanced the view that pursuant to Section 6, Rule 39, of
the Rules of Court, the failure of petitioner to execute the judgment, dated 26 February 1979,
within five years after it had become final and executory, rendered it unenforceable by mere
motion. The motion for payment, dated 09 May 1984, as well as the subsequent disbursement to
them of the sum of P72,683.55 by the provincial treasurer of Bulacan, could not be considered as
having interrupted the five-year period, since a motion, to be considered otherwise, should
instead be made by the prevailing party, in this case by petitioner. Respondents maintained that
the P72,683.55 paid to them by the provincial treasurer of Bulacan pursuant to the 1984 order of
the trial court was part of the initial deposit made by petitioner when it first entered possession of
the property in 1969 and should not be so regarded as a partial payment. Respondents further
questioned the right of PIA to transfer ownership of a portion of the property to the Bulacan
State University even while the just compensation due the heirs had yet to be finally settled.

The right of eminent domain is usually understood to be an ultimate right of the sovereign power
to appropriate any property within its territorial sovereignty for a public purpose.7 Fundamental
to the independent existence of a State, it requires no recognition by the Constitution, whose
provisions are taken as being merely confirmatory of its presence and as being regulatory, at
most, in the due exercise of the power. In the hands of the legislature, the power is inherent, its
scope matching that of taxation, even that of police power itself, in many respects. It reaches to
every form of property the State needs for public use and, as an old case so puts it, all separate
interests of individuals in property are held under a tacit agreement or implied reservation
vesting upon the sovereign the right to resume the possession of the property whenever the
public interest so requires it.8

The ubiquitous character of eminent domain is manifest in the nature of the expropriation
proceedings. Expropriation proceedings are not adversarial in the conventional sense, for the
condemning authority is not required to assert any conflicting interest in the property. Thus, by
filing the action, the condemnor in effect merely serves notice that it is taking title and
possession of the property, and the defendant asserts title or interest in the property, not to prove
a right to possession, but to prove a right to compensation for the taking.9

Obviously, however, the power is not without its limits: first, the taking must be for public use,
and second, that just compensation must be given to the private owner of the property.10 These
twin proscriptions have their origin in the recognition of the necessity for achieving balance
between the State interests, on the one hand, and private rights, upon the other hand, by
effectively restraining the former and affording protection to the latter.11 In determining "public
use," two approaches are utilized - the first is public employment or the actual use by the public,
and the second is public advantage or benefit.12 It is also useful to view the matter as being
subject to constant growth, which is to say that as society advances, its demands upon the
individual so increases, and each demand is a new use to which the resources of the individual
may be devoted.13

The expropriated property has been shown to be for the continued utilization by the PIA, a
significant portion thereof being ceded for the expansion of the facilities of the Bulacan State
University and for the propagation of the Philippine carabao, themselves in line with the
requirements of public purpose. Respondents question the public nature of the utilization by
petitioner of the condemned property, pointing out that its present use differs from the purpose
originally contemplated in the 1969 expropriation proceedings. The argument is of no moment.
The property has assumed a public character upon its expropriation. Surely, petitioner, as the
condemnor and as the owner of the property, is well within its rights to alter and decide the use
of that property, the only limitation being that it be for public use, which, decidedly, it is.

In insisting on the return of the expropriated property, respondents would exhort on the
pronouncement in Provincial Government of Sorsogon vs. Vda. de Villaroya14 where the unpaid
landowners were allowed the alternative remedy of recovery of the property there in question. It
might be borne in mind that the case involved the municipal government of Sorsogon, to which
the power of eminent domain is not inherent, but merely delegated and of limited application.
The grant of the power of eminent domain to local governments under Republic Act No. 716015
cannot be understood as being the pervasive and all-encompassing power vested in the
legislative branch of government. For local governments to be able to wield the power, it must,
by enabling law, be delegated to it by the national legislature, but even then, this delegated
power of eminent domain is not, strictly speaking, a power of eminent, but only of inferior,
domain or only as broad or confined as the real authority would want it to be.16

Thus, in Valdehueza vs. Republic17 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 fair 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'."18

The Court proceeded to reiterate its pronouncement in Alfonso vs. Pasay City19 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.20 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 expropriatory 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.21 After condemnation, the paramount title is in the public under a new
and independent title;22 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.23

Respondents, in arguing laches against petitioner did not take into account that the same
argument could likewise apply against them. Respondents first instituted proceedings for
payment against petitioner on 09 May 1984, or five years after the 1979 judgment had become
final. The unusually long delay in bringing the action to compel payment against herein
petitioner would militate against them. Consistently with the rule that one should take good care
of his own concern, respondents should have commenced the proper action upon the finality of
the judgment which, indeed, resulted in a permanent deprivation of their ownership and
possession of the property.24

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 fixed at the time of the actual taking
by the government.25 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.26 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.27

The Bulacan trial court, in its 1979 decision, was correct in imposing interests on the zonal value
of the property to be computed from the time petitioner instituted condemnation proceedings and
"took" the property in September 1969. 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 annum28 should help eliminate the issue of the constant fluctuation and inflation of the
value of the currency over time.29 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.30 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.31

All given, the trial court of Bulacan in issuing its order, dated 01 March 2000, vacating its
decision of 26 February 1979 has acted beyond its lawful cognizance, the only authority left to it
being to order its execution. Verily, private respondents, although not entitled to the return of the
expropriated property, deserve to be paid promptly on the yet unpaid award of just compensation
already fixed by final judgment of the Bulacan RTC on 26 February 1979 at P6.00 per square
meter, with legal interest thereon at 12% per annum computed from the date of "taking" of the
property, i.e., 19 September 1969, until the due amount shall have been fully paid.

WHEREFORE, the petition is GRANTED. The resolution, dated 31 July 2000, of the Court of
Appeals dismissing the petition for certiorari, as well as its resolution of 04 January 2001
denying the motion for reconsideration, and the decision of the Regional Trial Court of Bulacan,
dated 01 March 2000, are SET ASIDE. Let the case be forthwith remanded to the Regional Trial
Court of Bulacan for the proper execution of its decision promulgated on 26 February 1979
which is hereby REINSTATED. No costs.

SO ORDERED.

G.R. No. L-46787 August 12, 1991

FLORO CEMENT CORPORATION, petitioner,

vs.
HON. BENJAMIN K. GOROSPE, Judge, CFI of Misamis Oriental, Branch I, and the
MUNICIPALITY OF LUGAIT, respondents.

Scarlet V. Santos and Advocates Circle Lawyers for petitioner.

BIDIN, J.:

This is a petition for review on certiorari seeking to set aside and reverse the decision* of the
then Court of First Instance of Misamis Oriental in Civil Case No. 4867, entitled "Municipality
of Lugait, Misamis Oriental, (represented) by the Municipal Treasurer and Provincial Treasurer
vs. Floro Cement Corporation", ordering defendant to pay unto plaintiff the amount of
P161,875.00 as manufacturer's and exporter's taxes plus surcharges for the period from January
1, 1974 to September 30, 1975 and that herein petitioner Floro Cement Corporation be declared
exempted from the coverage of Ordinances Nos. 5 and 10 of the Municipality of Lugait and that
the taxes and fees it has paid pursuant to said ordinances be refunded.

The facts of the case, as summarized in the decision of the trial court, are as follows:
The municipality of Lugait, province of Misamis Oriental, represented jointly in this
action by its Municipal Treasurer and the Provincial Treasurer of the said province, filed
with this Court a verified complaint for collection of taxes against the defendant Floro
Cement Corporation, a domestic corporation duly organized and existing under the laws
of the Republic of the Philippines with business establishment and office address at its
compound in the aforementioned municipality of Lugait. The taxes sought to be collected
by the plaintiff specifically refers to "manufacturers" and' exporter's "taxes for the period
from January 1, 1974 to September 30, 1975, inclusive, in the total amount of
P161,875.00 plus 25% thereof as surcharge. Plaintiff alleged that the imposition and
collection of these taxes" is based on its Municipal Ordinance No. 5, otherwise known as
the Municipal Revenue Code of 1974, which was passed pursuant to Presidential Decree
No. 231 dated June 28, 1973 and also Municipal Ordinance No. 10 passed on June 11,
1974 pursuant to Presidential Decree No. 426 dated March 30,1974, amending
Presidential Decree No. 231.

In its answer to the complaint, the defendant set up the defense that it is not liable to pay
manufacturer's and exporter's taxes alleging among others that the plaintiffs power to
levy and collect taxes, fees, rentals, royalties or charges of any kind whatsoever on
defendant has been limited or withdrawn by Section 52 of Presidential Decree No. 463
which provides:

Sec. 52. Power to Levy Taxes on Mines, Mining Corporation and Mineral
Products.Any law to the contrary notwithstanding, no province, city,
municipality, barrio or municipal district shall levy and collect taxes, fees, rentals,
royalties or charges of any kind whatsoever on mines, mining claims, mineral
products, or on any operation, process or activity connected therewith.

Defendant also set up several special/affirmative defenses, namely: (1) that plaintiff has
no legal capacity to sue; (2) that the complaint states no cause; (3) that plaintiff has
absolutely no cause of action against defendant; (4) that defendant was granted by the
Secretary of Agriculture and Natural Resources a Certificate of Qualification for Tax
Exemption, CQTE No. 22, dated July 7, 1960, entitling defendant to exemption for a
period of five (5) years from April 30,1969 to April 29, 1974 from payment of all taxes,
except income tax, and which Certificate was amended on November 5, 1974 CQTE P.D.
463-22), entitling defendant to exemption from all taxes, duties and fees except income
tax, for five (5) years from the first date of actual commercial production of saleable
mineral products that is from May 17, 1974 to January 1, 1978; and (5) that Republic Act
No. 3823, as implemented by Mines Administrative Order No. V-25, and P.D. No. 463
which are the basis for the exemption granted to defendant are special laws whereas, the
municipal ordinance mentioned in the complaint which are based on P.D. No. 231 and
P.D No. 426, respectively, are general laws; and that it is axiomatic that a special law can
not be amended and/or repealed by a general law unless there is an express intent to
repeal or abrogate the provisions of the special law.

After the issues were joined, the parties submitted a written stipulation of facts under date
of May 21, 1976 the pertinent portion of which is quoted in full as follows:
PLAINTIFF and DEFENDANT, by and through counsel, most respectfully
submit the following stipulation of facts:

1. That plaintiff is a political subdivision of the Republic of the Philippines

created pursuant to EXECUTIVE ORDER NO. 425, entitled "CREATING THE
MUNICIPALITY OF LUGAIT IN THE PROVINCE OF MISAMIS
ORIENTAL", a xerox copy of said executive order is attached hereto marked
ANNEX "A" and made an integral part hereof;

2. That defendant is a corporation day organized and existing under and by virtue
of the laws of the Philippines; with plant and office at Lugait, Misamis Oriental,
and is engaged in the manufacture and selling, including exporting, of cement,
one of the essential ingredients of which is limestone;

3. That defendant, as a mining operator of mineral land lands situated at Lugait,

Misamis Oriental, was granted by the Secretary of Agriculture and Natural
Resources a Certificate of Qualification for Tax Exemption, CQTE No. 22, dated
July 7, 1960, entitling defendant to exemption for a period of five (5) years from
April 30, 1969 to April 29, 1974, from the payment of all taxes, except income
tax, a xerox copy of which is attached marked ANNEX "A" to defendant's answer
and made an integral part hereof;

4. That the Certificate of Qualification for Tax Exemption mentioned in the next
preceding paragraph was amended on November 5, 1974, when the Honorable
Secretary of Natural Resources, Mr. Jose J. Leido Jr., upon recommendation of
the Director of Mines, granted to defendant a Certificate of Qualification for Tax
Exemption, CQTE P.D. 463-22, which entitled defendant to exemption from all
taxes, duties, and fees, except income tax, for five (5) years from May 17, 1974 to
January 1, 1978, a xerox copy of which is attached marked ANNEX "B" to
defendant's answer and made an integral part hereof, and that a copy of the
Certificate of Qualification for Tax Exemption, CQTE P.D. 463-22 was furnished
the Municipal Treasurer of plaintiff on November 12, 1974, as shown by a xerox
copy of the letter of the Assistant Director of the Bureau of Mines, Mr. Francisco
A. Comsti, a copy of which is attached hereto marked ANNEX "B" and made an
integral part hereof;

5. That the Certificate of Qualification for Tax Exemption mentioned in the next
preceding paragraph was issued pursuant to the provisions of Sec. 52, P.D. No.
463, which reads as follows:

Sec. 52. Power to Levy Taxes on Mines, Mining Operations and Mineral
Products.Any law to the contrary notwithstanding, no province, City,
municipality, barrio or municipal district shall levy and collect taxes, fees,
rentals, royalties or charges of any kind whatsoever on mines, mining
claims, mineral products, or on any operation, process, or activity
therewith.
 6. That on or about July 3, 1974, plaintiff through its Municipal Mayor, wired the
Secretary of Finance, opposing the application of defendant for the extension of
its exemption from all forms of taxation, including its application for extension of
its exemption from realty taxes, which opposition was not favorably acted upon
by the said Secretary of Finance, as evidenced by a xerox copy of the letter of the
Honorable Secretary of Finance, Mr. Cesar Virata, attached hereto marked
ANNEX "C" and made an integral part hereof;

7. That plaintiff pursuant to P.D.No. 231 promulgated on June 28, 1973, passed
Municipal Ordinance No. 5, otherwise known as Municipal Revenue Code of
1974, effective January 1, 1974, Section 3 of which is quoted in paragraph 2 of
the complaint and made integral part hereof by reference;

8. That plaintiff pursuant to P.D.No. 426 promulgated on March 30,1974,

Municipal Revenue Ordinance No. 10, effective fifteen (15) days after its passage,
of which Section 4, Title I is quoted in paragraph 3 of the complaint and made
integral part hereof by reference;

9. That pursuant(to)Municipal Ordinances Nos. 5 and 10, mentioned in

paragraphs 7 and 8 hereof, respectively, plaintiff demanded of defendant the
payment of the manufacturer's and exporter's taxes including surcharge for the
period covering January 1, 1974 to September 30, 1975, broken down as shown in
paragraph 5 of the complaint and made integral part hereof by reference; but
defendant refused because of the allegations found in paragraphs 1, 2, 3, 4, 5 and
6 hereof.

WHEREFORE, it is most respectfully prayed that the foregoing stipulation of

facts be made the basis of the judgment of this Honorable Court, after the parties
hereto have submitted their respective memoranda.

Cagayan de Oro City, May 21,1976.

(CFI Decision, pp. 1-6; Rollo, pp. 54-59),

As aforementioned, the trial court rendered its decision on November 29, 1976, the dispositive
portion of which reads, as follows:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant

Floro Cement Corporation to pay unto plaintiff the amount of P161,875.00 as
manufacturer's and exporter's taxes and surcharges for the period from January 1, 1974 to
September 30, 1975, inclusive, and to pay the costs.

SO ORDERED.

Hence, this appeal.

The petition was given due course by the First Division of this Court on January 6, 1978 and
both parties were required to submit their simultaneous memoranda. Respondent complied on
February 17,1978 while petitioner filed its memorandum on March 9,1978.

The principal issue in this case is whether or not Ordinances Nos. 5 and 10 of Lugait, Misamis
Oriental apply to petitioner Floro Corporation notwithstanding the limitation on the taxing power
of local government as provided for in Sec. 52 of P.D. 231 and Sec. 52 of P.D. 463.

Petitioner Floro Cement Corporation holds that since Ordinances Nos. 5 and 10 were enacted
pursuant to P.D. No. 231 and P.D. No. 426, respectively, said ordinances do not apply to its
business in view of the limitation on the taxing power of local government provided in Sec. 5m
of P.D. No. 231, which reads:

Sec. 5. Common Limitations on the Taxing Powers of Local Governments. The exercise
of taxing power of provinces, cities, municipalities and barrios shall not extend to the
imposition of the following:

xxx xxx xxx

(m) Taxes on mines, mining operations and mineral products and their by-
products when sold domestically by the operator.

Floro Cement Corporation likewise contends that cement is a mineral product, relying on
the case of Cebu Portland Cement Company vs. Commissioner of Internal Revenue, G.R.
No. L20563, October 29, 1968 (25 SCRA 789), and in the case of Philippine Pipes and
Merchandising Corporation vs. Commissioner of Internal Revenue, CTA Case No. 1858,
dated July 29, 1970 decided by the Court of Tax Appeals (Memorandum for the
Petitioner, Rollo, pp. 89-90).

Petitioner further contends that the partial exemption aforementioned was rendered
absolute by Sec. 52 of P.D. No. 463 promulgated on May 17, 1974, which expressly
prohibits the province, city municipality, barrio and municipal district from levying and
collecting taxes, fees, rentals, royalties or charges of any kind whatsoever on mines,
mining claims and mineral products, any law to the contrary notwithstanding. Said
prohibition includes any operation, process or activity connected with its production. The
manufacture of cement is a process inherently connected with the mining operation
undertaken by petitioner Floro Cement Corporation (Ibid., pp. 92-93).

On other hand, while respondent municipality admits that petitioner Floro Cement
Corporation undertakes exploration, development and exploitation of mineral products,
the taxes sought to be collected were not imposed on these activities in view of the
mentioned prohibition under Sec. 52 of P.D. No. 463. Said taxes were levied on the
corporation's business of manufacturing and exporting cement. The business of
manufacturing and exporting cement does not fall under exploration, development nor
exploitation of mineral resources as defined in Sec. 2 of P.D. No. 463, hence, it is outside
 the scope of application of Sec. 52 of said decree (Memorandum for Respondent, p. 10;
Rollo, p. 85).

The municipality's power to levy taxes on manufacturers and exporters is provided in

Article 2, Sec. 19 of P.D. No. 231, as amended by P.D. No. 426 which provides that "The
municipality may impose a tax on business except those for which fixed taxes are
provided for in this Code:

(a) On manufacturers, importers, or producers of any article of commerce of

whatever kind or nature, including brewers, distillers, rectifiers, repackers, and
compounders of liquors, distilled spirits and/ or wines in accordance with the
following schedule:

xxx xxx xxx

(a-1) On retailers, independent wholesalers and distributors in accordance with

the following schedule:

xxx xxx xxx

(Comment of the Respondent, Rollo, p. 72)

The petition is without merit.

On the question of whether or not cement is a mineral product, this Court has consistently held
that it is not a mineral product but rather a manufactured product (Commissioner of Internal
Revenue vs. Cebu Portland Cement Company, 156 SCRA 535 [1987]; Commissioner of Internal
Revenue vs. Philippine Pipes and Merchandising Corporation, 153 SCRA 113 [1987];
Commissioner of Internal Revenue vs. Republic Cement Corporation, 149 SCRA 487 [1987]).
while cement is composed of 80'7c minerals, it is not merely an admixture or blending of raw
materials, as lime, silica, shale and others. It is the result of a definite process-the crushing of
minerals, grinding, mixing, calcining adding of retarder or raw gypsum In short, before cement
reaches its saleable form, the minerals had already undergone a chemical change through
manufacturing process (Commissioner of Internal Revenue vs. Cebu Portland Cement Company,
supra, reiterating the ruling in Commissioner of Internal Revenue vs. Republic Cement
Corporation, 124 SCRA 46 [1983]). It appears evident that the foregoing cases overruled the
case of Cebu Portland Cement Company vs. Commissioner of Internal Revenue, 25 SCRA 789
[1969] which was cited by petitioner.

On the exemption claimed by petitioner, this Court has laid down the rule that as the power of
taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any
reduction or diminution thereof with respect to its mode or its rate, must be strictly construed,
and the same must be coached in clear and unmistakable terms in order that it may be applied.
More specifically stated, the general rule is that any claim for exemption from the tax statute
should be strictly construed against the taxpayer (Luzon Stevedoring Corporation vs. Court of
Appeals, 163 SCRA 647 [1988]). He who claims an exemption must be able to point out some
provision of law creating the right; it cannot be allowed to exist upon a mere vague implication
or inference. It must be shown indubitably to exist, for every presumption is against it, and a
well-founded doubt is fatal to the claim (Manila Electric Company vs. Ver, 67 SCRA 351
[1975]). The petitioner failed to meet this requirement.

As held by the lower court, the exemption mentioned in Sec. 52 of P.D. No. 463 refers only to
machineries, equipment, tools for production, etc., as provided in Sec. 53 of the same decree.
The manufacture and the export of cement does not fall under the said provision for it is not a
mineral product (CFI Decision, Rollo, p. 62). It is not cement that is mined only the mineral
products composing the finished product (Commissioner of Internal Revenue vs. Republic
Cement Corporation, supra).1wphi1

Furthermore, by the parties' own stipulation of facts submitted before the court a quo, it is
admitted that Floro Cement Corporation is engaged in the manufacturing and selling, including
exporting of cement (CFI Decision, Rollo, p. 57). As such, and since the taxes sought to be
collected were levied on these activities pursuant to Sec. 19 of P.D. No. 231, Ordinances Nos. 5
and 10, which were enacted pursuant to P.D. No. 231 and P.D. No. 426, respectively, properly
apply to petitioner Floro Cement Corporation.

WHEREFORE, the petition is DENIED for lack of merit and the decision dated November 29,
1976 of the then Court of First Instance of Misamis Oriental is Affirmed.

SO ORDERED.
G.R. No. L-65230 December 23, 1992

PROVINCE OF TARLAC, petitioner,

vs.
HON. FERNANDO S. ALCANTARA, Presiding Judge, Branch LXIII, Regional Trial Court, and TARLAC ENTERPRISES, INC.,
respondents.

ROMERO, J:

The present petition for review on certiorari questions the August 12, 1983 decision of the Regional Trial Court of Tarlac, Branch LXIII
dismissing the complaint filed by the Province of Tarlac against Tarlac Enterprises, Inc. for collection of real property tax, and the order of
September 28, 1983 denying the motion for the reconsideration of said decision.

The complaint, which was filed by Tarlac Provincial Treasurer Jose M. Meru on January 14, 1983, alleged among others:

xxx xxx xxx

2. That defendant Tarlac Enterprises, Inc. is a corporation duly organized and existing under and
by virtue of laws of the Philippines, . . . ;

3 That defendant is the owner of the following properties, to wit

a) A parcel of land located at Mabini, Tarlac, Tarlac

Area . . . . . . . . . . . . 1,767 sq. meters

Market Value. . . . . P187,704.00
Assessed Value. . . . 93,850.00
 b) Ice Drop factory located at Mabini, Tarlac, Tarlac

Market Value. . . . . . P3,440.00

Assessed Value. . . . . 1,720.00

c) A machinery shed located at Mabini, Tarlac, Tarlac

Assessed at . . . . . . P12,530.00
Market Value. . . . . . 50,000.00

d) A machinery of Diesel Elect. Sets make MAN Cylinder Type C.U.

4160 Sno. 40556; 226P H.P. Generator; Fated KRUPP 4265; AC Generator
5528042; ER MORCEL 816826, and Worthington 2901.

Assessed at. . . . . . . P 4,019,550.00

Market Value. . . . . . . 5,024,443.00

declared for purposes of taxation in the Provincial Assessor's Office under Tax Declarations Nos. 8778, 8897,8898 and
8899, inclusive, ...;

4. That real estate taxes of the aforesaid properties from 1974 to December 31, 1982, in the total
amount of FIVE HUNDRED THIRTY TWO (sic) FOUR HUNDRED THIRTY FIVE PESOS AND
FIFTY FIVE CENTAVOS (P532,435.55) including principals and penalties has (sic) not been paid
by the defendant as per STATEMENT OF REALTY TAXES issued by the Municipal Treasurer of
Tarlac, Tarlac ...

5. That said taxes is (sic) now past due and demandable and despite several demands made
against the defendant, the last demand made in writing by Mr. Jose Meru (sic) was December 3,
1982, but the defendant refused and continues to refuse payment to the irreparable damage of
the plaintiff.

xxx xxx xxx.1

Hence, petitioner prayed that private respondent be ordered to pay the sum of P532,435.55 representing the accrued real estates taxes, as
well as damages and the costs of the suit.

On March 2, 1983, the private respondent filed a motion to dismiss the complaint which was opposed by the petitioner. In its order of March
30, 1983,2 the lower court denied the motion. A motion for the reconsideration of the said order was subsequently filed by the private
respondent but is was likewise denied by the lower court.3

Thereafter, the petitioner set the auction sale of the private respondent's properties to satisfy the real estate taxes due. This prompted the
private respondent to file a motion praying that petitioner be directed to desist from proceeding with the public auction sale.4 On April 15,
1983, the lower court issued an order granting said motion to prevent mootness of the case considering that the properties to be sold were
the subjects of the complaint.5

Consequently, the private respondent filed its answer6 admitting that demands for the payment of real property taxes had been made by the
petitioner but it refused to pay the same for the reason that under Sec. 40, paragraph (g) of Presidential Decree No. 464 in relation to P.D.
No. 551, as amended, it was exempt from paying said tax. It also raised as affirmative defenses that the complaint stated no cause of action
and that the claims had been waived, abandoned or otherwise extinguished or barred by the statute of limitations.

On August 12, 1983, the lower court rendered the decision dismissing the complaint. It ruled the P.D. No. 551 expressly exempts private
respondent from paying the real property taxes demanded, it being a grantee of a franchise to generate, distribute and sell electric current for
light. The court held that in lieu of said taxes, private respondent had been required to pay two percent (2%) franchise tax in line with the
intent of the law to give assistance to operators such as the private respondent to enable the consumers to enjoy cheaper rates. Citing the
case of Butuan Sawmill, Inc. v. City of Butuan,7 the court ruled that local governments are without power to tax the electric companies
already subject to franchise tax unless their franchise allows the imposition of additional tax.

Petitioner filed a motion for the reconsideration of said decision which was duly opposed by private respondent but the court, in its Order of
September 28, 1983, denied said motion.8

Hence, the present recourse. Petitioner contends that respondent judge erred in: (a) holding that private respondent is exempt form the
payment of realty tax under P.D. No. 551, as amended; (b) ruling, under the authority of Butuan Sawmill, Inc. v. Butuan City, that it is without
power to impose said realty tax on private respondent, and (c) dismissing the complaint and denying its motion for the reconsideration of its
decision.
The instant petition revolves around the issue of whether or not private respondent Tarlac Enterprises, Inc. is exempt from the payment of
real property tax under Sec. 40 (g) of P.D. No. 464 in relation to P.D. No. 551, as amended.

Sec. 40(g) of P.D. No. 464, the Real Property Tax Code, provides:

SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

xxx xxx xxx

(g) Real property exempt under other laws.

Private respondent contends that the "other laws" referred to in this Section is P.D. No. 551 (Lowering the Cost to Consumer of Electricity by
Reducing the Franchise Tax Payable by Electric Franchise Holders and the Tariff on Fuel Oils for the Generation of Electric Power by Public
Utilities). Its pertinent provisions state:

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

Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on
or before the twentieth day of the month following the end of each calendar quarter or month as may be provided in the
respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to
the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or
local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current.9
(Emphasis supplied)

P.D. NO. 551 was amended on December 19, 1975 by P.D. No. 852 10 with the insertion of the phrase "and for the manufacture, distribution
and sale of city gas" between the phrases "... light, heat and power" and "shall be two (2%) ..."

We do not agree with the lower court that the phrase "in lieu of all taxes and assessments of whatever nature" in the second paragraph of
Sec. 1 of P.D. No. 551 expressly exempts private respondent from paying real property taxes. As correctly observed by the petitioner, said
proviso is modified and delimited by the phrase "on earnings, receipts, income and privilege of generation, distribution and sale" which
specifies the kinds of taxes and assessments which shall not be collected in view of the imposition of the franchise tax. Said enumerated
items upon which taxes shall not be imposed, have no relation at all to, and are entirely different form, real properties subject to tax.

If the intention of the law is to exempt electric franchise grantees from paying real property tax and to make the two (2%) percent franchise
tax the only imposable tax, then said enumerated items would not have been added when P.D. No. 852 was enacted to amend P.D. No. 551.
The legislative authority would have simply stopped after the phrase "national or local authority" by putting therein a period. On the contrary,
it went on to enumerate what should not be subject to tax thereby delimiting the extent of the exemption.

We likewise do not find merit in private respondent's contention that the real properties being taxed, viz., the machinery for the generation
and distribution of electric power, the building housing said machinery, and the land on which said building is constructed, are necessary for
the operation of its business of generation, distribution and sale of electric current and, therefore, they should be exempted from taxation.
Private respondent apparently does not quite comprehend the distinction among the subject matters or objects of the taxes involved. It bears
emphasis that P.D. No. 551 as amended by P.D. No. 852 deals with franchise tax and tariff on fuel oils and the "earnings, receipts, income
and privilege of generation, distribution and sale of electric current" are the times exempted from taxation by the imposition of said tax or tariff
duty. On the other hand, the collection complaint filed by petitioner specified only taxes due on real properties. While P.D. No. 551 was
intended to give "assistance to the franchise holders by reducing some of their tax and tariff obligations," to construe said decree as having
granted such franchise holders exemption from payment of real property tax would unduly extend the ambit of exemptions beyond the
purview of the law.

The annexes attached to private respondent's comment on the petition to prove by contemporaneous interpretation its claimed tax exemption
are not of much help to it. Department Order No. 35-74 dated September 16, 1974 11 regulating the implementation of P.D. No. 551 merely
reiterates the "in lieu of all taxes " proviso. Local Tax Regulation No. 3-75 12 issued by then Secretary of Finance Cesar Virata and
addressed to all Provincial and City Treasurers enjoins strict compliance with the directive that "the franchise tax imposed under Local Tax
Ordinances pursuant to Section 19 of the Local Tax Code, as amended, shall be collected from business holding franchises but not from
establishments whose franchise contains the 'in lieu of all taxes' provision," thereby clearly indicating that said provision exempts taxpayers
like private respondent from paying the franchise tax collected by the provinces under the Local Tax Code. Lastly, the letter 13 of the then
Bureau of Internal Revenue Acting Commissioner addressed to the Matic Law Office granting exemption to the latter's client from paying the
"privilege (fixed) tax which is an excise tax on the privilege of engaging in business" clearly excludes realty tax from such exemption.

We also find misplaced the lower court's and the private respondent's reliance on Butuan Sawmill., Inc. v. City of Butuan. In that case, the
questioned tax is a tax on the gross sales or receipts of said sawmill while the tax involved herein is a real property tax. The City of Butuan is
categorically prohibited therein by Sec. 2(j) of Local Autonomy Act from imposing "taxes of any kind ... on person paying franchise tax." On
the other hand, P.D. No. 551 is not as all-encompassing as said provision of the Local Autonomy Act for it enumerates the items which are
not taxable by virtue of the payment of franchise tax.
It has always been the rule that "exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority" 14 primarily because "taxes are the lifeblood of government and their prompt and certain availability is an imperious need."
15 Thus, to be exempted from payment of taxes, it is the taxpayer's duty to justify the exemption "by words too plain to be mistaken and too
categorical to be misinterpreted." 16 Private respondent has utterly failed to discharge this duty.

We, therefore, find the lower court to have erred in exempting private respondent from paying real property tax on its properties which are
enumerated in the complaint. However, in its decision, the lower court found that private respondent owns only three real properties
consisting of the parcel of land, machinery shed and machinery, noticeably omitting the ice drop factory mentioned in its complaint by the
petitioner. In view, however, of the petitioner's failure to assign such omission as an error, the same should be considered waived.

WHEREFORE, the decision appealed form is hereby REVERSED and SET ASIDE. This case is REMANDED to the lower court for the
proper determination of the real property tax liability of the private respondent. This decision is immediately executory.

SO ORDERED.

G.R. No. 143867 March 25, 2003

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner,

vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City
Treasurer of Davao, respondents.

RESOLUTION

MENDOZA, J.:

Petitioner seeks a reconsideration of the decision of the Second Division in this case. Because the
decision bears directly on issues involved in other cases brought by petitioner before other
Divisions of the Court, the motion for reconsideration was referred to the Court en banc for
resolution.1 The parties were heard in oral arguments by the Court en banc on January 21, 2003
and were later granted time to submit their memoranda. Upon the filing of the last memorandum
by the City of Davao on February 10, 2003, the motion was deemed submitted for resolution.

To provide perspective, it will be helpful to restate the basic facts.

Petitioner PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The
franchise tax was paid "in lieu of all taxes on this franchise or earnings thereof" pursuant to R.A.
No. 7082 amending its charter, Act. No. 3436. The exemption from "all taxes on this franchise or
earnings thereof" was subsequently withdrawn by R.A. No. 7160 (Local Government Code of
1991), which at the same time gave local government units the power to tax businesses enjoying
a franchise on the basis of income received or earned by them within their territorial jurisdiction.
The Local Government Code (LGC) took effect on January 1, 1992.

The pertinent provisions of the LGC state:

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. . . .
 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.

Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of 1992,
which in pertinent part provides:

Notwithstanding any exemption granted by any law or other special law, there is hereby
imposed a tax on businesses enjoying a franchise, at a rate of Seventy-five percent (75%)
of one percent (1%) of the gross annual receipts for the preceding calendar year based on
the income or receipts realized within the territorial jurisdiction of Davao City.

Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp. (Globe)2 and
Smart Information Technologies, Inc. (Smart)3 franchises which contained "in lieu of all taxes"
provisos. In 1995, it enacted R.A. No. 7925 (Public Telecommunications Policy of the
Philippines), 23 of which provides that "Any advantage, favor, privilege, exemption, or
immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become
part of previously granted telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises." The law took effect on March 16, 1995.

In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro Exchange,
it was required to pay the local franchise tax for the first to the fourth quarter of 1999 which then
had amounted to P3,681,985.72. PLDT challenged the power of the city government to collect
the local franchise tax and demanded a refund of what it had paid as local franchise tax for the
year 1997 and for the first to the third quarters of 1998. For this reason, it filed a petition in the
Regional Trial Court of Davao. However, its petition was dismissed and its claim for exemption
under R.A. No. 7925 was denied. The trial court ruled that the LGC had withdrawn tax
exemptions previously enjoyed by persons and entities and authorized local government units to
impose a tax on businesses enjoying franchises within their territorial jurisdictions,
notwithstanding the grant of tax exemption to them. Petitioner, therefore, brought this appeal.

In its decision of August 22, 2001, this Court, through its Second Division, held that R.A. No.
7925, 23 cannot be so interpreted as granting petitioner exemption from local taxes because the
word "exemption," taking into consideration the context of the law, does not mean "tax
exemption." Hence this motion for reconsideration.

The question is whether, by virtue of R.A. No. 7925, 23, PLDT is again entitled to exemption
from the payment of local franchise tax in view of the grant of tax exemption to Globe and
Smart.

Petitioner contends that because their existing franchises contain "in lieu of all taxes" clauses, the
same grant of tax exemption must be deemed to have become ipso facto part of its previously
granted telecommunications franchise. But the rule is that tax exemptions should be granted only
by clear and unequivocal provision of law "expressed in a language too plain to be mistaken."4
If, as PLDT contends, the word "exemption" in R.A. No. 7925 means "tax exemption" and
assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this
runabout way of granting tax exemption to PLDT is not a direct, "clear and unequivocal" way of
communicating the legislative intent.

But the best refutation of PLDTs claim that R.A. No. 7925, 23 grants tax exemption is the fact
that after its enactment on March 16, 1995, Congress granted several franchises containing both
an "equality clause" similar to 23 and an "in lieu of all taxes" clause. If the equality clause
automatically extends the tax exemption of franchises with "in lieu of all taxes" clauses, there
would be no need in the same statute for the "in lieu of all taxes" clause in order to extend its tax
exemption to other franchises not containing such clause. For example, the franchise of Island
Country Telecommunications, Inc., granted under R.A. No. 7939 and which took effect on
March 22, 1995, contains the following provisions:

Sec. 8. Equality Clause. If any subsequent franchise for telecommunications service is

awarded or granted by the Congress of the Philippines with terms, privileges and
conditions more favorable and beneficial than those contained in this Act, then the same
privileges or advantages shall ipso facto accrue to the herein grantee and be deemed part
of this Act.

Sec. 10. Tax Provisions. The grantee shall be liable to pay the same taxes on their real
estate, buildings and personal property exclusive of this franchise, as other persons or
telecommunications entities are now or hereafter may be required by law to pay. In
addition hereto, the grantee, its successors or assigns, shall pay a franchise tax equivalent
to three percent (3%) of all gross receipts transacted under this franchise, and the said
percentage shall be in lieu of all taxes on this franchise or earnings thereof; Provided,
That the grantee shall continue to be liable for income taxes payable under Title II of the
National Internal Revenue Code. The grantee shall file the return with and pay the taxes
due thereon to the Commissioner of Internal Revenue or his duly authorized
representatives in accordance with the National Revenue Code and the return shall be
subject to audit by the Bureau of Internal Revenue. (Emphasis added)

Similar provisions ("in lieu of all taxes" and equality clauses) are also found in the franchises of
Cruz Telephone Company, Inc.,5 Isla Cellular Communications, Inc.,6 and Islatel Corporation.7

We shall now turn to the other points raised in the motion for reconsideration of PLDT.

First. Petitioner contends that the legislative intent to promote the development of the
telecommunications industry is evident in the use of words as "development," "growth," and
"financial viability," and that the way to achieve this purpose is to grant tax exemption or
exclusion to franchises belonging in this industry. Furthermore, by using the words "advantage,"
"favor," "privilege," "exemption," and "immunity" and the terms "ipso facto," "immediately,"
and "unconditionally," Congress intended to automatically extend whatever tax exemption or tax
exclusion has been granted to the holder of a franchise enacted after the LGC to the holder of a
franchise enacted prior thereto, such as PLDT.
The contention is untenable. The thrust of the law is to promote the gradual deregulation of
entry, pricing, and operations of all public telecommunications entities and thus to level the
playing field in the telecommunications industry. An intent to grant tax exemption cannot even
be discerned from the law. The records of Congress are bereft of any discussion or even mention
of tax exemption. To the contrary, what the Chairman of the Committee on Transportation, Rep.
Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which became R.A. No.
7925, were "equal access clauses" in interconnection agreements, not tax exemptions. He said:

There is also a need to promote a level playing field in the telecommunications industry.
New entities must be granted protection against dominant carriers through the
encouragement of equitable access charges and equal access clauses in interconnection
agreements and the strict policing of predatory pricing by dominant carriers. Equal
access should be granted to all operators connecting into the interexchange network.
There should be no discrimination against any carrier in terms of priorities and/or quality
of service.8

Nor does the term "exemption" in 23 of R.A. No. 7925 mean tax exemption. The term refers to
exemption from certain regulations and requirements imposed by the National
Telecommunications Commission (NTC). For instance, R.A. No. 7925, 17 provides: "The
Commission shall exempt any specific telecommunications service from its rate or tariff
regulations if the service has sufficient competition to ensure fair and reasonable rates or tariffs."
Another exemption granted by the law in line with its policy of deregulation is the exemption
from the requirement of securing permits from the NTC every time a telecommunications
company imports equipment.9

Second. PLDT says that the policy of the law is to promote healthy competition in the
telecommunications industry.10 According to PLDT, the LGC did not repeal the "in lieu of all
taxes" provision in its franchise but only excluded from it local taxes, such as the local franchise
tax. However, some franchises, like those of Globe and Smart, which contain "in lieu of all
taxes" provisions were subsequently granted by Congress, with the result that the holders of
franchises granted prior to January 1, 1992, when the LGC took effect, had to pay local franchise
tax in view of the withdrawal of their local tax exemption. It is argued that it is this disparate
situation which R.A. No. 7925, 23 seeks to rectify.

One can speak of healthy competition only between equals. For this reason, the law seeks to
break up monopoly in the telecommunications industry by gradually dismantling the barriers to
entry and granting to new telecommunications entities protection against dominant carriers
through equitable access charges and equal access clauses in interconnection agreements and
through the strict policing of predatory pricing by dominant carriers.11 Interconnection among
carriers is made mandatory to prevent a dominant carrier from delaying the establishment of
connection with a new entrant and to deter the former from imposing excessive access charges.12

That is also the reason there are franchises13 granted by Congress after the effectivity of R.A. No.
7925 which do not contain the "in lieu of all taxes" clause, just as there are franchises, also
granted after March 16, 1995, which contain such exemption from other taxes.14 If, by virtue of
23, the tax exemption granted under existing franchises or thereafter granted is deemed
applicable to previously granted franchises (i.e., franchises granted before the effectivity of R.A.
No. 7925 on March 16, 1995), then those franchises granted after March 16, 1995, which do not
contain the "in lieu of all taxes" clause, are not entitled to tax exemption. The "in lieu of all
taxes" provision in the franchises of Globe and Smart, which are relatively new entrants in the
telecommunications industry, cannot thus be deemed applicable to PLDT, which had virtual
monopoly in the telephone service in the country for a long time,15 without defeating the very
policy of leveling the playing field of which PLDT speaks.

Third. Petitioner argues that the rule of strict construction of tax exemptions does not apply to
this case because the "in lieu of all taxes" provision in its franchise is more a tax exclusion than a
tax exemption. Rather, the applicable rule should be that tax laws are to be construed most
strongly against the government and in favor of the taxpayer.

This is contrary to the uniform course of decisions16 of this Court which consider "in lieu of all
taxes" provisions as granting tax exemptions. As such, it is a privilege to which the rule that tax
exemptions must be interpreted strictly against the taxpayer and in favor of the taxing authority
applies. Along with the police power and eminent domain, taxation is one of the three necessary
attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those
containing exemption from taxation, should be strictly construed in favor of the state. A state
cannot be stripped of this most essential power by doubtful words and of this highest attribute of
sovereignty by ambiguous language.17

Indeed, both in their nature and in their effect there is no difference between tax exemption and
tax exclusion. Exemption is an immunity or privilege; it is freedom from a charge or burden to
which others are subjected.18 Exclusion, on the other hand, is the removal of otherwise taxable
items from the reach of taxation, e.g., exclusions from gross income and allowable deductions.19
Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to which
others are subjected. Consequently, the rule that tax exemption should be applied in strictissimi
juris against the taxpayer and liberally in favor of the government applies equally to tax
exclusions. To construe otherwise the "in lieu of all taxes" provision invoked is to be inconsistent
with the theory that R.A. No. 7925, 23 grants tax exemption because of a similar grant to
Globe and Smart.

Petitioner cites Cagayan Electric Power & Light Co., Inc. v. Commissioner of Internal Revenue20
in support of its argument that a "tax exemption" is restored by a subsequent law re-enacting the
"tax exemption." It contends that by virtue of R.A. No. 7925, its tax exemption or exclusion was
restored by the grant of tax exemptions to Globe and Smart. Cagayan Electric Power & Light
Co., Inc., however, is not in point. For there, the re-enactment of the exemption was made in an
amendment to the charter of Cagayan Electric Power and Light Co.

Indeed, petitioners justification for its claim of tax exemption rests on a strained interpretation
of R.A. No. 7925, 23. For petitioners claim for exemption is not based on an amendment to its
charter but on a circuitous reasoning involving inquiry into the grant of tax exemption to other
telecommunications companies and the lack of such grant to others,21 when Congress could more
clearly and directly have granted tax exemption to all franchise holders or amend the charter of
PLDT to again exempt it from tax if this had been its purpose.
The fact is that after petitioners tax exemption by R.A. No. 7082 had been withdrawn by the
LGC,22 no amendment to re-enact its previous tax exemption has been made by Congress.
Considering that the taxing power of local government units under R.A. No. 7160 is clear and is
ordained by the Constitution, petitioner has the heavy burden of justifying its claim by a clear
grant of exemption.23

Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of
language too plain to be mistaken.24 They cannot be extended by mere implication or inference.
Thus, it was held in Home Insurance & Trust Co. v. Tennessee25 that a law giving a corporation
all the "powers, rights reservations, restrictions, and liabilities" of another company does not give
an exemption from taxation which the latter may possess. In Rochester R. Co. v. Rochester,26 the
U.S. Supreme Court, after reviewing cases involving the effect of the transfer to one company of
the powers and privileges of another in conferring a tax exemption possessed by the latter, held
that a statute authorizing or directing the grant or transfer of the "privileges" of a corporation
which enjoys immunity from taxation or regulation should not be interpreted as including that
immunity. Thus:

We think it is now the rule, notwithstanding earlier decisions and dicta to the contrary,
that a statute authorizing or directing the grant or transfer of the "privileges" of a
corporation which enjoys immunity from taxation or regulation should not be interpreted
as including that immunity. We, therefore, conclude that the words "the estate, property,
rights, privileges, and franchises" did not embrace within their meaning the immunity
from the burden of paving enjoyed by the Brighton Railroad Company. Nor is there
anything in this, or any other statute, which tends to show that the legislature used the
words with any larger meaning than they would have standing alone. The meaning is not
enlarged, as faintly suggested, by the expression in the statute that they are to be held by
the successor "fully and entirely, and without change and diminution," words of
unnecessary emphasis, without which all included in "estate, property, rights, privileges,
and franchises" would pass, and with which nothing more could pass. On the contrary, it
appears, as clearly as it did in the Phoenix Fire Insurance Company Case, that the
legislature intended to use the words "rights, franchises, and privileges" in the restricted
sense. . . .27

Fourth. It is next contended that, in any event, a special law prevails over a general law and that
the franchise of petitioner giving it tax exemption, being a special law, should prevail over the
LGC, giving local governments taxing power, as the latter is a general law. Petitioner further
argues that as between two laws on the same subject matter which are irreconcilably
inconsistent, that which is passed later prevails as it is the latest expression of legislative will.

This proposition flies in the face of settled jurisprudence. In City Government of San Pablo,
Laguna v. Reyes,28 this Court held that the phrase "in lieu of all taxes" found in special franchises
should give way to the peremptory language of 193 of the LGC specifically providing for the
withdrawal of such exemption privileges. Thus, the rule that a special law must prevail over the
provisions of a later general law does not apply as the legislative purpose to withdraw tax
privileges enjoyed under existing laws or charters is apparent from the express provisions of
137 and 193 of the LGC.
As to the alleged inconsistency between the LGC and R.A. No. 7925, this Court has already
explained in the decision under reconsideration that no inconsistency exists and that the rule that
the later law is the latest expression of the legislature does not apply. The matter need not be
further discussed.

In any case, it is contended, the ruling of the Bureau of Local Government Finance (BLGF) that
petitioners exemption from local taxes has been restored is a contemporaneous construction of
23 and, as such, it is entitled to great weight.

The ruling of the BLGF has been considered in this case. But unlike the Court of Tax Appeals,
which is a special court created for the purpose of reviewing tax cases, the BLGF was created
merely to provide consultative services and technical assistance to local governments and the
general public on local taxation and other related matters.29 Thus, the rule that the "Court will not
set aside conclusions rendered by the CTA, which is, by the very nature of its function, dedicated
exclusively to the study and consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or improvident exercise of authority"30
cannot apply in the case of BLGF.

WHEREFORE, the motion for reconsideration is DENIED and this denial is final.

SO ORDERED.

Davide, Jr., C.J., Quisumbing, Corona, Carpio-Morales, Callejo, Sr., and Azcuna, JJ., concur.

Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, and Austria-Martinez, JJ., join the dissent of J.

Puno.
Puno, J., please see dissent.
Vitug, J., I concur; a statute effectively limiting the constitutionally-delegated tax powers of
LGUs can only be done in a clear and express manner.
Panganiban, J., no part. Same reason given in original decision.
Carpio, J., see separate opinion.

Dissenting Opinion

PUNO, J.:

The sole issue in the case at bar is whether petitioner Philippine Long Distance Telephone
Company, Inc. (PLDT) is liable to pay the franchise tax imposed by the City of Davao. The issue
can be resolved only by untangling the different laws dealing with local government and the
telecommunications industry. It is thus necessary to first lay down these laws.

On January 1, 1992, the Local Government Code took effect. The Code pertinently provides:
 "Sec. 137. Franchise Tax.- Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on business enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction. . .

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."

In accord with this Code, the City of Davao enacted Ordinance No. 519, Series of 1992. It
provides:

"Notwithstanding any exemption granted by any law or other special law, there is hereby
imposed a tax on business enjoying a franchise, at a rate of seventy-five percent (75%) of
one percent (1%) of the gross annual receipts for the preceding calendar year based on
the income or receipts realized within the territorial jurisdiction of Davao City."

On March 19, 1992, Congress enacted Republic Act No. 7229 entitled "An Act approving the
merger between Globe Mackay Cable and Radio Corporation and Clavecilla Radio System and
the consequent transfer of the franchise of Clavecilla Radio System granted under Republic Act
No. 402, as amended, to Globe Mackay Cable and Radio Corporation, extending the life of said
franchise and repealing certain sections of RA No. 402, as amended." Section 3 thereof provides:

"Sec. 3. Section 9 of the same Act is hereby amended to read as follows:

Sec. 9. . .

(b) The grantee shall further pay to the Treasurer of the Philippines each year after the
audit and approval of the accounts as prescribed in this Act, one and one-half per centum
of all gross receipts from business transacted under this franchise by the said grantee in
the Philippines, in lieu of any and all taxes of any kind, nature or description levied,
established or collected by any authority whatsoever, municipal, provincial or national
from which the grantee is hereby expressly exempted, effective from the date of the
approval of R.A. No.1618. . ."

Section 5 provides:

"Sec. 5. Section twenty of the same Act is hereby amended to read as follows:

Sec. 20. This franchise shall not be interpreted to mean an exclusive grant of the
privileges herein provided for, however, in the event of any competing individual,
partnership, or corporation, receiving from the Congress of the Philippines a similar
 permit or franchise more favorable than those herein granted or tending to place the
herein grantee at any disadvantage, then such term or terms, shall ipso facto become part
of the terms hereof, and shall operate equally in favor of the grantee as in the case of said
competing individual, partnership or corporation."

On March 27, 1992, Congress enacted Republic Act No. 7294 entitled "An Act granting Smart
Information Technologies, Inc. (SMART) a franchise to establish, maintain, lease and operate
integrated telecommunications/computer/electronic services, and stations throughout the
Philippines for public domestic and international communications, and for other purposes."
Section 9 of the Act provides:

"Section 9. Tax provisions.- The grantee, its successors or assigns shall be liable to pay
the same taxes on their real estate buildings and personal property, exclusive of this
franchise, as other persons or corporations which are now or hereafter may be required by
law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise
tax equivalent to three percent (3%) of all gross receipts of the business transacted under
this franchise by the grantee, its successors or assigns and the said percentage shall be in
lieu of all taxes on this franchise or earnings thereof. . ."

On March 16, 1995, Republic Act No. 7925 entitled "Public Telecommunications Policy" was
enacted. Section 23 of the Act states:

"Section 23. Equality of Treatment in the Telecommunications Industry.- Any advantage,

favor, privilege, exemption, or immunity granted under existing franchise, or may
hereafter be granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded immediately and unconditionally to
the grantees of such franchises: Provided, however, that the foregoing shall neither apply
to nor affect provisions of telecommunications franchises concerning territory covered by
the franchise, the life span of the franchise, or the type of service authorized by the
franchise."

It also appears that after 1995, Congress enacted laws granting franchises to other
telecommunications companies. Some of these franchises contain the "in lieu of all taxes" clause
as well as the "equality clause." The others, however, did not.1

On the basis of these laws, petitioner PLDT wrote to the City Treasurer of Davao protesting the
assessment of the local franchise tax amounting to P3,681,985.75 for the year 1999. It likewise
claimed exemption from the payment of said franchise tax on the basis of the opinion of the
Bureau of Local Government Finance (BLGF). The opinion holds that petitioner is exempt from
payment of franchise and business taxes imposable by local government units upon the
effectivity of Republic Act No. 7925 on March 16, 1995. The protest was denied by the City
Treasurer of Davao. Petitioner challenged the denial in Branch 13 of the RTC of Davao but was
unsuccessful. The trial court ruled that the Local Government Code had withdrawn the tax
exemption previously granted to petitioner PLDT.
Petitioner thus filed a petition for review on certiorari with this Court. On August 22, 2001, the
Second Division of this Court denied the petition. It held: (1) petitioners claim of tax exemption
is based on strained inferences; (b) the claim would result in absurd consequences; (c) the word
"exemption" in RA No, 7925, sec. 23 does not mean "tax exemption"; and (d) there can be no
reliance on the alleged expertise of the BLGF for the issue involves the interpretation of a law.

Petitioner contends in its Motion for Reconsideration, viz:

"A. THE ABSURD CONSEQUENCES REFERRED TO BY THE COURT AS

ALLEGEDLY RESULTING FROM PETITIONERS POSITION(,) HAVE NO BASIS
IN FACT AND IN LAW; IN ANY CASE, FOR THE COURT TO SAY THAT
PETITIONERS POSITION WOULD RESULT IN ABSURD CONSEQUENCES, IS
TO QUESTION, UNDER THE GUISE OF INTERPRETATION, THE WISDOM OF
THE POLICY BEHIND REPUBLIC ACT NO. 7925.

B. THE PROVISIONS OF SECTION 23 OF REPUBLIC ACT NO. 7925 ARE CLEAR

AND NEED NO INTERPRETATION; ASSUMING THERE IS A NECESSITY FOR
INTERPRETATION, THE RULING OF THE BUREAU OF LOCAL GOVERNMENT
FINANCE, WHICH IS A CONTEMPORANEOUS CONSTRUCTION OF SECTION
23 AND IS THEREFORE ENTITLED TO GREAT WEIGHT, SHOULD BE
CONSIDERED BY THE COURT.

C. SECTION 23 OF REPUBLIC ACT NO. 7925 CLEARLY GRANTS A TAX

EXEMPTION OR TAX EXCLUSION TO PETITIONER.

D. THE AUTHORITIES ON STRICT CONSTRUCTION CITED BY THE COURT

HAVE NO APPLICATION IN THIS CASE.

E. THE IN LIEU OF ALL TAXES PROVISION IN PETITIONERS FRANCHISE

WAS DEEMED RESTORED WITH REGARD TO LOCAL TAXES BY SECTION 23
OF REPUBLIC ACT NO. 7925 IN RELATION TO THE FRANCHISES OF GLOBE
TELECOM, INC. AND SMART COMMUNICATIONS, INC.

F. THE COURT FAILED TO CONSIDER THE OTHER ARGUMENTS OF

PETITIONER."

Petitioners Motion for Reconsideration was elevated to the Court en banc considering its
significance and as similar cases are pending decision in its other divisions.

The majority will now deny petitioners motion for reconsideration. It holds that section 23 of
Republic Act No. 7925 mandating equality of treatment in the telecommunications industry and
relied upon by the petitioner is not "clear and unequivocal." Again, I quote section 23, viz:

"Sec. 23. Equality of Treatment in the Telecommunications Industry - Any advantage,

favor, privilege, exemption, or immunity granted under existing franchise or may
hereafter be granted, shall ipso facto become part of previously granted
 telecommunications franchise and shall be accorded immediately and unconditionally to
the grantees of such franchises . . ."

I cannot understand what is unclear in section 23. Favor, privilege, exemption and immunity are
ordinary words without any mystic meaning. The provision states without any flourish that if any
favor, privilege, exemption or immunity is granted in the franchise of any telecommunications
company, it will be deemed granted to other telecommunications companies with prior
franchises. The grant is unequivocal for the provision directs that it is "ipso facto," and should be
"immediately and unconditionally." The language of the law cannot be more limpid, indeed, the
work of a worthy wordsmith.

Next, the majority holds that "x x x the best refutation of PLDTs claim that RA No. 7925,
section 23 grants tax exemption is the fact that after its enactment on March 16, 1995, Congress
granted several franchises containing both an equality clause similar to section 23 and an in
lieu of all taxes clause."2 It cites the laws granting franchises to the Island Country
Telecommunications, Inc., Cruz Telephone Company, Inc., ISLA Cellular Communications,
Inc., and Islatel Corporation.3

I agree that all these subsequent laws should be considered and not only the laws granting
exemptions to Smart and Globe. With due respect, however, I have great difficulty following the
flow of the logic of the majority. To my mind, the reiteration of the "equality clause" as well as
the "in lieu of all taxes clause" in the telecommunications franchises granted by Congress after
March 16, 1995 fortifies the claim for exemption of the petitioner. The reiteration of the clauses
shows that Congress never wavered in its touchstone policy of equalizing the status of our
companies in the telecommunications industry. To be sure, Congress need not reiterate the
"equality clause" and the "in lieu of all taxes clause" in these subsequent telecommunications
franchises for without it, Republic Act No. 7925, section 23 could still be availed of by them.
The reiteration is simply a stubborn stress on the importance of equality in the entire
telecommunications industry but the majority inexplicably reads it as denying the rule of equality
to the petitioner. By treating alikes as unalike, the majority is violating the equal protection
clause of the Constitution.

Further to its stance that the law is vague, the majority parleys the proposition that "an intent to
grant tax exemption cannot even be discerned from the law." It quotes the sponsorship speech of
Rep. Jerome B. Paras of H.B. No. 14028, viz:4

"There is also a need to promote a level playing field in the telecommunications industry.
New entities must be granted protection against dominant carriers through the
encouragement of equitable access charges and equal access clauses in interconnection
agreements and the strict policing of predatory pricing by dominant carriers. Equal access
should be granted to all operators connecting into the inter-exchange network. There
should he no discrimination against any carrier in terms of priorities and/or equality of
service."

Again, I do not see how this one-paragraph observation of Congressman Paras can serve as a
crutch to support the majority ruling. Congressman Paras merely clarified that the aim of the law
is to promote a level playing field in the telecommunications industry. And, doubtless, one way
of leveling the playing field is by granting equal access to all operators connecting into the inter-
exchange network. But this is not all that has to be done to level the playing field. There are
other acts and practices that distort the playing field in the telecommunications industry and they
were addressed by Congress. One destructive practice that can really dislevel the playing field is
the imposition of discriminatory tax. Precisely to eliminate these practices, Congress enacted
section 23 decreeing for equality of treatment of all companies in the telecommunications
industry. By one sweep, it did away with the grant of unequal favors to telecommunication
companies, which is anathema to fair competition in deregulated industries.

More untenable is the majority ruling that "exemption" in section 23 does not refer to tax
exemption but "exemptions from certain regulations and requirements imposed by the National
Telecommunications Commission" like for instance, exemption from securing permits for every
import equipment. The ruling is not based on any clear cut provision of law but is a mere
surmise. It is all too easy for the law to define exemption as the majority interprets it but the law
did not. I submit that the majority reading of the word "exemption" collides with the basic rule in
statutory construction that the meaning of a word should be understood in light of the cluster of
words to which it is associated. The word "exemption" is clustered with the words "advantage,
favor, privilege and immunity." Its most natural meaning is that it refers, to and at least includes,
tax exemption.

Petitioner has also called our attention to what would result from the majority decision under
reconsideration - "x x x the result is that while the holders of franchise granted prior to January 1,
1992 when the LGC took effect, had to pay local franchise tax in view of the withdrawal of their
local tax exemption, those whose franchises were granted after January 1, 1992, because of the
in lieu of all taxes provisions contained therein, were exempted from such local tax."5 The
disparate treatment, petitioner contends, will not promote healthy competition in the
telecommunications industry. The majority, however, dismisses petitioners fear by holding:

"One can speak of healthy competition only between equals. For this reason, the law
seeks to break up monopoly in the telecommunications industry by gradually dismantling
the barriers to entry and granting to new telecommunications entities protection against
dominant carriers through equitable access charges and equal access clauses in
interconnection agreements and through the strict policing of predatory pricing by
dominant carriers. Interconnection among carriers is made mandatory to prevent a
dominant carrier from delaying the establishment of connection with a new entrant and to
deter the former from imposing excessive access charges.

"That is also the reason there are franchises granted by Congress after the effectivity of
R.A. No. 7925 which do not contain the in lieu of all taxes clause, just as there are
franchises, also granted after March 16, 1995, which contain such exemption from other
taxes. If, by virtue of section 23, the tax exemption granted under existing franchises or
thereafter granted is deemed applicable to previously granted franchises (i.e., franchises
granted before the effectivity of R.A. No. 7925 on March 16, 1995), then those franchises
granted after March 16, 1995, which do not contain the in lieu of all taxes clause, are
not entitled to tax exemption. The in lieu of all taxes provision in the Franchises of
 Globe and Smart, which are relatively new entrants in the telecommunications industry,
cannot thus be deemed applicable to PLDT, which had virtual monopoly in the telephone
service in the country for a long time, without defeating the very policy of leveling the
playing field of which PLDT speaks."6

Again, I am unable to agree with the majority. With due respect, the majority fails to grasp the
processes of deregulation followed in the telecommunications industry. The key move to take
before deregulating is to break up the monopoly or oligopoly in control of the industry. For with
a monopoly or oligopoly enjoying a stranglehold on the industry, the market forces cannot have a
free play and prices in the industry will be dictated by the lucre of commerce. For this reason.
petitioner PLDTs monopoly had to be broken. Among others, the law made interconnection
among carriers mandatory and provided for equitable access charges and equal access clauses in
interconnection agreements. With this provision, the law busted the biggest barrier to the
effective entry of new players in the telecommunications industry. The next step in deregulation
is to level the playing field. The mechanism for leveling the playing field is installed in section
23 of the law which requires equality of treatment in the telecommunications industry. In no
uncertain terms, it orders that "any advantage, favor, privilege, exemption, or immunity granted
under existing franchise, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchises and shall be accorded immediately and unconditionally to
the grantees of such franchises xxx." A level playing field is indispensable to prevent predatory
pricing on the part of any player in the industry. Without a level playing field, competition will
be unfair and prices in the industry will not be determined by market forces but by unregulated
greed. Inexplicably, the majority would deny to petitioner PLDT the right to a level playing field.
Its reasons are tenuous to say the least. Its prime reason is that petitioner PLDT had enjoyed
virtual monopoly in the telephone service in the country for a long time.7 The monopoly status of
petitioner PLDT is past and should be viewed in its propel historical perspective. In the early
years of our economic history, monopolies in certain industries had to be allowed. They have to
be entertained in industries which are high-risk, capital intensive and indispensable to economic
growth. No company will risk venture capital in these industries unless they are accorded
favored treatment, usually a monopoly status, for a certain time. Even then, administrative
mechanisms were put in place to regulate their activities especially their pricing policies to
protect the interest of the consuming public. Indeed, a great part of the United States would still
be a wilderness if it did not allow monopolies in its railroad and telecommunications industries.
We adopted this proven strategy and allowed monopolies in some of our industries like electric
power, transportation and telecommunications. It is in line with this strategy that Congress
granted to petitioner PLDT a monopoly status for a certain time. No company would then invest
in our telecommunications industry but petitioner PLDT did, assumed the risk and undeniably
played a vital role in our economic development which cannot be dismissed as insignificant. For
this reason, our Constitution does not ban monopolies as evil per se for they are not.

It appears that a misappreciation of the past dominant role of petitioner PLDT in our
telecommunications industry has poisoned the position of the majority. The majority thinks that
if it orders equal tax treatment to petitioner vis--vis the other companies in the
telecommunications industry, there will be inequality because there is no parity between them in
terms of resources. Following this thought, the majority again surmises that the strategy of
Congress to achieve equality in the industry is to grant exemptions on a case to case basis. Thus,
it holds that "that is xxx the reason there are franchises granted by Congress after the effectivity
of R.A. No. 7925 which do not contain the in lieu of all taxes clause, just as there are
franchises, also granted after March 16, 1995, which contain such exemption from other taxes."8
Footnote no. 13 of the majority decision cites a list of telecommunications companies whose
franchises do not contain the "in lieu of all taxes" clause while footnote no. 14 cites the
companies whose franchises contain the said clause. A cursory glance at the companies in
footnote no. 13 will, however, show that they are not the giant-type which will explain why their
franchises do not contain the "in lieu of all taxes" clause. Similarly, there appears in footnote no.
14 big companies yet their franchises contain the aforesaid clause. Significantly, the majority
does not cite the legislative proceedings of the laws granting these franchises to support its ruling
that the grant or non-grant of the "in lieu of all taxes" clause in the franchises of the companies
involved is part of the strategy of Congress to equalize them and level the playing field in the
telecommunications industry. The ruling is an ex-cathedra pronouncement unsupported by any
footnote. Again, I submit the view that section 23 granted equal tax treatment to all
telecommunications companies and to stress again, this was done only after breaking up the
monopoly in the industry. Today, petitioner PLDT no longer controls the industry and there is no
reason to treat it unequally from other companies. The inclusion of the "in lieu of all taxes"
clause in some franchises simply reiterates section 23 of Republic Act No. 7925. The non-
inclusion of the clause in other franchises does not mean its non-grant for the exemption can be
claimed under section 23 of Republic Act 7925 which still stands for it has not been repealed by
any subsequent law. By insisting that petitioner cannot claim its tax exemption because of its
prior dominant status, the majority is substituting its own concept of equality from that of section
23, and it is restructuring the level playing field designed by the legislature. It is not our business
to construct the law hut to construe it for we are not another chamber of Congress.

I vote to grant the Motion for Reconsideration.

Separate Opinion

Carpio, J.:

I concur in the result of the ponencia of Justice Vicente V. Mendoza that petitioner Philippine
Long Distance Telephone Company, Inc. (PLDT) is subject to the local franchise tax imposed by
the City of Davao.

My concurrence is based on two grounds. First, the "in lieu of all taxes" clause was not re-
enacted in the franchise of Globe Mackay Cable and Radio Corporation (Globe) when Congress
adopted Republic Act No. 7229 approving the merger of Globe and Clavecilla Radio System
(Clavecilla). Second, the "in lieu of all taxes" clause in the franchise of Smart Communications,
Inc. (Smart) has become functus officio with the abolition of the franchise tax on
telecommunications companies. Moreover, this clause applies only to national internal revenue
taxes and not to local taxes.
PLDT claims that the "in lieu of all taxes" clause in the franchises of Globe and Smart applies to
PLDT by virtue of the equality clause1 in Republic Act No. 7925. However, if the "in lieu of all
taxes" clauses in the franchises of Globe and Smart are no longer in effect, then PLDTs claim to
tax exemption will necessarily fail even if the equality clause applies to tax exemptions. I find
that Globes existing franchise has no "in lieu of all taxes" clause. I also find that the abolition of
the franchise tax on telecommunications companies and its replacement by the value-added tax
(VAT) effective January 1, 1996 has rendered ineffective the "in lieu of all taxes" clause in the
franchise of Smart.

On June 19, 1965, Republic Act No. 4540 amended the franchise of Clavecilla and inserted the
following "in lieu of all taxes" clause in Section 9 (b) of its franchise:

"The grantee shall further pay to the Treasurer of the Philippines each year after the audit
and approval of the accounts as prescribed in this Act, one and one-half per centum of all
gross receipts from business transacted under this franchise by the said grantee in the
Philippines, in lieu of any and all taxes of any kind, nature or description levied,
established or collected by an authority whatsoever, municipal, provincial or national,
from which the grantee is hereby expressly exempted, effective from the date of the
approval of Republic Act Numbered Sixteen Hundred Eighteen."

On the other hand, the franchise of Globe contained no "in lieu of all taxes" clause.

The Local Government Code of 1991,2 which took effect on January 1, 1992, repealed Section
9(b) of Clavecillas franchise with respect to local taxes. Sections 137, 151, and 193 of the Local
Government Code of 1991 provide that

"Section 137. Franchise Tax. Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a franchise, at
the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming receipt, or realized, within
its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of
one percent (1%) of the capital investment. In the succeeding calendar year, regardless of
when the business started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereon, as provided herein."

"Section 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the
city may levy the taxes, fees, and charges which the province or municipality may
impose: Provided, however, That the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and distributed
in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes."
 "Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under RA No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code."

Thus, from January 1, 1992 up to the enactment on March 19, 1992 of RA No. 7229, Clavecilla
did not enjoy, with respect to local taxes, the tax exemption under its "in lieu of all taxes" clause.
The only question is whether RA No. 7229 re-enacted Section 9 (b) of Clavecillas old franchise
to restore its "in lieu of all taxes" clause, at least with respect to local taxes.

The answer is a categorical no for two reasons. First, there is no language in RA No. 7229,
express or even implied, re-enacting Section 9 (b) of Clavecillas old franchise with respect to
local taxes. RA No. 7229 merely approved the merger of Globe and Clavecilla, and transferred
the then existing franchise3 of Clavecilla to the surviving corporation, Globe. When Congress
approved RA No. 7229, Clavecillas then existing franchise did not contain the "in lieu of all
taxes" clause with respect to local taxes. Logically, the transfer of Clavecillas franchise to Globe
did not transfer the "in lieu of all taxes" clause since Clavecillas franchise no longer had such
clause with respect to local taxes.

Second, RA No. 7229 expressly provides that original provisions of the franchise of Clavecilla
under Republic Act No. 402, as amended, which have not been repealed, shall continue in full
force and effect. The clear intent of the law is that provisions in Clavecillas franchise which had
already been repealed as of the enactment of RA No. 7229 shall remain repealed and shall not be
re-enacted with the passage of RA No. 7229. Thus, Section 11 of RA No. 7229 states

"All other provisions of Republic Act No. 402, as amended by Republic Act Nos. 1618
and 4540, and other provisions of Batas Pambansa Blg. 95 which are not inconsistent
with the provisions of this Act and are still unrepealed shall continue to be in full force
and effect." (Emphasis supplied)

Clearly, Congress did not intend to re-enact any of the provisions in the franchise of Clavecilla
that had already been repealed by prior laws.

Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point
to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption
from a common burden. Any doubt whether a tax exemption exists is resolved against the
taxpayer. Tax exemptions cannot arise by mere implication, much less by an implied re-
enactment of a repealed tax exemption clause. In the instant case, there is even no implied re-
enactment of Section 9 (b) of Clavecillas old franchise since Section 11 of RA No. 7229
expressly states that only unrepealed provisions of Clavecillas franchise shall continue in force
and effect. Measured against these well-recognized principles of taxation, PLDTs claim to tax
exemption based on the franchise of Globe must necessarily fail.
PLDT also relies on Smarts franchise which PLDT claims contains the "in lieu of all taxes"
clause. PLDT points to Section 9 of Republic Act No. 7294, Smarts franchise, which states -

"Tax provisions. - The grantee, its successors or assigns shall be liable to pay the same
taxes on their real estate, buildings and personal property, exclusive of this franchise, as
other persons or corporations which are now or hereafter may be required by law to pay.
In addition thereto, the grantee, its successors or assigns shall pay a franchise tax
equivalent to three percent (3%) of all gross receipts of the business transacted under
this franchise by the grantee, its successors or assigns and the said percentage shall be in
lieu of all taxes on this franchise or earnings thereof: Provided, that the grantee, its
successors or assigns shall continue to be liable for income taxes payable under Title II of
the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72
unless the latter enactment is amended or repealed, in which case the amendment or
repeal shall be applicable thereto.

The grantee shall file the return with and pay the tax due thereon to the commissioner of
internal Revenue or his duly authorized representative in accordance with the National
Internal Revenue Code and the return shall be subject to audit by the Bureau of Internal
Revenue." (Emphasis supplied)

RA No. 7294 took effect on May 27, 1992, after the effectivity of the Local Government Code of
1991. Thus, the withdrawal of tax exemptions in the Local Government Code cannot apply to
Smart, Applying the equality clause in Section 23 of RA No. 7925. PLDT claims that the "in lieu
of all taxes" clause in Smarts franchise should also benefit PLDT.

PLDTs reliance on the "in lieu of all taxes" clause in Smarts franchise is misplaced for two
reasons. First, Republic Act No. 7716 abolished the franchise tax on telecommunications
companies effective January 1, 1996. To replace the 3 percent franchise tax in Section 227 (now
Section 119) of the National Internal Revenue Code, RA No. 7716 imposed a 10 percent VAT on
telecommunications companies under Section 102 (now Section 108) of the Tax Code. As
explained by PLDT, "presently, the telecommunications companies do not anymore pay a
franchise tax of varying percentages and instead pay a uniform VAT of 10%."4 The franchise tax
in Section 119 of the Tax Code still exists but is now applicable only to "electric, gas and water
utilities" and no longer to telecommunications companies.

The franchise tax is imposed only on franchise holders, while the VAT is imposed on all sellers
of goods and services, whether or not they hold franchises. The franchise tax is now imposed in
Section 119 of the Tax Code, while the VAT on telecommunications companies is imposed in
Section 108 of the Tax Code. The Tax Code defines the VAT as an indirect tax which can be
passed on to the buyer. The Tax Code precludes payment of a "VAT on the VAT" by excluding
the VAT in computing the gross receipts. This is not the case of the franchise tax. Certainly, the
franchise tax is a different tax from the VAT.

Smarts franchise states that the 3 percent "franchise tax" shall be "in lieu of all taxes." Clearly, it
is the franchise tax that shall be in lieu of all taxes referred to in Section 9, and not the VAT or
any other tax. Following the rule on strict interpretation of tax exemptions, the "in lieu of all
taxes" clause cannot apply when what is paid is a tax other than the franchise tax. Since the
franchise tax on telecommunications companies has been abolished, the "in lieu of all taxes"
clause has now become functus officio, rendered inoperative for lack of a franchise tax. Revenue
Memorandum Circular No. 5-96 issued by the Commissioner of Internal Revenue stating that the
VAT shall be "in lieu of all taxes" since it merely replaced the franchise tax is void for lack of a
legal basis.

Second, the "in lieu of all taxes" clause in Smarts franchise refers only to taxes, other than
income tax, imposed under the National Internal Revenue Code. The "in lieu of all taxes" clause
does not apply to local taxes. The proviso in the first paragraph of Section 9 of Smarts franchise
states that the grantee shall "continue to be liable for income taxes payable under Title II of the
National Internal Revenue Code." Also, the second paragraph of Section 9 speaks of tax returns
filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized
representative in accordance with the National Internal Revenue Code." Moreover, the same
paragraph declares that the tax returns "shall be subject to audit by the Bureau of Internal
Revenue." Nothing is mentioned in Section 9 about local taxes. The clear intent is for the "in lieu
of all taxes" clause to apply only to taxes under the National Internal Revenue Code and not to
local taxes. Even with respect to national internal revenue taxes, the "in lieu of all taxes" clause
does not apply to income tax.

If Congress intended the "in lieu of all taxes" clause in Smarts franchise to also apply to local
taxes, Congress would have expressly mentioned the exemption from municipal and provincial
taxes. Congress could have used the language in Section 9 (b) of Clavecillas old franchise, as
follows:

"x x x in lieu of any and all taxes of any kind, nature or description levied, established or
collected by any authority whatsoever, municipal, provincial or national, from which the
grantee is hereby expressly exempted, x x x." (Emphasis supplied)

However, Congress did not expressly exempt Smart from local taxes. Congress used the "in lieu
of all taxes" clause only in reference to national internal revenue taxes. The only interpretation,
under the rule on strict construction of tax exemptions, is that the "in lieu of all taxes" clause in
Smarts franchise refers only to national and not to local taxes.

PLDT cites Philippine Railway Co. v. Nolting5 to support its claim6 that the "in lieu of all taxes"
clause includes exemption from local taxes. However, in Philippine Railway the franchise of the
railway company expressly exempted it from municipal and provincial taxes, as follows:

"Such annual payments, when promptly and fully made by the grantee, shall be in lieu of
all taxes of every name and nature -municipal, provincial or central - upon its capital
stock, franchises, right of way, earnings, and all other property owned or operated by the
grantee, under this concession or franchise." (Emphasis supplied)

If anything, Philippine Railway shows the need to avoid ambiguity by specifying the taxing
authority - municipal, provincial or national - from whose jurisdiction the taxing power is
withheld to create the tax exemption. This is not the case in Smarts franchise, where the "in lieu
of all taxes" clause refers only to national internal revenue taxes.

The existing legislative policy is clearly against the revival of the "in lieu of all taxes" clause in
franchises of telecommunications companies. After the VAT on telecommunications companies
took effect on January 1, 1996, Congress never again included the "in lieu of all taxes" clause in
any telecommunications franchise it subsequently approved. Also, from September 2000 to July
2001, all the fourteen telecommunications franchises7 approved by Congress uniformly and
expressly state that the franchisee shall be subject to all taxes under the National Internal
Revenue Code, except the specific tax. The following is substantially the uniform tax provision
in these fourteen franchises:

"Tax Provisions. - The grantee, its successors or assigns, shall be subject to the payment
of all taxes, duties, fees, or charges and other impositions under the National Internal
Revenue Code of 1997, as amended, and other applicable laws: Provided, That nothing
herein shall be construed as repealing any specific tax exemptions, incentives or
privileges granted under any relevant law: Provided, further, That all rights, privileges,
benefits and exemptions accorded to existing and future telecommunications entities shall
likewise be extended to the grantee."8 (Emphasis supplied)

Thus, after the imposition of the VAT on telecommunications companies, Congress refused to
grant any tax exemption to telecommunications companies that sought new franchises from
Congress, except the exemption from specific tax. More importantly, the uniform tax provision
in these new franchises expressly states that the franchisee shall pay not only all taxes, except
specific tax, under the National Internal Revenue Code, but also all taxes under "other applicable
laws." One of the "other applicable laws" is the Local Government Code of 1991, which
empowers local governments to impose a franchise tax on telecommunications companies. This,
to reiterate, is the existing legislative policy.

Lastly, although it has no bearing on the instant case, I find that the equality clause in Section 23
of RA No. 7925 applies to tax exemptions. This Section provides as follows:

"Equality of Treatment in the Telecommunications Industry. -Any advantage, favor,

privilege, exemption, or immunity granted under existing franchises, or may hereafter be
granted, shall ipso facto become part of previously granted telecommunications
franchises and shall be accorded immediately and unconditionally to the grantees of such
franchises: Provided, however, That the foregoing shall neither apply to nor affect
provisions of telecommunications franchises concerning territory covered by the
franchise, the life span of the franchise, or the type of service authorized by the
franchise."

The legislative intent behind Section 23 is unquestionably to level the playing field among all
competing companies in the telecommunications industry. If one telecommunications company
enjoys a tax advantage over its competitors, while enjoying equal treatment with its competitors
in all other aspects like interconnection, fee sharing and the like, then there obviously will be no
level playing field. A tax exemption granted to one telecommunications company, but not to
others, will sooner than later kill all its competitors and result in a monopoly. This obviously is
not the meaning of "equality of treatment."

Besides, a tax exemption granted to one or more, but not to all, telecommunications companies
similarly situated will violate the constitutional rule on uniformity of taxation.9 It will deny equal
protection of the law to those similarly situated but to whom the tax exemption is denied. A tax
exemption granted to one or some telecommunications companies, but not to all, can only be
constitutionally justified if there is a reasonable basis for classifying some companies exempt
and others not exempt. RA No. 7925, which prescribes the state policy on public
telecommunications, does not allow any classification or discrimination in the grant of any
"advantage, favor, privilege, exemption, or immunity." This is precisely to observe, as far as
taxation is concerned, the rule of uniformity and thus significantly level the playing field. The
law mandates "equality of treatment" to promote a "healthy competitive environment."10 If this
manifest state policy is to have any meaning, Section 23 must include tax exemption.

Under Section 23, a tax exemption in a franchise granted after the effectivity of RA No. 7925 is
deemed automatically written in all prior franchises, whether the prior franchises were granted
before or after the effectivity of RA No. 7925. Section 23 states that a tax exemption in a new
franchise "shall ipso facto become part of previously granted telecommunications franchises."
There is no limitation whatsoever that only franchises issued prior to the effectivity of RA No.
7925 can benefit from Section 23. To interpret such limitation in Section 23 is to negate the
legislative intent in Section 23. Such a limitation will result in unfair advantage to new
franchisees, grossly distort market forces and prevent the level playing field that Section 23
seeks to create.

That Section 23 uses the word "exemption" and not the term "tax exemption" does not exclude
exemption from tax, which by far is the most important exemption in a telecommunications
franchise. If the word "exemption" is inadequate to embrace tax exemption, then it will be
inadequate to embrace any kind of exemption. To have any significance, the law will have to
spell out each kind of exemption before or after the word "exemption," like "exemption from
reportorial requirements," "exemption from monitoring requirements" and the like. This will
render the word "exemption" in Section 23 meaningless because at present this word stands
alone. Certainly, we must avoid an interpretation that will effectively erase the word "exemption"
from Section 23.

The reiteration in individual franchises of rights or privileges already guaranteed in RA No. 7925
does not nullify or deny such guarantees in RA No. 7925. The right to a fair and reasonable
interconnection is expressly mandated in RA No. 7925.11 The same right is expressly reiterated
in 2112 of the 23 franchises approved by Congress after the effectivity of RA No. 7925 up to July
31, 2001. The reiteration does not mean that the same right never existed in RA No. 7925, thus
requiring the right to be expressly stated in the individual franchises. No such inference can be
drawn. Where a general law is enacted to regulate an industry, it is common for individual
franchises subsequently granted to restate the rights and privileges already mentioned in the
general law. This is the situation in 17 franchises13 granted after the effectivity of RA No. 7925
up to July 31, 2001, all of which reiterate the equality clause found in Section 23 of RA No.
7925.
In view of the foregoing, I vote to deny the motion for reconsideration for lack of merit.

TITLE III
SHARES OF LOCAL GOVERNMENT UNITS IN THE PROCEEDS OF NATIONAL
TAXES

CHAPTER I
Allotment of Internal Revenue

Section 284. Allotment of Internal Revenue Taxes. - Local government units shall have a share in
the national internal revenue taxes based on the collection of the third fiscal year preceding the
current fiscal year as follows:

(a) On the first year of the effectivity of this Code, thirty percent (30%);

(b) On the second year, thirty-five percent (35%); and

(c) On the third year and thereafter, forty percent (40%).

Provided, That in the event that the national government incurs an unmanageable public sector
deficit, the President of the Philippines is hereby authorized, upon the recommendation of
Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and
Management, and subject to consultation with the presiding officers of both Houses of Congress
and the presidents of the "liga", to make the necessary adjustments in the internal revenue
allotment of local government units but in no case shall the allotment be less than thirty percent
(30%) of the collection of national internal revenue taxes of the third fiscal year preceding the
current fiscal year: Provided, further, That in the first year of the effectivity of this Code, the
local government units shall, in addition to the thirty percent (30%) internal revenue allotment
which shall include the cost of devolved functions for essential public services, be entitled to
receive the amount equivalent to the cost of devolved personal services.

Section 285. Allocation to Local Government Units. - The share of local government units in the
internal revenue allotment shall be collected in the following manner:

(a) Provinces - Twenty-three percent (23%);

(b) Cities - Twenty-three percent (23%);

(c) Municipalities - Thirty-four percent (34%); and

(d) Barangays - Twenty percent (20%)

Provided, however, That the share of each province, city, and municipality shall be determined
on the basis of the following formula:

(a) Population - Fifty percent (50%);

 (b) Land Area - Twenty-five percent (25%); and

(c) Equal sharing - Twenty-five percent (25%)

Provided, further, That the share of each barangay with a population of not less than one hundred
(100) inhabitants shall not be less than Eighty thousand (P80,000.00) per annum chargeable
against the twenty percent (20%) share of the barangay from the internal revenue allotment, and
the balance to be allocated on the basis of the following formula:

(a) On the first year of the effectivity of this Code:

(1) Population - Forty percent (40%); and

(2) Equal sharing - Sixty percent (60%)

(b) On the second year:

(1) Population - Fifty percent (50%); and

(2) Equal sharing - Fifty percent (50%)

(c) On the third year and thereafter:

(1) Population - Sixty percent (60%); and

(2) Equal sharing - Forty percent (40%).

Provided, finally, That the financial requirements of barangays created by local government units
after the effectivity of this Code shall be the responsibility of the local government unit
concerned.

Section 286. Automatic Release of Shares. -

(a) The share of each local government unit shall be released, without need of any further
action, directly to the provincial, city, municipal or barangay treasurer, as the case may
be, on a quarterly basis within five (5) days after the end of each quarter, and which shall
not be subject to any lien or holdback that may be imposed by the national government
for whatever purpose.

(b) Nothing in this Chapter shall be understood to diminish the share of local government
units under existing laws.

Section 287. Local Development Projects. - Each local government unit shall appropriate in its
annual budget no less than twenty percent (20%) of its annual internal revenue allotment for
development projects. Copies of the development plans of local government units shall be
furnished the Department of Interior and Local Government.
Section 288. Rules and Regulations. - The Secretary of Finance, in consultation with the
Secretary of Budget and Management, shall promulgate the necessary rules and regulations for a
simplified disbursement scheme designed for the speedy and effective enforcement of the
provisions of this Chapter.

CHAPTER II
Share of Local Government Units in the National Wealth

Section 289. Share in the Proceeds from the Development and Utilization of the National
Wealth. - Local government units shall have an equitable share in the proceeds derived from the
utilization and development of the national wealth within their respective areas, including
sharing the same with the inhabitants by way of direct benefits.

Section 290. Amount of Share of Local Government Units. - Local government units shall, in
addition to the internal revenue allotment, have a share of forty percent (40%) of the gross
collection derived by the national government from the preceding fiscal year from mining taxes,
royalties, forestry and fishery charges, and such other taxes, fees, or charges, including related
surcharges, interests, or fines, and from its share in any co-production, joint venture or
production sharing agreement in the utilization and development of the national wealth within
their territorial jurisdiction.

Section 291. Share of the Local Governments from any Government Agency or Owned or
Controlled Corporation. - Local government units shall have a share based on the preceding
fiscal year from the proceeds derived by any government agency or government-owned or
controlled corporation engaged in the utilization and development of the national wealth based
on the following formula whichever will produce a higher share for the local government unit:

(a) One percent (1%) of the gross sales or receipts of the preceding calendar year; or

(b) Forty percent (40%) of the mining taxes, royalties, forestry and fishery charges and
such other taxes, fees or charges, including related surcharges, interests, or fines the
government agency or government owned or controlled corporation would have paid if it
were not otherwise exempt.

Section 292. Allocation of Shares. - The share in the preceding Section shall be distributed in the
following manner:

(a) Where the natural resources are located in the province:

(1) Province - Twenty percent (20%);

(2) Component City/Municipality - Forty-five percent (45%); and

(3) Barangay - Thirty-five percent (35%)

 Provided, however, That where the natural resources are located in two (2) or more
provinces, or in two (2) or more component cities or municipalities or in two (2) or more
barangays, their respective shares shall be computed on the basis of:

(1) Population - Seventy percent (70%); and

(2) Land area - Thirty percent (30%)

(b) Where the natural resources are located in a highly urbanized or independent
component city:

(1) City - Sixty-five percent (65%); and

(2) Barangay - Thirty-five percent (35%)

Provided, however, That where the natural resources are located in such two (2) or more
cities, the allocation of shares shall be based on the formula on population and land area
as specified in paragraph (a) of this Section.

Section 293. Remittance of the Share of Local Government Units. - The share of local
government units from the utilization and development of national wealth shall be remitted in
accordance with Section 286 of this Code: Provided, however, That in the case of any
government agency or government-owned or controlled corporation engaged in the utilization
and development of the national wealth, such share shall be directly remitted to the provincial,
city, municipal or barangay treasurer concerned within five (5) days after the end of each quarter.

Section 294. Development and Livelihood Projects. - The proceeds from the share of local
government units pursuant to this chapter shall be appropriated by their respective sanggunian to
finance local government and livelihood projects: Provided, however, That at least eighty percent
(80%) of the proceeds derived from the development and utilization of hydrothermal.
geothermal, and other sources of energy shall be applied solely to lower the cost of electricity in
the local government unit where such a source of energy is located.
G.R. No. 104732 June 22, 1993

ROBERTO A. FLORES, DANIEL Y. FIGUEROA, ROGELIO T. PALO, DOMINGO A. JADLOC, CARLITO T. CRUZ and MANUEL P.
REYES, petitioner,
vs.
HON. FRANKLIN M. DRILON, Executive Secretary, and RICHARD J. GORDON, respondents.

Isagani M. Jungco, Valeriano S. Peralta, Miguel Famularcano, Jr. and Virgilio E. Acierto for petitioners.

BELLOSILLO, J.:

The constitutionality of Sec. 13, par. (d), of R.A. 7227,1 otherwise known as the "Bases Conversion and Development Act of 1992," under
which respondent Mayor Richard J. Gordon of Olongapo City was appointed Chairman and Chief Executive Officer of the Subic Bay
Metropolitan Authority (SBMA), is challenged in this original petition with prayer for prohibition, preliminary injunction and temporary
restraining order "to prevent useless and unnecessary expenditures of public funds by way of salaries and other operational expenses
attached to the office . . . ."2 Paragraph (d) reads
 (d) Chairman administrator The President shall appoint a professional manager as administrator of the Subic
Authority with a compensation to be determined by the Board subject to the approval of the Secretary of Budget, who
shall be the ex oficio chairman of the Board and who shall serve as the chief executive officer of the Subic Authority:
Provided, however, That for the first year of its operations from the effectivity of this Act, the mayor of the City of
Olongapo shall be appointed as the chairman and chief executive officer of the Subic Authority (emphasis supplied).

Petitioners, who claim to be taxpayers, employees of the U.S. Facility at the Subic, Zambales, and officers and members of the Filipino
Civilian Employees Association in U.S. Facilities in the Philippines, maintain that the proviso in par. (d) of Sec. 13 herein-above quoted in
italics infringes on the following constitutional and statutory provisions: (a) Sec. 7, first par., Art. IX-B, of the Constitution, which states that
"[n]o elective official shall be eligible for appointment or designation in any capacity to any public officer or position during his tenure,"3
because the City Mayor of Olongapo City is an elective official and the subject posts are public offices; (b) Sec. 16, Art. VII, of the
Constitution, which provides that "[t]he President shall . . . . appoint all other officers of the Government whose appointments are not
otherwise provided for by law, and those whom he may be authorized by law to appoint",4 since it was Congress through the questioned
proviso and not the President who appointed the Mayor to the subject posts;5 and, (c) Sec. 261, par. (g), of the Omnibus Election Code,
which says:

Sec. 261. Prohibited Acts. The following shall be guilty of an election offense: . . . (g) Appointment of new
employees, creation of new position, promotion, or giving salary increases. During the period of forty-five days
before a regular election and thirty days before a special election, (1) any head, official or appointing officer of a
government office, agency or instrumentality, whether national or local, including government-owned or controlled
corporations, who appoints or hires any new employee, whether provisional, temporary or casual, or creates and fills
any new position, except upon prior authority of the Commission. The Commission shall not grant the authority sought
unless it is satisfied that the position to be filled is essential to the proper functioning of the office or agency concerned,
and that the position shall not be filled in a manner that may influence the election. As an exception to the foregoing
provisions, a new employee may be appointed in case of urgent need: Provided, however, That notice of the
appointment shall be given to the Commission within three days from the date of the appointment. Any appointment or
hiring in violation of this provision shall be null and void. (2) Any government official who promotes, or gives any
increase of salary or remuneration or privilege to any government official or employee, including those in government-
owned or controlled corporations . . . .

for the reason that the appointment of respondent Gordon to the subject posts made by respondent Executive Secretary on 3 April 1992 was
within the prohibited 45-day period prior to the 11 May 1992 Elections.

The principal question is whether the proviso in Sec. 13, par. (d), of R.A. 7227 which states, "Provided, however, That for the first year of its
operations from the effectivity of this Act, the mayor of the City of Olongapo shall be appointed as the chairman and chief executive officer of
the Subic Authority," violates the constitutional proscription against appointment or designation of elective officials to other government posts.

In full, Sec. 7 of Art. IX-B of the Constitution provides:

No elective official shall be eligible for appointment or designation in any capacity to any public office or position during
his tenure.

Unless otherwise allowed by law or by the primary functions of his position, no appointive official shall hold any other
office or employment in the Government or any subdivision, agency or instrumentality thereof, including government-
owned or controlled corporations or their subsidiaries.

The section expresses the policy against the concentration of several public positions in one person, so that a public officer or employee may
serve full-time with dedication and thus be efficient in the delivery of public services. It is an affirmation that a public office is a full-time job.
Hence, a public officer or employee, like the head of an executive department described in Civil Liberties Union v. Executive Secretary, G.R.
No. 83896, and Anti-Graft League of the Philippines, Inc. v. Philip Ella C. Juico, as Secretary of Agrarian Reform, G.R. No. 83815,6 ". . . .
should be allowed to attend to his duties and responsibilities without the distraction of other governmental duties or employment. He should
be precluded from dissipating his efforts, attention and energy among too many positions of responsibility, which may result in
haphazardness and inefficiency . . . ."

Particularly as regards the first paragraph of Sec. 7, "(t)he basic idea really is to prevent a situation where a local elective official will work for
his appointment in an executive position in government, and thus neglect his constituents . . . ."7

In the case before us, the subject proviso directs the President to appoint an elective official, i.e., the Mayor of Olongapo City, to other
government posts (as Chairman of the Board and Chief Executive Officer of SBMA). Since this is precisely what the constitutional
proscription seeks to prevent, it needs no stretching of the imagination to conclude that the proviso contravenes Sec. 7, first par., Art. IX-B, of
the Constitution. Here, the fact that the expertise of an elective official may be most beneficial to the higher interest of the body politic is of no
moment.

It is argued that Sec. 94 of the Local Government Code (LGC) permits the appointment of a local elective official to another post if so allowed
by law or by the primary functions of his office.8 But, the contention is fallacious. Section 94 of the LGC is not determinative of the
constitutionality of Sec. 13, par. (d), of R.A. 7227, for no legislative act can prevail over the fundamental law of the land. Moreover, since the
constitutionality of Sec. 94 of LGC is not the issue here nor is that section sought to be declared unconstitutional, we need not rule on its
validity. Neither can we invoke a practice otherwise unconstitutional as authority for its validity.
In any case, the view that an elective official may be appointed to another post if allowed by law or by the primary functions of his office,
ignores the clear-cut difference in the wording of the two (2) paragraphs of Sec. 7, Art.
IX-B, of the Constitution. While the second paragraph authorizes holding of multiple offices by an appointive official when allowed by law or
by the primary functions of his position, the first paragraph appears to be more stringent by not providing any exception to the rule against
appointment or designation of an elective official to the government post, except as are particularly recognized in the Constitution itself, e.g.,
the President as head of the economic and planning agency;9 the Vice-President, who may be appointed Member of the Cabinet; 10 and, a
member of Congress who may be designated ex officio member of the Judicial and Bar Council. 11

The distinction between the first and second paragraphs of Sec. 7, Art. IX-B, was not accidental when drawn, and not without reason. It was
purposely sought by the drafters of the Constitution as shown in their deliberation, thus

MR. MONSOD. In other words, what then Commissioner is saying, Mr. Presiding Officer, is that the prohibition is more
strict with respect to elective officials, because in the case of appointive officials, there may be a law that will allow
them to hold other positions.

MR. FOZ. Yes, I suggest we make that difference, because in the case of appointive officials, there will be certain
situations where the law should allow them to hold some other positions. 12

The distinction being clear, the exemption allowed to appointive officials in the second paragraph cannot be extended to elective officials who
are governed by the first paragraph.

It is further argued that the SBMA posts are merely ex officio to the position of Mayor of Olongapo City, hence, an excepted circumstance,
citing Civil Liberties Union v. Executive Secretary, 13 where we stated that the prohibition against the holding of any other office or
employment by the President, Vice-President, Members of the Cabinet, and their deputies or assistants during their tenure, as provided in
Sec. 13, Art. VII, of the Constitution, does not comprehend additional duties and functions required by the primary functions of the officials
concerned, who are to perform them in an ex officio capacity as provided by law, without receiving any additional compensation therefor.

This argument is apparently based on a wrong premise. Congress did not contemplate making the subject SBMA posts as ex officio or
automatically attached to the Office of the Mayor of Olongapo City without need of appointment. The phrase "shall be appointed"
unquestionably shows the intent to make the SBMA posts appointive and not merely adjunct to the post of Mayor of Olongapo City. Had it
been the legislative intent to make the subject positions ex officio, Congress would have, at least, avoided the word "appointed" and, instead,
"ex officio" would have been used. 14

Even in the Senate deliberations, the Senators were fully aware that subject proviso may contravene Sec. 7, first par., Art. IX-B, but they
nevertheless passed the bill and decided to have the controversy resolved by the courts. Indeed, the Senators would not have been
concerned with the effects of Sec. 7, first par., had they considered the SBMA posts as ex officio.

Cognizant of the complication that may arise from the way the subject proviso was stated, Senator Rene Saguisag remarked that "if the
Conference Committee just said "the Mayor shall be the Chairman" then that should foreclose the issue. It is a legislative choice." 15 The
Senator took a view that the constitutional proscription against appointment of elective officials may have been sidestepped if Congress
attached the SBMA posts to the Mayor of Olongapo City instead of directing the President to appoint him to the post. Without passing upon
this view of Senator Saguisag, it suffices to state that Congress intended the posts to be appointive, thus nibbling in the bud the argument
that they are ex officio.

The analogy with the position of Chairman of the Metro Manila Authority made by respondents cannot be applied to uphold the
constitutionality of the challenged proviso since it is not put in issue in the present case. In the same vein, the argument that if no elective
official may be appointed or designated to another post then Sec. 8, Art. IX-B, of the Constitution allowing him to receive double
compensation 16 would be useless, is non sequitur since Sec. 8 does not affect the constitutionality of the subject proviso. In any case, the
Vice-President for example, an elective official who may be appointed to a cabinet post under Sec. 3, Art. VII, may receive the compensation
attached to the cabinet position if specifically authorized by law.

Petitioners also assail the legislative encroachment on the appointing authority of the President. Section 13, par. (d), itself vests in the
President the power to appoint the Chairman of the Board and the Chief Executive Officer of SBMA, although he really has no choice under
the law but to appoint the Mayor of Olongapo City.

As may be defined, an "appointment" is "[t]he designation of a person, by the person or persons having authority therefor, to discharge the
duties of some office or trust," 17 or "[t]he selection or designation of a person, by the person or persons having authority therefor, to fill an
office or public function and discharge the duties of the same. 18 In his treatise, Philippine Political
Law, 19 Senior Associate Justice Isagani A. Cruz defines appointment as "the selection, by the authority vested with the power, of an
individual who is to exercise the functions of a given office."

Considering that appointment calls for a selection, the appointing power necessarily exercises a discretion. According to Woodbury, J., 20
"the choice of a person to fill an office constitutes the essence of his appointment," 21 and Mr. Justice Malcolm adds that an "[a]ppointment
to office is intrinsically an executive act involving the exercise of discretion." 22 In Pamantasan ng Lungsod ng Maynila v. Intermediate
Appellate Court 23 we held:
 The power to appoint is, in essence, discretionary. The appointing power has the right of choice which he may exercise
freely according to his judgment, deciding for himself who is best qualified among those who have the necessary
qualifications and eligibilities. It is a prerogative of the appointing power . . . .

Indeed, the power of choice is the heart of the power to appoint. Appointment involves an exercise of discretion of whom to appoint; it is not a
ministerial act of issuing appointment papers to the appointee. In other words, the choice of the appointee is a fundamental component of the
appointing power.

Hence, when Congress clothes the President with the power to appoint an officer, it (Congress) cannot at the same time limit the choice of
the President to only one candidate. Once the power of appointment is conferred on the President, such conferment necessarily carries the
discretion of whom to appoint. Even on the pretext of prescribing the qualifications of the officer, Congress may not abuse such power as to
divest the appointing authority, directly or indirectly, of his discretion to pick his own choice. Consequently, when the qualifications prescribed
by Congress can only be met by one individual, such enactment effectively eliminates the discretion of the appointing power to choose and
constitutes an irregular restriction on the power of appointment. 24

In the case at bar, while Congress willed that the subject posts be filled with a presidential appointee for the first year of its operations from
the effectivity of R.A. 7227, the proviso nevertheless limits the appointing authority to only one eligible, i.e., the incumbent Mayor of Olongapo
City. Since only one can qualify for the posts in question, the President is precluded from exercising his discretion to choose whom to
appoint. Such supposed power of appointment, sans the essential element of choice, is no power at all and goes against the very nature
itself of appointment.

While it may be viewed that the proviso merely sets the qualifications of the officer during the first year of operations of SBMA, i.e., he must
be the Mayor of Olongapo City, it is manifestly an abuse of congressional authority to prescribe qualifications where only one, and no other,
can qualify. Accordingly, while the conferment of the appointing power on the President is a perfectly valid legislative act, the proviso limiting
his choice to one is certainly an encroachment on his prerogative.

Since the ineligibility of an elective official for appointment remains all throughout his tenure or during his incumbency, he may however
resign first from his elective post to cast off the constitutionally-attached disqualification before he may be considered fit for appointment. The
deliberation in the Constitutional Commission is enlightening:

MR. DAVIDE. On Section 4, page 3, line 8, I propose the substitution of the word "term" with TENURE.

MR. FOZ. The effect of the proposed amendment is to make possible for one to resign from his position.

MR. DAVIDE. Yes, we should allow that prerogative.

MR. FOZ. Resign from his position to accept an executive position.

MR. DAVIDE. Besides, it may turn out in a given case that because of, say, incapacity, he may leave the service, but if
he is prohibited from being appointed within the term for which he was elected, we may be depriving the government of
the needed expertise of an individual. 25

Consequently, as long as he is an incumbent, an elective official remains ineligible for appointment to another public office.

Where, as in the case of respondent Gordon, an incumbent elective official was, notwithstanding his ineligibility, appointed to other
government posts, he does not automatically forfeit his elective office nor remove his ineligibility imposed by the Constitution. On the
contrary, since an incumbent elective official is not eligible to the appointive position, his appointment or designation thereto cannot be valid
in view of his disqualification or lack of eligibility. This provision should not be confused with Sec. 13, Art. VI, of the Constitution where "(n)o
Senator or Member of the House of Representatives may hold any other office or employment in the Government . . . during his term without
forfeiting his seat . . . ." The difference between the two provisions is significant in the sense that incumbent national legislators lose their
elective posts only after they have been appointed to another government office, while other incumbent elective officials must first resign their
posts before they can be appointed, thus running the risk of losing the elective post as well as not being appointed to the other post. It is
therefore clear that ineligibility is not directly related with forfeiture of office. ". . . . The effect is quite different where it is expressly provided by
law that a person holding one office shall be ineligible to another. Such a provision is held to incapacitate the incumbent of an office from
accepting or holding a second office (State ex rel. Van Antwerp v Hogan, 283 Ala. 445, 218 So 2d 258; McWilliams v Neal, 130 Ga 733, 61
SE 721) and to render his election or appointment to the latter office void (State ex rel. Childs v Sutton, 63 Minn 147, 65 NW 262. Annotation:
40 ALR 945) or voidable (Baskin v State, 107 Okla 272, 232 p 388, 40 ALR 941)." 26 "Where the constitution, or statutes declare that
persons holding one office shall be ineligible for election or appointment to another office, either generally or of a certain kind, the prohibition
has been held to incapacitate the incumbent of the first office to hold the second so that any attempt to hold the second is void (Ala. State
ex rel. Van Antwerp v. Hogan, 218 So 2d 258, 283 Ala 445)." 27

As incumbent elective official, respondent Gordon is ineligible for appointment to the position of Chairman of the Board and Chief Executive
of SBMA; hence, his appointment thereto pursuant to a legislative act that contravenes the Constitution cannot be sustained. He however
remains Mayor of Olongapo City, and his acts as SBMA official are not necessarily null and void; he may be considered a de facto officer,
"one whose acts, though not those of a lawful officer, the law, upon principles of policy and justice, will hold valid so far as they involve the
interest of the public and third persons, where the duties of the office were exercised . . . . under color of a known election or appointment,
void because the officer was not eligible, or because there was a want of power in the electing or appointing body, or by reason of some
defect or irregularity in its exercise, such ineligibility, want of power or defect being unknown to the public . . . . [or] under color of an election,
or appointment, by or pursuant to a public unconstitutional law, before the same is adjudged to be such (State vs. Carroll, 38 Conn., 499;
Wilcox vs. Smith, 5 Wendell [N.Y.], 231; 21 Am. Dec., 213; Sheehan's Case, 122 Mass, 445, 23 Am. Rep., 323)." 28

Conformably with our ruling in Civil Liberties Union, any and all per diems, allowances and other emoluments which may have been received
by respondent Gordon pursuant to his appointment may be retained by him.

The illegality of his appointment to the SBMA posts being now evident, other matters affecting the legality of the questioned proviso as well
as the appointment of said respondent made pursuant thereto need no longer be discussed.

In thus concluding as we do, we can only share the lament of Sen. Sotero Laurel which he expressed in the floor deliberations of S.B. 1648,
precursor of R.A. 7227, when he articulated

. . . . (much) as we would like to have the present Mayor of Olongapo City as the Chief Executive of this Authority that
we are creating; (much) as I, myself, would like to because I know the capacity, integrity, industry and dedication of
Mayor Gordon; (much) as we would like to give him this terrific, burdensome and heavy responsibility, we cannot do it
because of the constitutional prohibition which is very clear. It says: "No elective official shall be appointed or
designated to another position in any capacity." 29

For, indeed, "a Constitution must be firm and immovable, like a mountain amidst the strife of storms or a rock in the ocean amidst the raging
of the waves." 30 One of the characteristics of the Constitution is permanence, i.e., "its capacity to resist capricious or whimsical change
dictated not by legitimate needs but only by passing fancies, temporary passions or occasional infatuations of the people with ideas or
personalities . . . . Such a Constitution is not likely to be easily tampered with to suit political expediency, personal ambitions or ill-advised
agitation for change." 31

Ergo, under the Constitution, Mayor Gordon has a choice. We have no choice.

WHEREFORE, the proviso in par. (d), Sec. 13, of R.A. 7227, which states: ". . . Provided, however, That for the first year of its operations
from the effectivity of this Act, the Mayor of the City of Olongapo shall be appointed as the chairman and chief executive officer of the Subic
Authority," is declared unconstitutional; consequently, the appointment pursuant thereto of the Mayor of Olongapo City, respondent Richard
J. Gordon, is INVALID, hence NULL and VOID.

However, all per diems, allowances and other emoluments received by respondent Gordon, if any, as such Chairman and Chief Executive
Officer may be retained by him, and all acts otherwise legitimate done by him in the exercise of his authority as officer de facto of SBMA are
hereby UPHELD.

SO ORDERED.